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Copper Update: Junior Performance Disconnect

Posted by nexvucapital on March 9, 2013

In the  constant pursuit of opportunity, today we highlight the performance disconnect between the senior copper producers and the junior copper producers. For this we have chosen two of our favourites: First Quantum (FM) and Capstone (CS). As can be seen in the chart below, rising off the bottom in 2009, these two copper producers had quite similar performance as they moved along a similar rising trend. Then in  2011 we see the beginning of a disconnect in comparative performance as FM has continued to move along its performance trend while CS moved to a completely new lower trend. We are currently sitting at the extreme point of divergence in these two trends. The question we ask is whether this valuation gap is going to continue to expand or contract? While expansion is self evident by following the trend, a contraction in this gap can be achieved in two ways (1) CS moves higher with more velocity than FM or (2) FM moves lower with more velocity than CS. Both companies  have been bouncing within tight trading ranges (accumulation?) since the summer of 2012 but Indicators for CS have been trending positive and seem to be on the verge of a breakout. If this happens (and it may be under way as of this writing) we suspect the current extreme in comparative valuation could be removed giving way to another period where CS and FM move higher in tandem as they did off the bottom in 2009 through to 2011. As a general comment, this is an example of the extreme oversold opportunity in the junior copper sector.

CS-FM Comp - Monthly Chart March 9 2013

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