UBS: These 11 resource stocks are BUYS

David Thornton

Livewire Markets

Australian resource stocks saw some of the biggest gains in FY22. They were truly in a league of their own compared to other sectors. 

Between its low on November 2, 2021, and its peak on April 19, the S&P/ASX 200 Resources Index made a gain of 36%. Sure, these gains were pared back to finish the year down -3.5% for FY22, but still, extraordinary price performance at a time when the rest of the market was drowning. 

Just because the sector has fallen to join the rest of the market doesn't mean you should steer clear of them.  

UBS just released its June 2022 quarterly production preview for the Resources Sector. In this wire, I'll summarise the key themes from the report, including the 11 stocks they currently rate as a BUY. 

Softer commodity prices on the way

UBS expect to see softer commodity prices in FY22, down from the highs they achieved in FY22. 

"Beyond cost pressure from raw material, energy and labour cost/ supply chain tightness, commodity prices have eased off cycle highs. Commodity prices now sit just above or below mid-cycle long-term, arguably with further to fall in a hard landing recession scenario."

This has been compounded by labour market tightness tightness. 

"Iron ore miners look likely to push the upper guidance range and grow into FY23, whilst gold miners will need a beat to hit the low end of FY22 guidance and risks continue to mount to FY23 growth plans."

Buys:

  • OZ Minerals (ASX: OZL) $17.18
  • South32 (ASX: S32) $3.54

Lithium production ramping up

UBS is bullish on lithium, with "record spot prices driv[ing] exceptional cash flows that fund transformational growth." 

Indeed, the spot price for lithium has spiked 434.27% in the past year alone. The world just can't get enough of it, and that doesn't look like abating any time soon. 

"Costs at Mt Cattlin and progress at Olaroz Stage 2 will be key for AKE. MIN's lift in planned spodumene output is welcome but important commercial details surrounding recent changes to their lithium business remain unresolved."

Buys:

  • Allkem (ASX: AKE) $10
  • Mineral Resources (ASX: MIN) $46.86
  • IGO (ASX: IGO) $9.95

Gold miners have their work cut out, but...

"... with weak starts to FY22, pressure has built into the Jun-Q 22 with up to 30% q/q improvements required to get to the low end of guidance. 

The bevy of risks facing gold miners go beyond what the spot price may do in FY23.  

"Risks have increased through the year as our Perth trip highlighted: tight labour markets, supply chains and inflation rates ~10-15% and the lifting of COVID border controls in March only exacerbating problems, not improving them."

Yet, despite all that, UBS has more gold companies as Buys than any other mining area. 

Buys:

  • Sandfire Resources (ASX: SFR) $4.20
  • De Grey Mining (ASX: DEG) $0.78
  • Evolution Mining (ASX: EVN) $2.35
  • Gold Road Resources (ASX: GOR) $1.19
  • Northern Star Resources (ASX: NST) $6.98 
  • SSR Mining (ASX: SSR) $23.56

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David Thornton
Content Editor
Livewire Markets

David is a content editor at Livewire Markets. He currently hosts The Rules of Investing, a half hour podcast where he sits down with leading experts across equities, fixed income and macro.

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