Tuesday, June 18, 2024

1 Australian mining stock worth a long-term investment

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The Australian mining stock Sandfire Resources Ltd (ASX: SFR) has excellent investment potential because of its copper exposure, I believe.

Sandfire is one of the largest copper miners on the ASX. Its DeGrussa operations are located 900km northeast of Perth in Western Australia, which is generating “strong cash flows,” according to the company. The ASX copper share also owns the MATSA operations in Spain and the Motheo copper mine in Botswana.

Here are two major reasons why I think Sandfire Resources has a compelling future.

Strong growth potential for the Australian mining stock

The mining company says its MATSA portfolio in Spain offers “exceptional exploration upside”.

While MATSA is already operational, the surrounding exploration tenure — approximately 3,000sq km in size — offers “substantial long-term exploration upside and organic growth potential”, according to Sandfire.

If it can find more copper in Spain, the company can lengthen the life of its mining operations and utilise existing infrastructure. The company can also potentially find copper in other locations.

The outlook for copper itself is another reason to be interested in this Australian mining stock.

Copper is an essential decarbonisation commodity because of its role in global electrification, including expanding the electrical grid, manufacturing renewable energy generation (like wind power), and the significant use of copper in electric vehicles.

According to McKinsey, electrification is projected to increase annual copper demand to 36.6 million metric tons by 2031. The research outfit has forecast a possible pathway to 30.1 million metric tons of annual copper supply, but that suggests a deficit of 6.5 million metric tons (or 20%).

Sandfire Resources is an important global copper player, so the Australian mining stock could benefit from higher copper prices if demand materially outstrips supply in the coming years.

Sandfire Resources share price valuation

The broker UBS, has forecast the ASX copper share can generate earnings per share (EPS) of 47 cents in FY26. This puts the ASX mining share at 20x FY26’s estimated earnings.

With the potential for the copper price to rise in the long term, plus the company’s efforts to grow copper production over time, I think this is a compelling Australian mining stock to consider.

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