Is Sandfire Resources Ltd a buy?

UNDER THE RADAR REPORT DIAGNOSIS:

Sandfire Resources limited is the best thing for providing copper leverage following BHP’s acquisition of OZ Minerals. The Motheo copper project is providing production and valuation growth with potential Botswana exploration upside. New CEO and Managing Director, Brendan Harris offers potential for new growth initiatives.

Radar Takeout: We are long-term bulls but it's important to read the short-term demand signals. We are not buyers of copper right now.

Find out the ASX stocks we do recommend to buy now.

What is the Share price of Sandfire Resources Limited?

ASX Copper Stock, Sandfire resources share price is $5.95 with a 12 month high share price of 7.22. It's market cap is $2.95m.

But we think copper has a robust long-term future

Over the next decade at least; but in the next 12-24 months, the Chinese economy will dictate market sentiment. This may mean the price treads water or even falls in the short-term. Such is the uncertainty over China’s economy.

We don’t think there is any rush to buy into pure play copper stocks. Read our Under the Radar Report: Small Caps Issue 562 for our full analysis on ASX listed copper producers:

Top 3 ASX Copper Stocks

Sandfire Resources Limited (SFR): Share price chart

29Metals (29M): Share Price chart

AIC Mines (A1M): Share Price chart

All are worth checking out because of the dearth of good opportunities in copper production. Of these we rate SFR as the highest quality and will be looking for opportunities to buy when copper fundamentals improve. Find out the ASX stocks we do recommend to buy now.

What is the dividend yield for Sandfire Resources Limited?

Sandfire Resources Limited paid a dividend of 3c per share on 30 March 2022. This is a fully franked dividend with a dividend yield of 0.03%.

Is Sandfire Resources Limited a good investment?

Sandfire Resources Limited is a stand out copper producer. It is an Australia based mining operation. Many are bullish but it can pay to be a sceptic. What you don’t invest in is just as important as what you do. Quantifying risk is one of the keys to making money.

Long-term copper demand but short-term downturn possible

Although demand is increasing for copper over the next decade, in particular, as we transition to a carbon free economy, the bigger factor in the short-term is the downturn in the debt ridden Chinese property market. Not only that, but improving technology means that copper’s importance is in decline. Although we remain bulls for the long-term, it pays to read short-term demand signals.

About Sandfire Resources Ltd

Sandfire Resources Limited is a stand out ASX copper copper producer in an Australian context, if you remove BHP from the equation. There is high leverage to the copper price, being a pure play producer. When copper’s fundamentals improve, this is where we will head, alongside BHP.

What does Sandfire Resources Limited mine?

ASX Copper Stock, Sandfire Resources mines copper in degrussa copper operations in Western Australia, Botswana, Spain and in the Black Butte copper project in central Montana, USA .

The foundation stone was the 2009 Degrussa discovery in Western Australia, which has been replaced T3 copper silver mine in Botswana and the Matsa copper operations which consists for an underground copper mine in Spain (purchased for US$1.865bn last year).

Montheo project located in Boswana

Montheo is the foundation of long-term growth plans in Botwana.

The T3 Deposit is a significant sediment-hosted copper and silver deposit, located in the Kalahari Copper Belt in Botswana. T3 is now being mined for the 3.2m tonnes of ore a year at the Motheo copper mine, just commissioned. Contained copper is the copper contained in a concentrate, typically 25-30%. This production is to rise to 50k tonnes a year from FY25, making it a midtier mine. A big mine is 100k tonnes plus, Escondida (BHP 30% ownership) produces over 1m tonnes.

Matsa mining operations produced 55.74k tonnes contained copper in FY23 plus 85.9k tonnes zinc, 10.7k tonnes lead and 2.6m ounce silver.

After achieving total copper production of 84.1k tonnes at a cash cost of US$1.86/lb, in FY23, which compares to current price of US$3.70/lb. SFR is in the middle of the field in terms of costs. SFR has provided guidance for combined Matsa copper operations and Motheo copper project with production of 97k tonnes in FY24 and 110-120k tonnes in FY25.

On a copper equivalent basis (CuEq), taking into account zinc, lead and silver, production is forecast to be 135k tonnes and 150k tonnes in FY24 and FY25 respectively.

Mining: Special Copper report

A CRITICAL METAL FOR ENERGY TRANSITION

Copper is used in wind turbines, solar panels, grid infrastructure and electric vehicles, which over time is increasing demand for additional supply, forecast to be at a rate of 4m tonnes by 2030, an increase of 16%.

The copper market is already large, second only to aluminium in base metals, with global demand of 25m tonnes a year. Aluminium is in the region of 60m tonnes a year, while nickel is only 3m.

The main areas of copper consumption are wire, rods, bars and sections, flat rolled products, tube and foil. Important industry consumers are equipment manufacturers, building and construction, infrastructure, transport and industrial.

China is the largest copper consumer by far, accounting for 55% of consumption, while US, Germany and Japan are only in the mid-single digits.

A HIGH PRIORITY FOR MINING GIANTS

BHP Group (BHP), Rio Tinto (RIO), Glencore (GLEN.LSE), Freeport McMoran (FCX.NYSE) and Teck Resources (TECK.NYSE) all have strongly commited to increasing copper production. There are four new globally significant copper mine development projects that have recently started production or are close to and add up to an extra 1.5m tonnes or close to 0.5% in the next few years.

1. Oyu Tolgoi (Rio Tinto 66%) Mongolia, rising to 500k tonnes copper a year by 2025;

2. Kamoa-Kakula (Ivanhoe Mines), Democratic Republic of the Congo, where output could reach 654k tonnes from 2025;

3. Quebrada Blanca Phase 2 (Teck), Chile, production to rise to 300k tonnes in 2024)

4. Quellaveco (Anglo American), Peru, recently started, output rising to 300k tonnes a year. There will be retiring mines in this period. What we can say is that copper supply is not diminishing, but demand over the next decade is forecast to increase.

Read our Under the Radar Report: Small Caps Issue 562 for our full analysis on copper and the best of the ASX listed copper producers including Sandfire Resources.