Lower copper scrap supply, mining restrictions due to the coronavirus, and better than expected demand have resulted in copper prices being surprisingly strong. The iPath Series B Bloomberg Copper Subindex Total Return ETN’s (JJC) is up 35% from its March lows and is 10% above their pre-coronavirus highs. 

This is contrary to expectations as most investors expected that economic weakness would persist and hurt commodities like copper. Instead, the industrial economy has been quite strong and rebounded faster than other segments. In part, it’s due to the quicker recovery in China, and its government’s aggressive investment efforts.  

Demand for copper is expected to remain strong into the year-end as more economies continue recovering. Leading indicators for global economic data are also showing that New Orders are increasing, while inventories are low. In the US, the strong housing market will also lead to more copper demand.

According to the Gordon Brothers Copper Industry Insight, worldwide demand is expected to grow 2.6% annually through 2027 based on the expected growth of the electric vehicle market and the Chinese power and infrastructure sectors. Copper producers like Southern Copper Corporation (SCCO), Freeport-McMoRan, Inc. (FCX) & Hudbay Minerals Inc. (HBM) will be able to take advantage of these favorable long-term fundamentals. 

Southern Copper Corporation (SCCO)

SCCO’s cost competitiveness and financial position in the second quarter have been key drivers of its rapid recovery. The stock of this copper miner and refiner has grown more than 90% since it hit its 52-week low of $23.43 in March.

In the second-quarter earnings report, Chairman of the Board German Larrea said, “Considering the current environment and the impacts of the COVID-19 pandemic, we believe that mining investment will play an important role in the recovery of both the Mexican and Peruvian economies. As such, we will continue to develop our projects, consistent with our belief that Southern Copper’s operations constitute risk-controlled generators of economic resources that provide well-remunerated employment and tax revenues to the countries in which we operate. We reaffirm our intention to generate long-term value for our shareholders by driving highly competitive projects and cost reduction efforts.”

In the second quarter, net sales increased 3.8%, net income increased by 20.8% and EBITDA increased 7.1% quarter-over-quarter.

SCCO has an annual dividend of $1.60 which yields 3.53%. Moreover, the market expects the company to report an EPS of $0.43 for the quarter ended September 2020, which represents a 7.5% increase over the year-ago number.

How does SCCO stack up for the POWR Ratings?

A for Trade Grade

A for Buy & Hold Grade

A for Peer Grade

B for Industry Rank

A for Overall POWR Rating

You can’t ask for better. The stock is also ranked #4 out of 33 stocks in the Industrial-Metals industry.

Freeport-McMoRan, Inc. (FCX)

The ramp-up of underground production at Grasberg minerals district in Indonesia in order to achieve large scale, low-cost copper and gold production as well as FCX’s initiatives in North America and South America are encouraging. The shares of this miner of mining of mineral properties have grown more than 180% since its March lows.

In the second quarter, FCX’s operating income increased 872.7% year-over-year and EPS was $0.03 as compared to the loss per share of $0.05 a year ago. FCX’s consolidated sales volumes of copper and gold surpassed April 2020 estimates.

The company’s EPS is expected to grow 250.4% per annum in the next five years. FCX’s consensus revenue estimate of $3.48 billion for the quarter ended September 2020 indicates a year-over-year increase of 5.3%. Also, the market expects the company to report earnings per share of $0.12 for the quarter that ended in September 2020, which represents a significant improvement over the year-ago loss per share $0.01.

FCX is rated “Strong Buy” in our POWR Ratings system, consistent with its solid cost and capital management. It also has an “A” for Trade Grade, Buy & Hold Grade and Peer Grade, and a “B” in Industry Rank. It is also ranked #5 out of 33 stocks in the Industrial-Metals group.

Hudbay Minerals Inc. (HBM)

HBM exhibited strong production and efficient cost management from the Manitoba operations during the second quarter. The quarter marked higher production levels of all metals compared to the previous quarter and record gold production due to increasing Lalor gold grades and record gold recoveries.

The temporary suspension of Constancia operations until mid-May was offset by higher gold production in Manitoba as well as higher realized gold prices which helped drive the company’s price performance.

In the quarter, consolidated cash cost per pound of copper produced, net of by-product credits increased 47% and consolidated gold production increased by 7% quarter-over-quarter. Furthermore, cash generated from operating activities was up 245.1% and net loss reduced to $51.9 million as compared to a net loss of $76.1 million in the first quarter this year.

HBM’s EPS is expected to grow 71.3% per annum in the next five years. Since its March lows, the stock has grown more than 220%.

It’s no surprise that HBM is rated “Strong Buy” in our POWR Ratings system. It also has an “A” for Trade Grade and Buy & Hold Grade and a “B” for Peer Grade and Industry Rank. In the 33-stock  Industrial – Metals industry, it is ranked #17.

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FCX shares were trading at $13.77 per share on Friday afternoon, down $0.02 (-0.15%). Year-to-date, FCX has gained 5.34%, versus a 5.74% rise in the benchmark S&P 500 index during the same period.

About the Author: Anmol Suratkal

Anmol began his career as a financial writer and evolved into an investment analyst and journalist with a special interest in risky instruments. He specializes in analyzing financial data and writes insightful articles to help investors generate solid long-term returns. More...

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