Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
Gold is higher, as worries over tariffs affecting economic growth see a flight to safety. Despite likely slower global growth, copper is up as investors try to get ahead of potential tariffs on US copper imports. Iron ore is flat, while metallurgical and thermal coal are down.
Why it matters: Most miners’ share prices fell in the quarter, especially in response to tariffs, though gold miners rose. With an average price/fair value estimate ratio of 0.92 on Apr. 14, there is value across a range of commodities.
The bottom line: We reiterate our assumed commodity prices, and the fair value estimates for our mining coverage are retained. Lithium Argentina LAR and Albemarle ALB are the cheapest, trading at 79% and 74% discounts to their $10 and $225 estimates given we’re optimistic on lithium longer-term.
Low near-term lithium prices and balance sheet concerns see Mineral Resources shares undervalued by 73%. But we expect earnings to rise as its lower-cost, long-life Onslow iron ore mine ramps and as lithium prices recover, with improved cash flow driving deleveraging.Iluka trades 63% below its fair value, as we expect soft mineral sands demand to recover, while we’re optimistic on the value of the Eneabba rare earths refinery. Lower near-term thermal and metallurgical coal prices drive Glencore’s 43% discount to our valuation.
Big picture: The effect of tariffs on our mining coverage is likely to be mostly indirect rather than direct, via slower global growth. The likely effect on China’s exports is also a headwind for its economy and, in turn, commodity demand led by iron ore and copper.
China accounts for about 75% of seaborne iron ore demand and 55% of refined copper demand. But if things get much worse, we think monetary and fiscal stimulus is likely in the United States and elsewhere, which is bullish for near-term commodity demand and prices.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.