There’s a big case for copper — and a big case for copper stocks.
The near-term catalyst is a global economy that continues to recover from the novel coronavirus pandemic. In turn, that demand has driven “Dr. Copper” higher.
But cyclical factors alone don’t make a long-term case for copper stocks. After all, copper has seen volatile swings for decades.
It’s secular tailwinds that make the case. Electric vehicles (EVs), most notably, require significant amounts of copper. In fact, they require four times as much copper as traditional ICE (internal combustion engine) vehicles. Solar and wind farms too will add to demand.
As a result, investment bank Goldman Sachs sees enormous upward pressure on copper prices. The firm set a 2025 price target of $15,000 per ton, against a current $8,700.
Obviously, that would be excellent news for copper miners, in particular. Mining stocks should offer leverage to the price, since costs remain mostly fixed while prices rise.
To some extent, investors are pricing in this growth; copper stocks have done well particularly since last March. But if Goldman is right, there is more upside ahead — with these seven names among the biggest potential winners.
- Freeport-McMoRan (NYSE:FCX)
- Southern Copper (NYSE:SCCO)
- Hudbay Minerals (NYSE:HBM)
- Turquoise Hill Resources (NYSE:TRQ)
- Global X Copper Miners ETF (NYSEARCA:COPX)
- Glencore (OTCMKTS:GLNCY)
- Jiangxi Copper (OTCMKTS:JIAXF)
So, with all of that in mind, let’s dive in and take a closer look at each one.
Copper Stocks That Can Soar: Freeport-McMoRan (FCX)
One of the simplest ways to play a rising copper price is through Freeport-McMoRan.
Freeport is one of the world’s largest copper producers — and almost a pure play on the metal. Per the company’s annual report filed with the U.S. Securities and Exchange Commission, 80% of 2020 revenue came from copper. That makes the company the world’s third-largest producer.
That production comes from properties that should be stable in an industry that often faces regulatory and political uncertainty. Three mines account for nearly three-quarters of Freeport’s copper. One is in the U.S., an obviously attractive jurisdiction. Another is in Indonesia, and is operated via a joint venture with the country’s government (Freeport owns about 49%). The Cerro Verde mine in Peru, a long-time mining destination, rounds out the list.
But there are concerns. Over time, FCX stock actually has been a relatively poor investment. At the start of last year, shares had gained 24% total in just two decades. A key reason was the company’s disastrous foray into oil and gas, which destroyed about $16 billion in shareholder value.
Current chief executive officer Richard Adkerson led that move into O&G while prices were at a top. He’s still in charge, and said last year he’s considering acquisitions. As I wrote at the time, that should worry investors, particularly given the broader mining industry’s consistent inability to drive shareholder value.
Now, if copper prices keep rising, any M&A should work out. And it’s possible that Freeport and the industry have learned their lesson. So bulls still should consider FCX stock, but should also keep an ear out for management commentary.
Southern Copper (SCCO)
Investors can also look to another large-cap option, as there’s a solid case for SCCO stock as well.
Southern Copper operates in two stable jurisdictions, Mexico and Peru. Costs are low, and reserves are high: Southern Copper in fact has the world’s largest reserves, with the figure nearly 30% higher than that of Freeport-McMoRan.
Meanwhile, SCCO has underperformed its better-known rival of late. Over the past year, FCX stock has gained 356%, and SCCO stock ‘just’ 137%. FCX stock gets the edge over a five-year stretch as well.
Certainly, some of FCX’s edge comes from the destruction in value and in investor confidence created by the O&G operations (which were sold in 2016). But over time, SCCO has been the definite winner, even if it doesn’t get quite the attention of FCX. Going forward, history may well repeat.
Copper Stocks That Can Soar: Hudbay Minerals (HBM)
In mining, as in the market more broadly, smaller firms are higher-risk and higher-reward. And so bulls should at least consider going small instead of large.
HBM stock has a strong case. In 2020, copper production generated just above half of revenue. That figure could increase after positive initial data from the company’s Mason Copper project in Nevada.
Valuation is reasonable; though the price-earnings ratio (P/E) isn’t the best or only way to measure copper stocks. Particularly if Mason Copper comes online, reserves should easily support the current HBM stock price.
Again, smaller plays do bring along greater risk, as HBM stock itself shows. Even with a big rally of late, shares have been halved over the last decade. And Hudbay too is looking for acquisitions which may — or may not — work out.
Of course, that’s the price to pay for bigger rewards. And if Goldman’s target is on point and Mason works out, the rewards are potentially huge.
Turquoise Hill Resources (TRQ)
Even by the standards of smaller mining stocks, TRQ stock is likely to be especially volatile going forward.
Most notably, Turquoise Hill is dealing with an uncertain situation in Mongolia. The country is the site of the Oyu Tolgoi mine, Turquoise Hill’s only asset. It owns 66% of the property, with the Mongolian government owning the remainder.
And the government is unhappy with ballooning costs at the project. In part as a result of that dispute, Turquoise Hill and its 51% owner, mining giant Rio Tinto (OTCMKTS:RTNTF), have battled. Rio Tinto in fact pushed Turquoise Hill’s chief executive officer out last month.
But Rio Tinto and Turquoise Hill have since come to an agreement. The Mongolian government likely is next. And underneath the drama is a mine with still-growing production and enormous reserves.
Certainly, the TRQ story brings up echoes of the broader concerns in the sector relating to governance and treatment of minority shareholders. Still, there’s real value here if the interested parties can work together. Most copper bulls likely believe that there will be enough upside to go around.
Copper Stocks That Can Soar: Global X Copper Miners ETF (COPX)
In this day and age, one way to play a broad sector trend is to own an exchange-traded fund that tracks the sector. And so for copper bulls, COPX would seem to be a perfect fit.
The exchange-traded fund (ETF) indeed should rally off copper optimism — and in fact already has. COPX stock is up 192% over the past year and has gained 33% so far in 2021.
But COPX probably isn’t quite as narrow as some investors would like. The largest holding, for instance, is Vedanta (NYSE:VEDL) at just over 7% of assets. Vedanta does operate a copper smelting business, but its Mt. Lyell copper mine is dormant and the metal accounted for just 11% of revenue last year.
That said, the ETF does allow for international exposure, with holdings of majors worldwide. Diversification on that front for individual investors — some of whom would have to go the over-the-counter route to acquire some of those stocks — may make up for the lack of focus on copper itself.
There are values in the international market as well. One is Glencore, the second-largest copper producer. (The leader in Codelco, which is owned by the government of Chile.)
The case for GLNCY stock is not just copper production, which drives about 38% of revenue. Glencore has a long-established marketing business as well. The growth in copper demand, and more specifically the increase in the number of businesses driving that demand, should be a tailwind for marketing profits.
The standard caveats about international stocks do apply. For instance, Glencore’s dividend payments can add tax complexity for U.S. investors. But few companies are better-positioned to take advantage of higher copper prices — which might make GLNCY worth the extra headache.
Copper Stocks That Can Soar: Jiangxi Copper (JIAXF)
It bears repeating: copper stocks have risk. The history of the group, and the mining industry more broadly, highlights that risk.
So a Chinese copper stock obviously has even higher risk. But Jiangxi Copper has an intriguing story as well.
Jiangxi is the largest copper producer in mainland China. It’s the world’s largest copper smelter. And while shares are only available in the U.S. via the OTC market, the company is listed on the Hong Kong Stock Exchange and has been for more than 20 years.
This isn’t a fly-by-night company. Indeed, Jiangxi has a market capitalization more than $11 billion, and is nicely profitable.
It bears repeating: there are risks and challenges to investing in JIAXF stock, and investors need to be comfortable with both. But that’s the case with most copper stocks, and the potential rewards here are appealing.
On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.
After spending time at a retail brokerage, Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets.