Copper & Lithium Stocks Benefit from Spot Prices, Gold Stocks Face Downgrade Risks

Overview

This report analyzes listed mining companies covered by J.P. Morgan using a spot price to perpetuity scenario. The analysis covers four commodities: iron ore, copper, lithium, and gold. By comparing valuation changes under the spot price scenario, we identify relative attractiveness differences among different commodities and related listed companies. The core finding is the asymmetric impact of commodity price cycle fluctuations on miner fundamentals – copper and lithium were upgraded due to price support, while gold was downgraded due to weakening prices, creating structural opportunities.

Core views

Copper prices stabilized at ~$6.1/lb, supporting outstanding performance of relevant listed companies. Sandfire Resources and Capstone Copper recorded upgrades of 34% and 24% respectively in their FY27 EBITDA valuations, reflecting the positive contribution of copper price stability to their project economics. Meanwhile, Rio Tinto and BHP regained 19% and 10% EBITDA upgrades due to copper business focus, with their FY27 EV/EBITDA multiples under spot scenario at 5.5x and 6.5x respectively, and spot free cash flow yields of 4% and 7%, showing valuations are relatively attractive. The lithium market remains equally strong. Platts Spodumene prices currently stand at $2,860/tonne, up 82% year-to-date from the start of the year, supporting MTM EBITDA upgrades for major lithium miners including PLS Group, IGO Ltd., Mineral Resources Ltd., and Liontown Resources. Under high lithium price environments, the internal rates of return and cash flow capabilities of these companies' projects have improved significantly. Gold stocks face downward pressure. Gold prices fell 3% during the week to $4,550/oz, driving MTM downgrades across gold stocks except for Prudential (PRU) and Beadell Resources (BGL). Newcrest Mining (NST) within coverage faced the largest decline, with a downgrade magnitude of 23%, reflecting the highest sensitivity of pure gold miners to gold price volatility. Iron ore prices dropped 3% to $108/tonne, putting pressure on Fortescue (FMG) with a 2% FY27 MTM EBITDA downgrade.

Analysis framework

J.P. Morgan's analysis method conducts valuation sensitivity analysis through "spot price to perpetuity" scenarios. This method assumes current spot prices are maintained permanently, thereby reflecting the long-term economic value of each miner under different commodity price levels. Through this scenario, the institution compares key valuation metrics of each company (including EV/EBITDA, free cash flow yield, and EBITDA upside/downside) with the base assumption scenario to identify the impact of price changes on miner profit margins and cash generation capabilities. This approach allows investors to quickly assess relative sensitivity to commodity price fluctuations and determine relative value among different miners within the commodity cycle based thereupon. Additionally, the report provides data for J.P. Morgan base forecast scenarios concurrently (Table 3), allowing investors to compare differences between spot and forecast scenarios.

Methodology notes

• Industry / Industrial Analysis FrameworkSupply and Demand Framework

  Adopts commodity spot prices as a proxy indicator for supply-demand equilibrium, evaluating miner profitability under different supply-demand structures via spot price scenarios

  Mining enterprise profitability is directly determined by the price of produced commodities. By fixing spot prices for perpetuity valuation, it implicitly assumes market supply-demand has reached a new equilibrium at current prices, helping investors distinguish the actual impact size of price changes (supply-demand shocks) on different miners, as well as cost competitiveness differences among companies.

• Valuation MethodEV/EBITDA valuation

  Calculates enterprise value relative to EBITDA multiples for each miner under spot scenario for relative valuation comparison

  EV/EBITDA is a commonly used valuation metric for mining companies, avoiding the influence of different capital structures and tax rates among companies, facilitating horizontal comparison under the same commodity price assumption. Under spot scenarios, differences in EV/EBITDA reflect differences in company cost efficiency, project quality, and operating leverage.

• Valuation MethodFree cash flow analysis

  Uses free cash flow yield under spot prices to assess company cash generation capability and investment return potential

  Free Cash Flow Yield = FCF / Market Cap, it is an indicator measuring the efficiency of enterprises creating cash for shareholders. Under spot scenarios, this indicator reflects the actual cash return rate of each miner given specific commodity price levels, facilitating investor assessment of undervaluation degrees.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Sandfire Resources (SFR.AX)

  Pure copper miner, directly benefits from copper price stability, largest EBITDA upgrade under spot scenario (34%)

  Strengths

  Significant improvement in project economics under copper price support, enhanced free cash flow capability

  Weaknesses

  Single commodity exposure, lack of price risk diversification protection

  Comparison

  Highest sensitivity to copper price compared to diversified miners; upgrade magnitude leads other pure copper miners like Capstone (24% upgrade)

  Risks

  If copper prices fall, company profit margins will be under pressure; rising project costs may offset price benefits

• Capstone Copper (CSC.AX)

  Major copper miner, EBITDA upgrade of 24% under spot scenario, reflecting copper price support

  Strengths

  Strong cash generation capability under stable copper prices, high project economics feasibility

  Weaknesses

  Higher copper price sensitivity than diversified miners

  Comparison

  Upgrade magnitude (24%) lower than Sandfire (34%), but higher than diversified companies, indicating differences in project costs or scale

  Risks

  Copper price volatility, construction delays, cost inflation

• Rio Tinto Limited (RIO.AX)

  Diversified miner, benefited from copper business and iron ore portfolio, FY27 EBITDA upgrade 19%, spot FY27 EV/EBITDA 5.5x

  Strengths

  Multi-commodity exposure provides risk hedging, high spot FY27 FCF yield (7%) within coverage range, relatively low valuation (5.5x)

  Weaknesses

  Weak commodities (iron ore) in diversified portfolio may drag overall performance

  Comparison

  Moderate upgrade magnitude (19%) compared to single-product miners, but stronger risk resistance; higher FCF yield than BHP (7% vs 4%)

  Risks

  Further iron ore price drop, infrastructure cycle slowdown, multi-commodity price fluctuations not synchronized

• BHP (BHP.AX)

  Ultra-large diversified miner, FY27 EBITDA upgrade 10%, benefited by copper support, spot FY27 EV/EBITDA 6.5x, FCF yield 4%

  Strengths

  Strongest diversified exposure and cost competitiveness, valuation multiple at medium level (6.5x), one of report top picks

  Weaknesses

  Mixed/weak varieties in multi-commodity portfolio drag performance (iron ore, coal etc may be sluggish), spot FCF yield lower than Rio

  Comparison

  Upgrade magnitude 10% is most moderate, reflecting balanced diversified characteristics; EV/EBITDA 6.5x slightly higher than Rio (5.5x)

  Risks

  Global macroeconomic downturn affecting multi-commodity demand, cost control pressure, geopolitical shocks

• PLS Group (PLS.AX)

  Pure lithium miner, benefiting from Spodumene YTD +82% price hike, MTM EBITDA upgrade under spot scenario

  Strengths

  Significant margin improvement under high lithium prices, strong cash flow capability

  Weaknesses

  Single commodity exposure, extremely high lithium price sensitivity

  Comparison

  Also benefited from lithium price hikes along with other lithium miners IGO, MIN, LTR; specific upgrade magnitude not explicitly stated in report, but price hike largest (YTD +82%)

  Risks

  Severe impact on margins if lithium prices fall, EV production/sales slowdown affecting demand, intensified competition

• IGO Ltd. (IGO.AX)

  Lithium miner, benefiting from Spodumene price hike, MTM EBITDA upgrade under spot scenario

  Strengths

  Fundamental improvement supported by lithium prices

  Weaknesses

  Single commodity exposure, high lithium price sensitivity

  Comparison

  Simultaneously upgrading with PLS, MIN, LTR, specific magnitude not explicitly stated in report

  Risks

  Lithium price volatility, project delays, cost overruns

• Mineral Resources Ltd. (MIN.AX)

  Lithium miner, benefiting from Spodumene price hike

  Strengths

  Project economics improvement under high lithium prices

  Weaknesses

  Single commodity exposure

  Comparison

  Benefited synchronously with lithium price alongside PLS, IGO, LTR

  Risks

  Lithium price downturn, weak demand

• Liontown Resources (LTR.AX)

  Lithium miner, benefiting from Spodumene price hike, MTM EBITDA upgrade under spot scenario

  Strengths

  Fundamental improvement supported by lithium prices

  Weaknesses

  Single commodity exposure, possibly smaller-scale projects, more sensitive cost control

  Comparison

  Upgrading synchronously with other lithium miners

  Risks

  Lithium price volatility, financing needs, disadvantages in economies of scale

• Newcrest Mining (NST.AX)

  Pure gold miner, gold prices fell 3% week-on-week to $4,550/oz, largest EBITDA downgrade under spot scenario (-23%, excluding PRU/BGL)

  Weaknesses

  Pure gold exposure leads to highest gold price sensitivity, greatest valuation pressure under spot scenario; downgrade -23% indicates significant profit erosion

  Comparison

  Larger downgrade magnitude than other gold stocks (excluding PRU/BGL), implying its project cost structure or scale may be at a disadvantageous position in the industry

  Risks

  Further gold price drops, rigid project costs, liquidity pressure, capital expenditure needs

• South32 (S32.AX)

  Diversified miner, benefiting from copper and other commodity portfolio, one of report top picks

  Strengths

  Diversified exposure, relative cost competitiveness, report recommendation indicates fundamentals attractive under spot scenario

  Comparison

  Similar diversified characteristics to BHP, Rio, specific upgrade magnitude and valuation metrics not explicitly stated in report

  Risks

  Non-synchronized multi-commodity prices, cost control, capital allocation

• Capricorn Metals (CMM.AX)

  Mining company, one of report top picks, specific commodity and upgrade magnitude not explicitly stated in report

  Comparison

  Included in top picks, implying valuation or fundamentals relatively attractive under spot scenario, but detailed analysis not expanded in report

• Lynas Rare Earths Ltd. (LYC.AX)

  Rare earth miner, one of report top picks, rare earth commodity price performance not detailed in report

  Comparison

  Included in top picks, implying relative attractiveness within coverage

• Fortescue (FMG.AX)

  Pure iron ore miner, iron ore dropped 3% week-on-week to $108/tonne, FY27 MTM EBITDA downgrade 2% under spot scenario

  Weaknesses

  Pure iron ore exposure, high iron price sensitivity, spot downgrade 2% indicates project economics under pressure in low iron price environment

  Comparison

  Downgrade magnitude relatively moderate compared to gold stocks (-2% vs -23%), but persistent downside risks exist

  Risks

  Global construction/infrastructure demand slowdown causing iron ore price drops, cost rigidity, declining capacity utilization

Key data

• Copper Price~$6.1/lbStable at this level, supporting copper miner performance
• Gold Price$4,550/ozFell 3% week-on-week, pushing down gold stock MTM valuation
• Spodumene Price$2,860/tonneUp 82% YTD, supporting lithium miner upgrades
• Iron Ore Price$108/tonneFell 3% week-on-week
• Sandfire Resources EBITDA Upgrade34% (FY27)Supported by copper price, upgrade magnitude under spot scenario
• Capstone Copper EBITDA Upgrade24% (FY27)Supported by copper price, upgrade magnitude under spot scenario
• Rio Tinto EBITDA Upgrade19% (FY27)Supported by copper business and iron ore portfolio
• BHP EBITDA Upgrade10% (FY27)Multi-commodity exposure, assisted by copper business
• Rio Tinto Spot FCF Yield7%Free cash flow yield under spot scenario
• BHP Spot FCF Yield4%Free cash flow yield under spot scenario
• Rio Tinto / BHP Spot FY27 EV/EBITDA5.5-6.5xRelative valuation under spot scenario
• Fortescue EBITDA Downgrade-2% (FY27)Pressure from iron ore price drop
• Newcrest Mining EBITDA Downgrade-23%Maximum downgrade magnitude for gold stocks within coverage

Impact & implications

The report's analysis implies significant cross-impacts between commodity prices and company selection regarding mining investment opportunities. In the current environment where copper and lithium prices remain firm, relevant listed companies (especially Sandfire, Capstone, and diversified players like Rio/BHP) see significantly improved profitability under spot scenarios, with valuation upgrades reflecting this positive fundamental shift. The downgrade of gold stocks signals short-term valuation pressure for companies with high gold price sensitivity, but this may also create opportunities for contrarian investors. The moderate drop in iron ore puts greater pressure on companies highly dependent on single products (like FMG). Overall, diversified miners (RIO, BHP) have stronger buffering capacity against commodity price fluctuations, while specialized miners' performance depends more on the price trajectory of their main products. The report's stock recommendations (BHP, S32, CSC, NEM, CMM, LYC) reflect the most attractive combination of comprehensive fundamentals under the spot scenario.

Risks

• Commodity price volatility: Spot scenario is based on permanent assumption of current prices; if prices retreat, downgrade magnitudes will be larger, especially impacting pure commodity exposure miners more severely
• Cost inflation: Rising costs such as oil and labor may weaken or offset profit improvements brought by commodity price support
• Weak demand: Global economic growth slowdown, EV sales below expectations may dampen demand for lithium, copper etc., dragging prices
• Project execution risks: Mine project construction delays or cost overruns will affect cash flow assumptions under spot scenarios
• Exchange rate changes: Most miners price commodities in USD but invest in AUD equities; exchange rate fluctuations may amplify or diminish returns

What to watch

• Copper price trend: Key support level $6/lb, if broken will trigger downward correction of copper miner fundamentals
• Lithium price stability: Sustainability of high Spodumene prices; if drop speed exceeds expectations, will bring major pressure to lithium miners
• Gold price rebound: If gold prices rise back above $4,700, gold stocks could alleviate valuation pressure under spot scenario
• China demand data: Demand indicators of world's largest commodity consuming country will directly impact copper, iron ore etc. commodity price expectations
• AUD exchange rate: AUD appreciation/depreciation has direct impact on USD-priced mineral commodity revenues