Summary of Key Points from the Conference Call Industry Overview - The focus is on the **Aluminium** and **Copper** sectors within the **Australia Materials** industry, particularly in the context of the global mining sector [1][2]. Core Insights and Arguments - The **copper-aluminium ratio** is currently at approximately **4.1x**, which is two standard deviations above its 10-year average of **3.5x**. This is the highest level since February 2021, when it peaked at **4.3x** [2][3]. - Over the past period, aluminium prices have increased by around **80%**, while copper prices have risen by about **15%**. The rise in prices has been influenced by the **Russia-Ukraine conflict** [2]. - Recent strength in copper due to **supply disruptions**, **US stockpiling**, and **tight inventories** outside the US suggests that aluminium may also see price increases through **substitution** if copper demand remains strong. Substituting copper with aluminium becomes economically viable when the ratio exceeds **3.5-4.0x**, particularly in applications like **heating**, **air conditioning**, and **power transmission** for **electric vehicles (EVs)** [2]. - The commodity team projects aluminium prices to reach **US$3,250/t** by **2Q26**, driven by demand outpacing supply, with China's production cap of **45Mtpa** remaining in place and Indonesian smelters expected to ramp up production slower than consensus due to **power constraints** [2]. - **South32 (S32)** is highlighted as the most preferred investment with approximately **32% FY26e Aluminium EBITDA exposure** at spot prices, and it has moved to the 1 position in overall preference [2]. - **Rio Tinto (RIO.AX)** is rated as **Equal Weight (EW)** with an **18% spot CY26e Aluminium EBITDA exposure**, but is considered fully valued compared to **BHP**, which is rated **Outperform (OW)** [2]. Additional Important Insights - The **FY27/FY28e Free Cash Flow (FCF) yields** for South32 are projected at **3.8%** and **9.7%**, respectively, despite significant capital expenditures at its Hermosa and SG projects [2]. - Production at the **Mozal** facility is expected to continue at approximately **560kt**, counter to consensus expectations, although higher electricity costs are anticipated [2]. - The report includes a detailed **ASX Miners Relative Preference Table**, ranking various companies based on their investment thesis, upside/downside potential, and financial metrics [9]. Financial Metrics and Valuation - The report provides a comprehensive overview of **valuation multiples** and key metrics for ASX miners, including **Market Cap**, **EV**, **P/E**, **EV/EBITDA**, **FCF Yield**, and **Dividend Yield** for various companies [12][14]. - **BHP** and **Rio Tinto** are noted for their strong balance sheets and attractive commodity mixes, with BHP having a projected **P/E** of **14.1** and **Rio Tinto** at **13.5** for FY26 [12][14]. Conclusion - The aluminium sector is poised for potential growth driven by substitution dynamics and supply constraints, while specific companies like South32 are positioned favorably for investment. The overall outlook for the mining sector remains attractive, with various companies showing strong financial metrics and growth potential.