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Sandfire Resources Ltd (SFR) $8.43

SFR was downgraded yesterday to sell by Citi, which saw the stock fall away -5%, although it’s still up almost 15% year-to-date. We cannot argue with Citi’s logic on the surface, especially as we discussed trimming our exposure above $9, but there are a few moving parts in this equation. Their central thesis was around valuation, with SFR up 20% (before Tuesday’s fall) while copper had only advanced 3%, but they also lifted their copper outlook, suggesting these performance jaws could close very quickly if/when copper pushes above technical resistance around $US4.00. Remember, “Dr Copper” remains our preferred commodity as we travel through 2024. While BHP Group (BHP) and Evolution Mining (EVN) offer solid exposure to the industrial metal, SFR provides investors with the purest play towards a growing production profile.

Similar to CBA, which has been making new highs in price and valuation terms and is the best bank available to investors, SFR sits on top of the podium locally for copper. Hence, while MM remains bullish towards copper, we are likely to maintain our SFR position unless the elastic band stretches too far when we may increase our EVN &/or BHP positions. Investors like MM want copper exposure in their portfolios due to the EV revolution’s dependence on the metal without the considerable volatility and risks being delivered by lithium; a strong recovery in the latter could see further profit-taking in copper plays as the number of alternative ESG options increases. Approx four times more copper is used in an EV than in a traditional combustion vehicle.

Today’s discussion is all about valuation rather than the operational performance of SFR. While it is fully priced around $9 based on copper at $US4.00, they are on track to increase production by ~50% over the next two years into what we think will be a very strong pricing environment

MM is bullish toward SFR medium-term
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Sandfire Resources Ltd (SFR)
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