Copper is one of the oldest metals known to humans. March 2020 saw the cash price of copper hit a multi-year low of $4,617 per ton on the London Metal Exchange. Since then, along with many asset classes, copper has surged to all-time-highs (ATH) as it approached $4,900 on the CME (NASDAQ:CME) (we should note that the futures prices at the CME are quoted per pound and per ton at the LME). Now, it is hovering around $4,550.
Like other commodities, the price of copper is influenced by factors of supply and demand. Although extracting and refining copper is expensive, the past year has seen increased demand worldwide. China is the biggest importer and user of the metal. Metrics show that the copper consumption is around 24.4 million metric tons.
Over the past year, optimistic post-pandemic scenarios have dominated Wall Street. The markets have been pricing in a substantial recovery in the global economy and an increased demand for copper. Copper exhibits high electrical conductivity, durability and malleability. Therefore, due to copper’s unique properties, it is used in numerous industries and products, ranging from buildings, to electric vehicles (EVs), to solar panels and smartphones. Thus analysts expect copper demand to stay robust, especially from China.
According to the Copper Development Association, “Several long-term trends are driving copper demand growth and are expected to do so over the coming decades. These trends include increased consumption of electronics, the proliferation of electric vehicles, the increased use of renewable energy sources and energy efficiency — all of which require significant amounts of copper in order to function.”
On a final note, Chile is the top copper producer worldwide. Next in line are Peru, China, the Democratic Republic of Congo and the U.S. With that information, here are seven stocks to play exploding copper prices amid global optimism:
- Anglo American Platinum (OTCMKTS:ANGPY)
- Antofagasta (OTCMKTS:ANFGF)
- Barrick Gold (NYSE:GOLD)
- BHP (NYSE:BHP)
- Global X Copper Miners ETF (NYSEARCA:COPX)
- Southern Copper (NYSE:SCCO)
- United States Copper Index Fund (NYSEARCA:CPER)
Copper: Anglo American Platinum (ANGPY)
52-week range: $10.50 – $26.06
Dividend yield: 2.34%
Our first choice, a global miner, is not a pure copper play. South African Anglo American Platinum is the world’s largest primary producer of platinum group metals (PGM), which include platinum, palladium, rhodium, iridium, ruthenium and osmium. The miner also produces base metals including copper, nickel, cobalt sulphate, sodium sulphate, chrome and other precious metals.
The group announced 2020 financials in February. The company presents its metrics mainly in South African rand. Revenue rose 38% year-over-year (YOY) to 137.8 billion rand thanks to strong PGM prices. In U.S. dollar terms, the average basket price increased by 51% YOY to $2,035 per PGM ounce (by comparison, in 2019, it was $1,347 per ounce), helped particularly by a strong rhodium price.
The rand weakened against the dollar during the year, leading to the rand basket price rising by 71% to 33,320 rand per PGM ounce (in 2019, it was 19,534 rand per ounce). Net profit grew 64% YOY to 30.4 billion rand. Furthermore, cash and equivalents ended the year around 20 billion rand.
CEO Natascha Viljoen commented, “Underpinned by strong prices for our metals, we delivered record EBITDA of R41.6 billion, improved our return on capital employed to 72%, and our net cash position at year-end had increased to R19 billion.”
The supply and demand for PGMs are both forecast to rise in 2021 compared to 2020. PGM production guidance (metal-in-concentrate) is expected to return to pre-Covid-19 levels of between 4.2 million and 4.6 million ounces in 2021, while refined production is expected to reach 4.6 million to 5 million ounces.
So far in 2021, ANGPY stock is up about 35% and hit a multi-year high in April. The shares are trading at 3.3x price-to-sales (P/S). Potential investors would find better value if profit-taking were to push the price below $20.
52-week range: $11.00 – $27.80
Dividend yield: 2.44%
London-based Antofagasta owns and operates copper mines in Chile and conducts exploration activities in Chile and Peru. The group also operates a rail network servicing the mining region of northern Chile. Its history goes back to 1888, when it was incorporated in the U.K.
Full-year 2020 metrics overall showed a strong year for the multinational mining giant. The top line rose 3.3% YOY to $5.1 billion. Net earnings remained flat at $506.4 million. Furthermore, earnings per share (EPS) was 51.3 cents. Net cash from operating activities was $2 billion. Analysts noted the robust balance sheet.
CEO Ivan Arriagada stated,
“Despite the restrictions imposed by the pandemic, our production levels were within our guidance range for the year. In 2020, we produced 733,900 tonnes of copper, down by 4.7% from our record level in 2019, mainly due to planned lower ore grades at Centinela. We expect the Group’s production to reach 730,000-760,000 tonnes of copper. Meanwhile, on costs, we anticipate that remote operation, automation and other innovations will continue to deliver savings and productivity gains, counteracting the impact of grade decline.”
ANFGF stock has returned over 15% so far in 2021 and has hit a record high in recent weeks. Forward price-to-earnings (P/E) and P/S ratios stand at 17.64x and 4.31x. A decline under $22 would improve the risk/return profile. The leading copper miner will likely benefit immensely from potential new highs in the price of copper.
Copper: Barrick Gold (GOLD)
52-week range: $18.64 – $31.22
Dividend yield: 1.5%
Based in Toronto, Barrick Gold is one of the world’s largest gold producers, operating mines in North America, South America, Australia and Africa. It is also a well-known copper miner.
According to the first-quarter financials released on May 5, revenues increased 9% YOY to $2.956 billion. The bottom line grew by 35% YOY to $538 million. Moreover, adjusted EPS for Q1 2021 was 29 cents, up 81% YOY. Free cash flow for the quarter was $763 million.
CEO Mark Bristow said, “The rise in the gold price has prompted a resurgence of short-termism which has plagued the market, with some investors focusing on short-term gains rather than sustainable growth. But Barrick is building a business for the long term and our focus remains firmly on the future.”
The company expects 2021 gold production to be in the range of 4.4 million to 4.7 million ounces. Copper production is expected to be around 410 million to 460 million pounds.
GOLD stock is up about 7% in 2021. The shares are trading at 20.24x the consensus forward P/E. The stock’s P/S ratio, on the other hand, stands at 3.34x. A potential decline toward $23 would mean better value for buy-and-hold investors.
52-week range: $46.90 – $82.07
Dividend yield: 4.21%
Australia-based BHP is a leading global diversified miner supplying iron ore, copper, oil, gas and metallurgical coal. Like Barrick Gold, BHP could especially appeal to readers looking for attractive miners with exposure to both gold and copper.
For financial-reporting purposes, the company’s fiscal year ends on June 30. According to the first half of 2021 financials, announced mid-February, revenues grew 15% YOY to $25.6 billion. The bottom line was down 20% YOY to $3.876 billion. Additionally, EPS was 76.5 cents. Cash and equivalents came at $9.3 billion.
CEO Mike Henry commented, “BHP has delivered a strong set of results for the first half of the 2021 financial year. … Our operations generated robust cash flows, return on capital employed increased to 24% and our balance sheet remains strong with net debt at the bottom of our target range.”
For 2021, copper guidance has increased to between 1,510 kt and 1,660 kt and reflects stronger-than-expected performance at one of its leading mines. Analysts expect the miner’s strong balance sheet and liquidity position to continue in the rest of the year.
Year-to-date (YTD), BHP stock is up 17% and saw a multi-year high in May. Forward P/E and current P/S ratios are 9.77 and 4.06, respectively. Any potential decline toward $70 would make the shares more attractive for the long term.
Copper: Global X Copper Miners ETF (COPX)
52-week range: $15.76 – $46.96
Dividend yield: 0.99%
Expense Ratio: 0.65%, or $65 on a $10,000 investment annually
Our next choice is an exchange-traded fund (ETF), namely, the Global X Copper Miners ETF. It provides exposure to a broad range of copper miners worldwide. Canadian firms head the list with about 36.6%, followed by China (9.8%), the U.S. (9.6%), India (7.4%), the U.K. (6.9%) and Australia (6.2%).
COPX, which has 33 holdings, tracks the Solactive Global Copper Miners Total Return Index. The fund began trading in April 2010 and has close to $1.2 billion in net assets.
The top 10 holdings comprise about 54% of the ETF. Indian natural resources group Vedanta (NYSE:VEDL), Chinese Zijin Mining (OTCMKTS:ZIJMY), Arizona-headquartered miner Freeport-McMoran (NYSE:FCX) and Anglo-Swiss commodity trader and miner Glencore (OTCMKTS:GLNCY) lead the names in the roster.
Over the past six months, COPX returned around 56% and hit a multi-year high in May. Those InvestorPlace.com readers who want to invest in global copper miners might regard a decline toward $37.50 as a good entry point.
Southern Copper (SCCO)
52-week range: $35.45 – $83.29
Dividend yield: 4.01%
Phoenix, Arizona-headquartered Southern Copper is an integrated producer of copper and other minerals and operates mining, smelting and refining facilities in Peru and Mexico. Its production includes copper, molybdenum, zinc and silver. The miner also conducts exploration activities in Argentina, Chile, Ecuador, Mexico and Peru. Over 80% of the miner’s revenues come from copper sales.
Southern Copper released first-quarter figures at the end of April. Net sales were $2.53 billion, showing a 47.3% YOY increase over Q1 2020 net sales. Despite the lower sales volume, growth at the top line was mainly driven by significantly higher metal prices. The bottom line rose a massive 255.6% YOY and was $214.8 million. Furthermore, Q1 2021 EPS came in at 99 cents. Quarter-end cash was $2.3 billion.
German Larrea, chairman of the board, commented, “Once again our quarterly results reflect the timely roll-out of our expansion programs and cost control improvements, which allow us to produce copper at a very competitive cash cost of $0.74 per pound of copper.”
SCCO stock is up about 10% YTD, and saw an ATH in recent days. Forward P/E and P/S ratios stand at 21.98 and 6.13, respectively. A potential decline toward the $65 level would improve the margin of safety for long-term investors.
Copper: United States Copper Index Fund (CPER)
52-week range: $15.54 – $29.60
Expense Ratio: 0.8%
Wall Street typically regards copper as a leading barometer for global economic health. The United States Copper Index Fund is an exchange-traded product (ETP), tracking a portfolio of COMEX copper futures. The fund might also hold other derivative products, such as forwards and swap contracts. Put another way, the returns depend on the price of copper.
CPER began trading in November 2011, and its net assets are over $339 million. Last month, the Benchmark Component Futures Contracts were Copper Jul 21, Copper Sep 21 and Copper Dec 21.
The fund has returned more than 32% so far in 2021. Those readers who would like to have exposure to the metal without using a commodity futures account might want to keep the fund on their radar.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.