US Edition Antofagasta
915½p
Questor says BUY
So far in 2009 the price is up an impressive 112pc – and most analysts think there is more to come.
The reason that they are bullish on the copper price in 2010 is that supplies remain tight. There are few new mines coming on stream and copper is a very important metal when it comes to construction. In fact, the Americans call the metal "Dr Copper" as its is a predictor of economic activity.
There are also prospects for the dollar to consider. The price of real assets in dollars rises as the US currency weakens because a falling dollar makes commodity prices cheap in other currencies.
Chile-based Antofagasta is one of the largest copper miners in the world. It is one of the few pure copper plays, although it does mine the associated metal molybdenum, which is used in high-strength steel alloys.
The company is increasing production of copper as new mines come on stream, so even if the copper price remains stable, the shares should move higher. The group is currently expanding its largest mine at Los Pelambres and its Esperanza site at the end of 2010. All of this means that Antofagasta's production in 2011 should be 50pc above the group's production in 2009 – and the group is a relatively low-cost producer of the metal as well.
At its recent update, the company said turnover fell 39pc in the first nine months of the year. The group expects to produce 447,000 tonnes of copper this year, 6.4pc below its 2008 output.
Significantly, Antofagasta's balance sheet remains strong, with cash balances of $2.95bn (£1.8bn) as of September 30 this year.
The group's production growth is highlighted in its prospective earnings multiples. The shares are trading on a December 2009 earnings multiple of 22.5, but this falls to 13.3 in 2010 and just nine in 2011. The yield, at 1.6pc is not much to get inspired about, but the group's large cash balance has raised the possibility of a special dividend in the coming years.
Shares in Antofagasta are a buy.
Centamin Egypt
115½p
Questor says BUY
THE EMERGING gold producer increased its gold resource estimate at its flagship Sukari project in Egypt last week. The resource estimate was raised by 374,000 ounces to 10.29m ounces.
This upgrade is a result of an aggressive exploration programme. The company has eight drilling rigs at Sukari and there is expected to be further newsflow on resources in the next few months.
Gold fever is rife at the moment and everyone is arguing that there is only one way for the gold price to go. This has made Questor nervous that a bubble was building in gold.
However, the $80 correction in the gold price since its high 10 days ago has taken some of the froth away.
Questor is a long-term bull of the gold price because of the dollar outlook, but is cautious about some of the price target claims from those with vested interests in the gold market.
Nevertheless, Centamin is a great company and it is executing well. The pull-back in the gold price has brought the price of Centamin shares back from recent highs and, with resource estimates set to increase in the coming months, Quetsor upgrades the stance on the shares to buy from hold.
The shares were first recommended on January 5 as one of Questor's tips of the year at 42½p and they are now 180pc ahead of their initial recommendation price compared with a market up 16pc.