Copper is expected to play a key role in the shift to electrification – for everything from electric vehicles to charging infrastructure, batteries, transmission lines and solar and wind technologies.iStockPhoto / Getty Images
Sign up for the Globe Advisor weekly newsletter for professional financial advisors on our sign-up page. Get exclusive investment industry news and insights, the week’s top headlines, and what you and your clients need to know. For more from Globe Advisor, visit our homepage.
Copper – traditionally seen as a gauge of global economic health – is taking on a new shine as a critical metal in the clean energy transition.
Although resource experts are upbeat on the price of the coveted commodity over the medium-to-longer term, some miners are now takeover targets as merger and acquisition (M&A) activity heats up.
“The environment is ripe for higher copper prices given demand shocks from the energy transition,” says Jon Case, portfolio manager and research lead for metals and materials at CI Global Asset Management.
But that price trend will take a year or two to unfold as growing demand needs to catch up to some additional supply from several mines, says Mr. Case, who oversees CI Resource Opportunities Class fund.
Teck Resources Ltd. TECK-B-T, Anglo American PLC NGLOY, Ivanhoe Mines Ltd. IVN-T and Rio Tinto PLC RIO-N are among the firms with mines bringing more copper into the market.
Copper is expected to play a key role in the shift to electrification – for everything from electric vehicles to charging infrastructure, batteries, transmission lines and solar and wind technologies.
The metal’s price hit a record high of about US$5 a pound in March 2022, but has pulled back to about US$3.72. That’s largely due to a weak recovery in China, which accounts for about 50 per cent of copper consumption globally.
“We are very bullish on copper,” but an explosion in price hinges on the pace of the shift toward renewable energy, Mr. Case says. “Copper could be US$5-US$8 a pound … between now and 2030.”
Among large-cap miners, his favourite is First Quantum Minerals Ltd. FM-T, which has assets in Panama and Zambia.
“It’s the best value of the purer-play copper stocks,” but does have political risk, he notes.
Its Cobre Panama mine suspended operations briefly before settling a dispute in March over taxes and royalties with the Panamanian government.
Meanwhile, Barrick Gold Corp. ABX-T was rumoured to have been rebuffed in an approach to acquire First Quantum Minerals this year.
“If it ever ran a [sale] process, there would be bigger fish after it,” he says.
Mr. Case also likes diversified miner Teck Resources, which has “one of the best growth profiles in copper.” It’s now considering selling all or part of its steelmaking coal business, which is 60 per cent of its revenue.
Among smaller-cap names, he favours Metals Acquisition Ltd. MTAL-N. The former chief executive officer of Detour Gold Corp. started the company to look for copper assets and recently bought the CSA mine in Australia from mining giant Glencore PLC.
“There’s a huge opportunity to unlock value” in this profitable mine because small assets often don’t get lots of reinvestment dollars if they don’t move the needle financially for a corporation, Mr. Case says.
His fund owns Capstone Copper Corp. CS-T. It has become a mid-cap stock after doubling in size from a merger with Chilean-focused Mantos Copper SA and is climbing the ranks as an alternative to First Quantum Minerals, he adds.
Big miners look for copper growth
Daniel Greenspan, senior equity analyst and resource team director at CIBC Asset Management, is also positive on rising copper prices over the medium to longer term.
The global energy transition will require a lot of copper, but “supply is going to struggle to keep up,” says Mr. Greenspan, who co-manages CIBC Canadian Resources Fund.
Building new mines is more challenging due to difficulties in getting environmental permits and obtaining financing, particularly for early-stage companies, because of higher interest rates, he says.
Because the easy mines have been dug, the next generation of mines are going to be deeper or lower grade, so you need a higher copper price to make the returns on them attractive, he says.
Big miners will also seek copper growth through M&A too, he adds. Glencore, which recently made an offer to acquire Teck Resources’ coal business, was unsuccessful in its unsolicited bid for the whole company.
This year, BHP Group Ltd. BHP-N bought copper producer Oz Minerals Ltd., while Lundin Mining Corp. LUN-T acquired a majority interest in SCM Minera Lumina Copper Chile, operator of the Caserones mine.
And last year Rio Tinto bought out the minority shareholders of Turquoise Hill Resources Ltd., which is developing Mongolia’s Oyu Tolgoi copper-gold mine.
Among larger-cap plays, Teck Resources, whose main operations are in the Americas, is a top holding in the CIBC fund.
Coal is not expected to be part of Teck Resources in the future, so its stock should re-rate to a higher multiple and trade more like a copper play than a blended coal-and-base metals business, Mr. Greenspan says.
“It has good copper growth in the pipeline and strong zinc assets too.”
First Quantum Minerals is also compelling, he says. “It’s going to be ramping up operations into a stronger copper price environment.”
Mr. Greenspan also likes Ivanhoe Mines, which has the Kamoa-Kakula copper project in the Democratic Republic of the Congo. It’s one of the highest-grade copper mines globally with Phase Three starting up at the end 2024, and there’s potential for further phases, he says.
Its South Africa-based Platreef development project is also one of the biggest nickel-platinum group metal plays globally, he adds.
He also favours Ero Copper Corp. ERO-T, a low-cost producer That operates in Brazil and could potentially double production by 2025.
“It’s about a year or so away from turning free cash flow positive,” he says.
Another way to get exposure to copper is through exchange-traded funds (ETFs) such as the large-cap Horizons Copper Producers Index ETF COPP-T and Global X Copper Miners ETF COPX-A. The smaller-cap, Sprott Junior Copper Miners ETF COPJ-Q launched this year.
Gold companies and carmakers get in on copper
John Ciampaglia, chief executive officer of Sprott Asset Management LP, says he’s bullish on copper prices and equities over the long term.
The International Energy Agency’s recent critical minerals report says that copper demand may have to grow by more than 60 per cent by 2040 relative to 2022 to reach net-zero carbon emissions by 2050 under the Paris Agreement, he says.
Because large capital expenditures are needed to build a new mine, copper prices need to get to US$6 a pound or more to incentivize the production required over the next 20-odd years, Mr. Ciampaglia suggests.
Smaller companies in Sprott Junior Copper Miners ETF are well positioned to capitalize on deficits in copper supply, he says.
The ETF has had two takeovers so far among its holdings. Hudbay Minerals Inc. HBM-T acquired Copper Mountain Mining Co. and SolGold PLC SOLG-T bought Cornerstone Capital Resources Inc.
Gold companies are also looking for copper acquisitions, Mr. Ciampaglia says. Gold miner Newmont Corp. NGT-T recently struck a deal to buy Australian gold and copper miner Newcrest Mining Ltd. NCM-T.
And car companies are starting to invest in copper miners too, he adds.
Earlier this year, European automaker Stellantis NV STLA-N acquired a 14-per-cent stake in McEwen Copper, a subsidiary of McEwen Mining Inc. MUX-T, which has copper deposit in Argentina.
“Stellantis made an equity investment in McEwen Copper so that it can secure supply when that mine goes into production,” he says.
“It’s like what happened 100 years ago when Henry Ford [founder of Ford Motor Co.] owned rubber and steel companies. He wanted to own all the supply chain.”
For more from Globe Advisor, visit our homepage.