Credit Suisse Says Buy Gold, Sell Copper: Downgrades Southern Cooper To Sell

Credit Suisse’s Ivano Westin expects gold prices to rise in the near to medium term, as the market turns to “safe mode,” although the outlook for copper is likely to be much more challenging.

Westin downgraded the rating on Southern Copper Corp SCCO from Neutral to Underperform, while lowering the price target from $28 to $20.

The gold price estimate has been raised to $175/oz by 2019, with annual prices of $1,450/oz in 2017, $1,375/oz in 2018 and $1,350/oz in 2019.

Challenging Time For Copper

On the other hand, copper prices are expected to decline over the next one or two years, driven by a market surplus of up to 400 ktpa during 2016–2019.

“By next year, we expect the price to slip below $2/lb and reach a trough of $1.80/lb by 2018. In 2019 we forecast prices of $1.93/lb,” Westin stated.

These lower prices are expected to impact Southern Copper’s stock valuation, the analyst said, while reaffirming a positive view of the robust fundamentals of the stocks’ investment case.

Related Link: Goldman Sachs: Barrick Gold Has 32% Upside

Healthy Fundamentals

Westin pointed out that Southern Copper had an “outstanding” track record of production expansion, along with experienced management, the largest reserves in the world, long-term asset “at the low end of the cost curve” and a robust balance with low leverage.

Westin expects strong copper production CAGR of 5 percent during 2016-2021, with the Buenavista expansion expected to be completed by 2017 and Tia Maria ramped up by 2021.