KGHM - Stage Is Being Set for a Copper Supercycle
There are two factors that serve as the single biggest drivers of copper demand today: the rise of electric vehicles, which use 4 times the amount of copper of traditional cars, and the growth of renewable energy sources, where copper use is 4-5x more than in conventional generators. Analysts at Freeport McMoRan estimate that EV- and RES- fueled copper consumption will more than double over the next five years, from 0.6 million tonnes in 2020 to 1.6mmt in 2025 – a quantity representing more than 6% of the global production forecast for 2021. With the global EV fleet estimated by Wood Mackenzie to grow to 323 million cars from 10 million today, according to Bloomberg, the world will need 12 million public EV charging points by 2040, each built with an average of 10kg of copper; today there are 1 million such points. Together with a growing RES fleet, this also generates a need to build more power lines and transmission infrastructure. Meanwhile, except for a few major mines scheduled to come on line in 2022-2023 (Kamoa copper project in the Democratic Republic of Congo, Oyu Tolgoi II in Mongolia, and Quebrada Blanca Phase 2 in Chile) there are no other ongoing projects underway bigger than 200kt of yearly capacity. The commodities research group CRU Group has calculated based on existing mine projects that by 2034 global production of copper will drop to 12 million tonnes from about 20mmt today, which would point to a worldwide deficit of nearly 15 million tonnes. As many as 200 of existing copper mines are expected to run out of ore by 2035. Considering the increasingly bright prospects of the copper industry, we opt to raise our long-term per-tonne price forecast for the metal to $9,000 – a figure which, for KGHM, would mean achieving annual EBITDA upwards of PLN 10bn in 2021, and which indicates that the Company will be able to clear all financial obligations by the end of this year. Assuming no major capital spend, this in turn would pave the way for higher dividends in the future, and earn KGHM, which currently trades at a substantial discount to peers, a positive re-rating in the eyes of global investors. We upgrade our call for KGH from hold to buy with the target price raised from PLN 152.27 to PLN 230.25.
KGHM Polska Miedz is engaged in the mining of copper and non-ferrous metals ore; the excavation of gravel and sand; the production of copper, precious and non-ferrous metals; the production of salt; the casting of light and non-ferrous metals; the forging, pressing, stamping and roll forming of metal- powder metallurgy; waste management; wholesale based on direct payments or contracts; warehousing and storage of merchandise; holding management activities; geological and exploratory activities; general construction activities with respect to mining and production facilities; scheduled and non-scheduled air transport; telecommunication and IT services; and other activities.
Set up in 1986, mBank (originally BRE – Export Development Bank) is Poland’s 4th largest universal banking group in terms of total assets and 5th by net loans and deposits at the end of June 2019. mBank has one of the oldest brokerages in Poland – we have been providing brokerage services since 1991 - and the biggest, serving about 300 ths clients.
We provide all brokerage services available in the Polish capital market (i.e. Warsaw Stock Exchange, non-public markets and forex) in a way that meets the expectations of all groups of investors, both individual and institutional. Participating in the dynamic growth of the Polish capital market since its inception, we have acquired competences and experience needed to provide the highest quality of service and we have won the trust and satisfaction of our Clients.
Over the past decade, mBank's Equity Research Team has been consistently ranked among the top research teams in Parkiet's annual institutional investor surveys (Parkiet is Poland's leading daily business newspaper). mBank analysts provide coverage on an extensive list of companies, mainly in Poland but also elsewhere in the CEE region: Austria, Czechia, Portugal, Ukraine and Hungary.
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