Antofagasta, Freeport-McMoRan, and Southern Copper could constitute the titan pure-plays to consider in 2023.
Copper is the unsung hero of the green energy revolution. Lithium, graphite, and REEs all see significant coverage, but there seems to be — outside of the investing community — a delusion that there is sufficient copper available at the current prices to power anticipated demand.
I have covered the in-depth bull case for copper here before — essential reading of course — but it seems that copper prices may go even higher than previously projected.
Trafigura — the world’s biggest copper trader — co-head Kostas Bintas has highlighted copper ‘as the most critical metal globally given the shortage in the market’ given that the world ‘only had 3.5 days of copper stock equivalent at the end of last year.’ Bintas believes the metal could reach a record $12,000/tonne over the next 12 months.
Meanwhile, Saumil Gandhi of HDFC Securities thinks that ‘looking at the current demand and supply scenario in copper, it appears that the copper price could retest the $10,500 to $11,000 level before the end of year. In the long term, our view on copper is moderately bullish. A less hawkish stance could spark a rally in base metals prices over the short term.’
And Jeff Currie, Goldman Sachs commodities head, notes that ‘on copper, the forward outlook is extraordinarily positive. We’ll be at the lowest observable inventories that have ever been recorded at 125,000 tonnes. We have peak supply occurring in 2024…Near term we put (the copper price) at $10,500 and longer term our price target is $15,000 a tonne.’
Further, Rio Tinto head of copper Bold Baatar thinks the short-term outlook for copper ‘pretty healthy,’ given that ‘physical stocks of inventories of copper are at multi-year lows,’ and the increased Chinese demand and reduced South American supply. Sadly, Rio is excluded from this list as it is too diversified — though this will suit individuals with lower risk appetites.
My former favourite pure-play copper stock was ASX-listed Oz minerals — but this as bought out at a premium by titan BHP. And with demand for copper set to surge, low supply, exhausting legacy mines, and few copper pure-plays on the market, I expect further acquisitions to be likely soon.
The key change between my last analysis and today is that where before copper looked to dip more before the rally, most analysts now think the bull market for the metal is already here.
And it’s rare for Trafigura, HDFC, Goldman, and Rio to all concur.
Top 3 copper pure-plays for 2023
1. Antofagasta (LON: ANTO)
Antofagasta is a £15 billion FTSE 100 titan but shares in the copper producer have dipped since February after relatively poor full-year results. Copper production slumped by 10.4% to 646,200 tonnes in 2022, due to major problems at its Chilean operations — including droughts knocking water supplies and a pipeline leak hitting copper concentrates supply.
Combined with lower copper prices last year, pre-tax profit fell by 26% — but this leaves an attractive entry point for long-term investors.
2. Freeport-McMoRan (NYSE: FCX)
With a $53 billion market cap, Freeport has also dipped this year. The miner’s corporate slogan is ‘foremost in copper,’ and it operates one of the largest gold-copper operations in the world at the Grasberg mine in Papua, Indonesia in partnership with the country’s government. It’s also the largest producer of alloy essential molybdenum.
In Q4 2022, net income came to $697 million, and it sold 4.2 billion pounds of copper, 1.8 million ounces of gold and 75 million pounds of molybdenum across the entire year.
3. Southern Copper (NYSE: SCCO)
Southern Copper is a $55 billion giant which operates across Southern and Central America. Through a combination of ownership and mineral rights, the company has exploratory concerns through a whopping 3,300 square miles of land in Peru, Argentina, Chile, Ecuador, and Mexico.
This represents an excellent pick for emerging market copper. Legacy assets are seeing ore concentration reduce amid increasing costs of production, cutting into profitability on two sides. SCCO is a strong commercial bet on new discoveries across a large portfolio of sites in a highly prospective region of the world.
Last thoughts
For those who wish to take advantage of the anticipated copper bull run but without picking out individual copper stocks, the Global X Copper Miners ETF (COPX) is a popular $2 billion ETF covering 40 copper-producing companies across the globe.
The ETF has returned 40% over the past five years — a notable return given the pandemic, bear market, and currently depressed prices.
And in my view, this performance will only improve. But of course, individual copper stock-picking can deliver better returns, for those with a reasonable risk appetite.
This article has been prepared for information purposes only by Charles Archer. It does not constitute advice, and no party accepts any liability for either accuracy or for investing decisions made using the information provided.
Further, it is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
