As a versatile and recyclable metal, copper can be used in a variety of applications, from air conditioning to electric vehicle chargers to hospital infection control. The diversity of uses means that there will always be a need and demand for copper.
But how do you know which are the best copper stocks to invest in? There are copper mining stocks, exchange-traded funds (ETFs) or futures contracts which are traded on the metal exchange COMEX.
Which is the right choice, and what is the right company to invest in?
Picking the wrong investment (see also our guide to investing in Nike) could cost you dearly if you don’t look at the key metrics of the company. Or if you are not sure what factors can affect the price of copper, you may be wrong-footed and find yourself investing at a bad time.
We have looked at various copper mining companies and found five of the best that offer investment opportunities (see also ‘How To Invest With 500 Dollars‘) right now so that you can make an informed decision.
Freeport-McMoRan is one of the world’s largest copper producers. It operates the largest single source of copper in Indonesia, the Grasberg mine, which is also a major producer of gold.
The corporation also operates mines in Peru and Arizona and produced just under 4 million pounds of copper in 2021. Their mine at Grasberg increased production in that year, adding another 1.8 million pounds of copper to their annual output.
Expansions in Arizona and Chile add to the company’s long term growth drivers. This coupled with the continued growth in copper production should provide rising returns to shareholders.
Freeport-McMoRan has a structure that allows half of its excess cash flow to go towards shareholder returns. This includes share repurchases and dividends. Its ticker symbol on the NYSE is FCX.
The production of copper is increasingly important in the fight against climate change with the promotion of electric vehicles to reduce emissions. Recently, the gap between supply and demand has widened, pushing the price of copper up.
Pros Of Freeport-McMoRan Stock:
- It is one of the largest copper producers in the world
- Expansion at its mine in Indonesia has increased production
- Long term growth drivers have been implemented
- Excess cash is moved into shareholders returns (see also ‘What Is Alpha And Beta In Stocks?‘)
- Long term government policy on climate change means copper will continue to be in demand
Cons Of Freeport-McMoRan Stock:
- China has released some of its copper reserves, which may lower prices
Southern Copper corporation is based in Mexico and also has mines in Peru. It is owned by Grupo Mexico, a conglomerate with a focus on mining, infrastructure and transportation. Its ticker symbol is SCCO.
Currently, Southern Copper is the fifth-largest copper producer in the world, it also holds the largest copper reserves. This gives the company the ability to expand its output. It is an integrated copper producer providing raw metals and machining services.
Long term the company expects production to increase with predictions of more than 73% on its 2020 output by 2030. It has recently approved several expansion plans which it hopes will drive long term growth.
Over the next ten years, Southern Copper foresees investing $1.9 billion annually in order to increase its copper production. Despite this increase in investment, the corporation intends to continue paying out dividends from its earnings.
Although the company also produces metals such as zinc and molybdenum, around 80% of the company’s total sales are from its copper business.
Pros Of Southern Copper Stock:
- Fifth-largest copper producer globally
- Holds the largest copper reserves
- Investing $1.9 billion per year for next ten years
- Continues to pay dividends from earnings despite large long term investments
Cons Of Southern Copper Stock:
- The company has recently suffered two fires in its mines in Peru
Rio Tinto Group
Rio Tinto is not just a copper producer, it is a diversified global company. Based in the UK, it also produces diamonds, aluminum, gold, uranium (see also ‘How To Invest In Uranium‘) and iron ore. Other basic materials produced by the company are salt, lithium and titanium dioxide.
Its copper production comes from two large scale mining operations. One is in Mongolia, Oyu Tolgoi, one of the world’s largest gold and copper mines in which Rio Tinto has a majority stake through Turquoise Hill Resources.
Early in 2022 Rio Tinto offered to buy the remaining stake in Turquoise Hill Resources which would give it full control over the mining operations, thereby significantly increasing its copper production. By 2030 it should be the fourth-biggest copper mine in the world.
The company has some growth projects such as Resolution Copper in the USA and Winu which is in Australia. Discovered in 2020, Winu has enormous potential as a gold and copper resource.
In addition, Rio Tinto operates a mine in Utah, called the Kennecott mine, which also produces silver (see also ‘Is Silver A Good Investment?‘) and gold. It intends to return 40-60% of its earnings to investors each year in dividends. Its ticker symbol is RIO.
Pros Of Rio Tinto Group Stock:
- A diversified and global company which also produces gold, aluminum and uranium
- Company produces basic materials such as salt, titanium dioxide and lithium
- Majority stake in one of the world’s largest copper mines
- Plans to expand its stake in this mine
- Growth projects in Australia and US
Cons Of Rio Tinto Group Stock:
- Copper is not its largest source of earnings
BHP Group is an Australian based company that mines copper, nickel, iron ore and potash. It is also a producer of natural gas and oil. Currently, it is planning to merge these operations with Woodside Petroleum.
The company has numerous copper mines in Chile as well as one in Australia, which combined to produce 1.6 million tonnes of copper in 2021. Acknowledging the growing demand for copper, the BHP Group intends to expand its production capacity further.
To do this, it is investing heavily in production and has recently completed an expansion of its Spence copper mine, located in the Chilean desert.
This will add 185,000 metric tons to production over the next decade and is intended to extend the mine’s life for 50 more years.
In anticipation of the continued and increasing demand for copper, BHP has invested in various long-term partnerships as well as some growth opportunities which are still in their early stages.
They are hoping this will help them meet demand in the coming years.
The company aims to pay a dividend payout ratio of 50% from cash flow and frequently repurchases shares from excess cash flow. Its ticker symbol is BHP.
Pros Of BHP Group Stock:
- Several copper mines in South America and one in Australia
- Group plans to expand production capacity
- Investing heavily in production and expansion
- Formed long-term partnerships and early-stage growth opportunities
Cons Of BHP Group Stock:
- Labor shortages in Chile have caused some issues
Canadian based Teck Resources is a diversified company that mines copper, zinc and steel making coal. It also has interests in oil sands projects. In 2020 44% of the company’s profits came from its 276,000 metric tons of copper production. Its NYSE ticker symbol is TECK.
It has four mines in South America and Canada. By 2023 it hopes to increase its production by over 100%. The main impetus behind this drive is the Quebrada Blanca Phase 2 (QB2) project, based in northern Chile.
This is one of the world’s largest copper sources.
Apart from this project, Teck Resources has other growth opportunities which it intends to pursue in order to meet increased global demand for copper.
The company expects the new project to allow it to return 30-100% of available cash flow to investors once up and running.
Pros Of Teck Resources Stock:
- Diversified company
- New project to come online to increase production
- The company hopes to increase dividends to investors once the new QB2 project is in operation
Cons Of Teck Resources Stock:
- Copper contributes less than half of company profits
Demand for copper is due to double in the next ten years. This is being driven by the global focus on climate change and the need to move away from fossil fuels to electric vehicles, as well as the drive towards renewable energy.
There is also a reduction in the supply of copper as demand rises and reserves decline. So if you are thinking of investing in copper stocks, what aspect of this commodity should you be focusing on to choose the best investment (see also our guide to investing in De-Fi)?
Size Of Production
The quantity of copper that a company can produce or the amount of its reserves can be a good indicator of its suitability as an investment. Those companies with the largest production and reserves can influence the price of copper on the global market.
Freeport-McMoRan is one of the world’s leading copper mining companies, while Southern Copper has the world’s largest reported copper reserves at 67.7 million tons. BHP Group produced 1.6 million tonnes of copper in 2021 from its mines in Chile and Australia.
From its four mines in Canada and South America, Teck Resources hopes to increase its production by over 100% by 2023.
As the demand for copper increases over the next ten years, the companies which anticipate and prepare for this increase should fare better than those you expect the market to remain static.
Opening up new projects as Teck Resources have done with their Quebrada Blanca Phase 2 (QB2) project in Chile allows them to increase their production capacity to meet rising demand.
Freeport-McMoRan increased their output in 2021 adding another 1.8 million pounds to their annual production. Meanwhile, Southern Copper has approved several expansion projects to ramp up production by 73% from 2020 levels by 2030.
BHP Group will add an extra 185,000 metric tons to production over the next ten years by expanding its Spence copper mine in South America.
Investing for the future where copper is going to be in greater demand should ensure that companies are able to maximize on that demand. Over the next ten years, Southern Copper intends to invest $1.9 billion annually as it recognizes the need to increase production.
As 80% of its sales come from copper, this investment should keep the company in a strong position for the foreseeable future.
Rio Tinto is looking to buy the remaining stake in Turquoise Hill Resources, which would give it full control over the operation and put it on track to become the fourth-largest copper producer in the world.
BHP Group is investing heavily in production and has recently completed expansion of its mine in the Chilean desert. It has also invested in some long-term partnerships with a view to keeping up with demand in the future.
Partnerships form an important part of long term investment in exploration, and this is what BHP Group have done.
Despite investing large amounts of money in future growth and expansion, these copper companies also deliver good returns to their shareholders.
Freeport-McMoRan uses a framework that permits it to use 50% of its excess cash flow for shareholder returns, including share repurchases and dividends.
Southern Copper’s commitment to invest $1.9 billion annually has not precluded it from paying dividends to its shareholders.
Rio Tinto intends to offer 40-60% of its earnings as dividends to investors each year as it continues to invest in company growth and expansion.
BHP Group plans to pay a minimum dividend payout ratio of 50% of its excess cash flow. It regularly pays out additional dividends and repurchases shares from its cash flow.
Teck Resources is relying on its new Quebrada Blanca Phase 2 (QB2) project to help it fund the 30-100% return to shareholders from available cash flow.
Many copper producers are diversified and trade in other high demand metals, most notably gold but also molybdenum, which is used in manufacturing alloy steel. The Rio Tinto Group also produces aluminum and uranium and basic materials such as salt and titanium dioxide.
Teck Resources is another diversified natural resource company mining zinc and metallurgical coal for steel manufacturing as well as mining copper.
Frequently Asked Questions
Why Is Copper A Good Investment?
Copper is currently experiencing a surge in demand. This is partially fueled by the climate change debate and the move away from fossil fuels for transportation and energy. It is a highly versatile metal and is used widely in industry, including electronics and home building.
Not only is it a versatile metal (see also ‘How To Invest In Nickel‘), but it is highly recyclable and can be repurposed for various applications.
It is the third most sought after base metal after gold and aluminum, with applications from electric vehicles to infection control surfaces in hospitals.
Global demand for copper will therefore likely increase in the coming years, making it a good choice for investment.
What Factors Affect The Copper Market?
Only a fraction of the world’s copper deposits have been mined. This is partly due to its recyclable nature, but also because extracting it is highly capital intensive. As copper deposits are sometimes as low as 0.05% to 1% copper ore, it is an expensive operation.
Big consumers such as India and China which are rapidly growing economies also import large amounts of copper, with China being the world’s largest copper importer.
Labor issues in Chile, which is the largest producer of copper, can also affect the copper market. There have been protests about the treatment and conditions of miners in South America, which can impact on the copper market.
How Can You Invest In Copper?
There are three ways to invest in copper. You can choose to buy bullion, which are physical pieces of copper. These are available in ounce pieces, so you will need a lot of them as well as adequate storage.
A far more practical way is to invest in copper stocks. These will typically be in copper mining companies, and you will need to look at the key metrics of the company before investing.
You can invest in copper by purchasing options on future contracts. This allows you to walk away if you don’t want to fulfill the contract, and you will only lose the money you paid to purchase the contract.
Futures in copper can only be purchased on the metal exchange COMEX.
With the future looking bright for the copper industry now is a good time to think about investing in this base metal. The push for renewable energy and adoption of electric vehicles will only spur the market on and create new demand.
It is vital that you check out a copper mining company’s key metrics to ensure that you are choosing the right stock to invest in (see also ‘How To Pick Stocks To Invest In‘). The dynamics of supply and demand are also key considerations, as are impacting global events and economic fluctuations.
So, whether you choose ETFs (see also our article on the top precious metals EFTs), copper stocks or futures contracts, getting involved in the copper market can be a good option as long as you understand how the market works, the risks involved and what events may have an impact on copper prices.
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