Due to the rapid escalation of the Russia-Ukraine war, metal prices are rising to record highs as commodities remain short in supply. Russia is a prime supplier of aluminum, nickel, and palladium and, together with Ukraine, accounts for 7.5% of global iron and steel exports.
With upswing demand for coal and construction metals, the North American mining industry is rebounding. Investment bank Jefferies has stated that mining company shares would outperform over the next three years. Underinvestment in new mine capacity and decarbonization-driven demand is expected to result in tighter markets for some key commodities.
The SPDR S&P Metals and Mining ETF (XME) has gained 26.2% over the past month, outperforming the broader SPDR S&P 500 ETF Trust’s (SPY) declines of 5.3% over the same period. Therefore, the small-cap metals and mining stocks Ero Copper Corp. (ERO) and Nexa Resources S.A. (NEXA) might be solid bets.
Ero Copper Corp. (ERO)
ERO, headquartered in Vancouver, Canada, is a mining company focused on developing, producing, and exploring mining projects in Brazil. The company explores copper, gold, and silver deposits and has a market capitalization of $1.39 billion.
On February 15, ERO announced the approval for the construction of the Boa Esperança Project in Pará State, Brazil. The construction is expected to begin from the second quarter of this year, and ERO expects to achieve the first production during the third quarter of 2024. The project reportedly has the expected ability to double the company’s annual copper production.
On January 26, ERO announced the pricing of its offering of $400 million aggregate principal amount of Senior Notes due 2030. The company intended to use the net proceeds from this offering to repay the outstanding balance under its senior secured revolving credit facility of approximately $50 million and capital expenditures related to the construction of the Boa Esperança Project.
For the fiscal fourth quarter ended December 31, ERO’s revenues increased 47.9% year-over-year to $134.90 million. Gross profit rose 44.8% from the prior-year quarter to $84.40 million. Adjusted net income attributable to owners of the company and its per-share value improved 59.6% and 62.5% from the same period the prior year to $59.70 million and $0.65, respectively.
The consensus revenue estimate of $140.66 million for the quarter ending June 2022 indicates a 16.5% year-over-year increase.
The stock has gained 10.2% over the past month and 6% over the past three months to close yesterday’s trading session at $15.45.
ERO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
ERO has a Quality grade of A and a Value grade of B. In the 43-stock Miners – Diversified industry, it is ranked #10.
Click here to see the additional POWR Ratings for ERO (Growth, Momentum, Stability, and Sentiment).
Nexa Resources S.A. (NEXA)
NEXA operates in the zinc mining and smelting business. Based in Luxembourg City, Luxembourg, the company produces zinc, silver, copper, cement, sulfuric acid, and lead. It owns and operates underground polymetallic mines and has a $1.25 billion market capitalization.
On February 15, NEXA announced a distribution of $50 million, of which approximately $44 million will be treated as a dividend and approximately $6 million as share premium, which represents approximately a dividend of $0.331275 per common share and a special cash dividend of $0.046258 per common share. Both the dividends are payable on March 25 and reflect upon its ability to pay back its shareholders.
NEXA’s consolidated net revenue increased 6.8% year-over-year to $677.90 million in the fiscal fourth quarter. For the fiscal year ended December 31, net income for the year and EPS came in at $156.09 million and $0.86, up substantially from their negative year-ago values.
Street EPS estimate of $0.37 for the fiscal quarter ending March 2022 indicates a 115.7% year-over-year increase. Likewise, Street revenue estimate for the same period of $679.36 million reflects a rise of 12.7% from the prior-year period.
NEXA’s shares have gained 20% year-to-date and 13.8% over the past month to close yesterday’s trading session at $9.43.
It’s no surprise that NEXA has an overall B rating, which translates to Buy in our POWR Rating system. The stock has a B grade for Value and Momentum. It is ranked #12 in the Miners – Diversified industry.
To see the additional POWR Ratings for Growth, Stability, Sentiment, and Quality for NEXA, click here.
ERO shares were trading at $14.86 per share on Friday afternoon, down $0.59 (-3.82%). Year-to-date, ERO has declined -2.81%, versus a -10.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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