RBC Capital Markets says base-metal equities remain attractively valued despite copper reaching record levels, with shares pricing in a much lower metal price than the current market price.
Copper averaged $6.41 a pound in the third quarter, up 6% from the previous quarter and 44% year-on-year, after reaching a record closing price of $6.74 on 8 September.
RBC said North American copper producers are pricing in an average copper price of about $5.03 a pound, representing a 23% discount to spot compared with an 11% historical average discount.
The bank expects a generally strong third quarter across its North American coverage, although storms, higher diesel and sulphuric acid costs and brownfield project commissioning could create operational volatility.
RBC said copper equities have lagged the commodity this quarter, with its North American producer coverage rising 6.3% against an 8.3% gain for copper.
Among London-listed stocks, Atalaya Mining Copper ( LSE:ATYM , TSX:AYM) carries an 'outperform' rating with a £13 price target against a £10.32 reference price, while Ecora Royalties PLC ( LSE:ECOR , TSX:ECOR , OTCQX:ECRAF , FRA:HGR ), the mining royalty company, also has an 'outperform' rating and a £2.25 target against £1.64.
Central Asia Metals PLC ( AIM:CAML , OTC:CAMLF) has a 'sector perform' rating with a £1.85 target against £1.51, while Antofagasta PLC (LSE:ANTO) , the FTSE 100 copper producer, is rated 'underperform' with a £33 target against £38.29.
RBC's preferred names across its coverage are HudBay Minerals Inc. (TSX:HBM) , Capstone Mining Corp (TSX:CS) and First Quantum Minerals (TSX:FM) , reflecting expectations for strong free cash flow, improving operations and potential upside from a restart of the Cobre Panama mine.
The bank expects First Quantum to benefit from the expiry of copper hedges, stockpile processing at Cobre Panama and higher grades at Kansanshi, while negotiations with Panama over a potential restart could generate further news.
RBC expects Capstone to have a weaker third quarter because of maintenance shutdowns, sulphuric acid constraints and higher diesel costs, but sees a stronger production setup emerging in the fourth quarter and through 2027.
