Copper is the key to the old energy economy and will also play a key role in the new green energy. Cables made of metal are still the most cost-effective means of transmitting electricity from solar and wind energy, and it is a key material for charging stations and the electric cars that use them. Goldman Sachs analysts did say that “decarbonization would not happen without copper,” and they called it the “new oil”.
A report by Goldman Sachs Commodity Analyst Nicholas Snowdon stated that as the global economy recovers, the already tight supply may be further tightened due to the expected five-fold increase in the demand for green energy in the current decade, leading to A severe shortage started in the mid-2020s. . He believes that the price of copper is currently about US$4.50 per pound and will reach US$6.80 by 2025. Michael Widmer, a commodity strategist at Bank of America, believes that copper prices may reach $6 this year.
The share price of copper producers has risen sharply in the past year, as copper prices have doubled from their lows since Covid, but there is still room for growth.
The Global X Copper Miners Exchange Traded Fund (COPX) holds mining stocks, while the US Copper Index Fund (CPER) provides a direct metal role by owning futures contracts.
The main risk for copper is the unexpected weakness of the global economy. China is very important. It accounts for about half of global demand. However, Goldman Sachs analysts estimate that, given that the demand related to green electricity (which will account for only 3% of copper usage by 2020) may reach 16% by 2030, there will be no correction.
An electric car contains up to 180 pounds of red metal, which is four times that of an internal combustion engine car. Onshore wind turbines consume about four times as much copper per megawatt of electricity as fossil fuel-burning power plants. The copper concentration of offshore wind farms is higher. They need thick copper cables to transmit power on shore.
Jefferies analyst Chris LaFemina believes that in the commodity market, higher prices usually lead to higher production, but copper prices may have to reach $6 per pound. In order to persuade miners to increase production capacity. “Copper supply restrictions are the worst ever. Combine it with the recovery of demand and you can set higher prices,” he said.
The copper mine produces about 21 million tons per year, or about 45 billion pounds. Freeport pointed out last month that only a new annual supply of 2 million tons has been developed. When copper prices collapsed from a high of $4.70 per pound ten years ago, miners were cautious after being burned to death. There are only a few good mining sites worldwide, and due to permits and environmental reviews, the lead time for new projects may be as long as 6 to 8 years.
All of this benefits Fugang companies (such as Freeport), which have more than 30 years of reserves. Based on the most recent 44 U.S. dollars, its stock price is 16 times the 2021 earnings per share of 2.71 U.S. dollars and 14 times the 2022 expected earnings of 3.08 U.S. dollars. LaFemina said: “Freeport has world-class assets and is a very good operator.” He gave the stock a “buy” rating with a target price of $55. He expects 2022 earnings per share to exceed market average expectations. Of 4 dollars.
Freeport is expected to produce nearly 4 billion pounds of copper this year. It owns mines in Arizona, two mines in South America, and owns 49% of the Grasberg large copper-gold mine in Indonesia.
First Quantum, headquartered in Canada, has three main mines, two in Zambia and one in Panama. Its annual copper production is about half that of the free port, and it has higher leverage and a net debt of 7 billion U.S. dollars. The stock’s share price in the United States is the most recent $28, which is 23 times the earnings per share of $1.23 in 2021 and 14 times the expected earnings per share of $2.01 in 2022. LaFemina rated the stock as a “buy” with a target price of $38, and the estimated earnings per share for 2022 were higher than $3.00. When the copper hedging transaction below market price starts, First Quantum’s earnings will increase in 2022.
Southern Copper has mining operations in Mexico and Peru, has the largest reserves in the industry, and has the lowest production costs. Its stock price is approximately US$77, and the transaction price is 20 times the predicted 2021 net earnings per share of US$3.79. Its goal is to double production by 2028, and is expected to produce approximately 2 billion pounds in 2021.
John Tumazos of John Tumazos, a very independent research company, agreed to use Grupo Mexico as the script for Southern Copper. Controlled by the billionaire German Larrea Mota-Velasco, Mexican Grupo owns 89% of Southern Copper and 70% of Mexico’s largest railway company, Grupo Mexico Transportes. “Through Mexican Grupo, you can buy Southern Copper at a significant discount and get the railroad for free,” Tumazos said.
Given that copper may be in a long-term bull market, investors still have time to enter the market.