Upbeat US Data, Supply Concerns Prop Copper: 5 Stocks to Gain

Copper futures for May delivery gained 2.3% to $4.1375 per pound — a level last seen in mid-March — courtesy of upbeat services PMI data and better-than-expected nonfarm payrolls numbers, which have been fueling optimism regarding a robust US economic growth this year. Meanwhile, the decision by Chile — the world’s top exporter of the metal — to close its borders during April due to a spike in COVID-19 cases has led to supply concerns. So far this year, copper prices have gained 16% owing to accelerating demand for the red metal on account of pick up in manufacturing activity, particularly in China.

The IHS Markit US Services PMI came in at 60.4 in March 2021, higher than 59.8 in February — the fastest output growth since July 2014. New business expanded the most in six years, reflecting strengthening client demand amid easing of virus containment restrictions in some states. According to the latest Labor Department report, total nonfarm payroll employment rose by 916,000 in March and the unemployment rate fell to 6.0%, reflecting the resumption of economic activity that had been thwarted by the pandemic. In the United States, there has been a noted expansion in manufacturing activity over the past 10 months. The Caixin China General Manufacturing PMI has remained above 50 since May last year, denoting expansion. Meanwhile, the IHS Markit Eurozone Manufacturing PMI has also trended above 50 since July last year. This pickup in manufacturing activity worldwide bodes well for copper demand.

Chile closed its borders in April in an effort to counter the rise in coronavirus cases as it seeks to accelerate its vaccination campaign. Notably, the country’s reported infections have crossed the 1 million mark. The stepped-up border restrictions may disrupt mining activities by delaying equipment replacement. Notably, supplies from two major producers Chile and Peru, which together account for about 40% of world copper production, have been volatile due to the impact of the coronavirus pandemic. While Chile's copper output decreased 1% in 2020, production in Peru fell 12.5%. The unrelenting nature of the pandemic remains a persistent threat to copper miners. Nevertheless, this demand-supply imbalance will prop up copper prices, which bodes well for miners.

The long-term outlook for copper remains positive as demand is anticipated to improve on investments in electric vehicles and renewable energy, and infrastructure. Meanwhile, grade decline, rising input costs, water constraints and scarcity of high-quality future development opportunities continue to constrain the industry’s supply. Notably, miners are now committed to cost-reduction strategies and digital innovation to drive operating efficiencies, which will aid margins in the long haul.

Copper miners fall under the Zacks Mining – Non Ferrous industry, which has gained 68.8% in the past six months compared with the S&P 500’s rally of 18.6%. The industry falls under the broader Basic Materials sector, which increased 30.3%. The industry currently carries a Zacks Industry Rank #97, which places it at the top 37% of 256 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

Per the latest Earnings Trends, after remaining in the red for the past four quarters, the Basic Materials sector returned to growth with an earnings improvement of 28.1% in fourth-quarter 2020. The sector is expected to witness growth of 66.4% in earnings in first-quarter 2020, followed by 162.2%, 48.8% and 11.8% in the second, third and fourth quarters, respectively. The prospects for 2021 look promising for the sector with an impressive earnings growth projection of 58.4%.

5 Copper Stocks to Watch

We suggest investors to keep an eye on these five copper-mining stocks that we have handpicked. Notably, each of these stocks have a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), and outperformed both the sector’s and S&P 500’s rally of 33.1% and 20.6%, respectively. This is shown in the chart below. These stocks are anticipated to carry the momentum forward backed by their earnings growth projections.

BHP Group BHP: Headquartered in Melbourne, Australia, BHP Group engages in exploration, development, and production of oil and gas properties; and mining of copper, silver, zinc, molybdenum, uranium, gold, iron ore, and metallurgical and energy coal.

The company has four major projects under development in petroleum, copper, iron ore and potash with a combined budget of $8.5 billion over the life of the projects, which will drive growth in the long run. Efforts to make operations more efficient through smarter technology adoption across the entire value chain will continue to aid in reducing costs, thereby boosting the company’s margins. Its focus on lowering debt will also contribute to growth.

The company has a long-term estimated earnings growth rate of 4%. The Zacks Consensus Estimate for the company’s fiscal 2021 earnings suggests year-over-year growth of 77%. The estimate has been revised upward by 19% over the past 90 days. The stock flaunts a Zacks Rank #1. Its shares have climbed 41% in the past six months.

Rio Tinto plc RIO: Headquartered in London, the U.K., Rio Tinto engages in mining of aluminum, silver, molybdenum, copper, diamonds, gold, borates, titanium dioxide, salt, iron ore, and uranium.

The company’s world-class portfolio of high-quality assets and strong balance sheet positions it well to navigate through these turbulent times. Rio Tinto’s disciplined capital allocation supports its ability to sustain production, increase investment in development projects (in high-return iron ore and copper), while delivering superior returns to shareholders. Notably, its copper projects at Resolution (Arizona) and Winu (Western Australia) offer significant growth prospects.

The Zacks Consensus Estimate for fiscal 2021 earnings indicates year-over-year improvement of 75%. The estimate has been revised upward by 53% over the past 90 days. The company sports a Zacks Rank #1. Over the past six months, the company’s shares have gained 34%.

Southern Copper Corporation SCCO: This company based in Phoenix, AZ engages in mining, exploring, smelting, and refining copper and other minerals.

The company has the largest copper reserves in the industry and operates high-quality, world-class assets. Its constant focus on increasing low-cost production is commendable. The company will benefit from its efforts to grow in Peru given that the country is currently the second largest producer of copper globally and holds 13% of the world’s copper reserves. It has growth projects on track that will help achieve its target of producing 1.9 million tons of copper production by 2028.

The Zacks Consensus Estimate for the company’s earnings in 2021 suggests year-over-year growth of 66%. The estimate has moved north by 29% in 90 days’ time. It has a long-term estimated earnings growth rate of 17.8%. The company’s shares have appreciated 57.2% in the past six months. It currently has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Freeport-McMoRan Inc. FCX: This Phoenix, AZ-based company is engaged in mineral exploration and development; mining and milling of copper, gold, molybdenum and silver; and smelting and refining of copper concentrates.

Freeport is conducting exploration activities near existing mines with focus on opportunities to expand reserves. The company will benefit from ongoing large-scale concentrator expansion project at Cerro Verde that will provide incremental annual production of around 600 million pounds of copper and 15 million pounds of molybdenum. It recently completed the Lone Star copper leach project and is on track to produce around 200 million pounds of copper annually. The company is looking to advance studies for potential expansions and long-term development options for its large-scale sulfide resources at Lone Star. The company's effective cost management and efforts to reduce debt levels appear encouraging.

The Zacks Consensus Estimate for earnings for fiscal 2021 indicates year-over-year improvement of 365%. The estimate has been revised upward by 32% over the past 90 days. Shares of the company has soared 125% over the past six months. It has a Zacks Rank #3 and a long-term estimated earnings growth rate of 26.6%.

Kaz Minerals plc KZMYY: This U.K.-based company and its subsidiaries engage in mining and processing copper and other metals (gold, silver, zinc) primarily in Kazakhstan and Kyrgyzstan.

The company is well-poised to grow on the back of its large scale, low cost open copper pit mines. Its constant focus on implementing modern technology to develop deposits has aided it in building a portfolio of highly profitable mines with low operating costs. The Aktogay expansion project, which is anticipated to commence production in late 2021, is expected to boost the company’s copper production by 80,000 tons from 2022-27 and 60,000 tons thereafter. The bankable feasibility study for the Baimskaya copper project is estimated to be completed in the first half of 2021. Baimskaya is one of the world’s largest undeveloped copper resources with the potential to be a large scale, low cost open pit copper mine.

The Zacks Consensus Estimate for the company’s earnings for 2021 has moved up 47% over the past 90 days. Its shares have soared 86% in the past six months. The stock has a Zacks Rank #2.

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Matt Earle

Matthew Earle is the Founder of MiningFeeds. In 2005, Matt founded MiningNerds.com to provide data and information to the mining investment community. This site was merged with Highgrade Review to form MiningFeeds. Matt has a B.Sc. degree with a minor in geology from the University of Toronto.

By Matt Earle

Matthew Earle is the Founder of MiningFeeds. In 2005, Matt founded MiningNerds.com to provide data and information to the mining investment community. This site was merged with Highgrade Review to form MiningFeeds. Matt has a B.Sc. degree with a minor in geology from the University of Toronto.

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