Barclay’s bull or Pearce take? Running the rule over ASX copper explorers
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Each Friday, corporate advisory firm Barclay Pearce highlights the key trading themes of the week, along with which companies and sectors Stockhead readers should be keeping their eye on.
Talks of structural increases for global commodity demand in the wake of the pandemic continue to permeate through markets, and in this week’s Barclay Pearce interview the discussion turned to copper.
Prices for the metal are at 10-year highs, and earlier this week, CBA analysed the combined supply and demand factors behind the shift.
BP’s head of trading, Trent Primmer, highlighted separate research from Goldman Sachs which underscored the trends around post-COVID copper demand.
Along with major infrastructure plans across developed economies, copper is also a crucial input for the mass scale-up of electric vehicles and renewable energy projects.
“Supply won’t be able to keep up, and these aren’t things that can be addressed in a matter of months,” Primmer said.
In that context, Primmer flagged four ASX copper plays — three microcaps and one mid-cap — with plenty of upside risk amid the broader sector tailwinds.
In particular, he said HCH is a speculative copper play that the Barclay Pearce team have been monitoring closely.
Dual-listed Kincora Copper, which joined the ASX boards at the end of March (along with its TSX listing) is also on the radar, as drilling gets underway at its brownfield project in the Macquarie Arc porphyry district of NSW.
“Everyone’s looking at the resources sector because of this bullish commodity cycle, so a lot of blue chip and mid-cap plays have already run hot,” Primmer said.
“I think there’s still significant upside in small-cap plays, for people that want to add some speculative positions to their portfolio as part of the copper thematic.”
He added that share prices for a number of small-cap copper explorers are coming off a low base, so “if they do hit something relatively high grade, it’s the right conditions for those stocks to really rally, especially in this market”.
“So I do see (copper exploration) as an area of opportunity for investors that have a higher risk appetite.”
Elsewhere in weekly market developments, Primmer highlighted a key speech yesterday from federal Treasurer Josh Frydenberg, in which the government committed to ongoing near-term support.
Primmer cited the speech as evidence that government policy makers aren’t ready to dial back support, even though multiple indicators show the post-COVID economic rebound is becoming more entrenched.
And that’s important to the outlook for stocks, given the fact that unprecedented fiscal spending measures were a central factor underpinning the post-COVID bull market for stocks.
In his speech advocating for ongoing fiscal spending (and de-prioritising short-term fiscal repair), Frydenberg said the government’s primary target is the jobs market.
Specifically, it’s aiming for a sustained fall in the unemployment rate below five per cent — a level last seen in the mining boom era just prior to the 2008 financial crisis.
And for Primmer, it’s a policy stance that should help support markets more broadly.
“I think at this point the market expects government spending to continue,” he noted. “So it would create trouble if they turned the taps off immediately.”
“If you turn the tap off too early with policy stimulus, you run the risk of ending up back where you started (in terms of the recovery),” he said.
While Australia’s economy is ticking a lot of boxes in its post-COVID recovery, Frydenberg highlighted that global economic conditions are still highly unusual.
For example, international travel remains severely limited which has drastically reduced Australian immigration rate – previously one of the highest levels in the developed world.
In that context, Primmer said the key challenge from a policy standpoint is to get the economy going “to the point that it’s self-sustaining”.
“(Policy makers) are trying to slowly shift the gears up, but if you jump the gun the car’s going to stall,” he said.
“So you need to address issues as they arise, and the economy isn’t at the point yet where it’s self-sustaining and ticking along like it should be.”
The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.
Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.