From oil and metals to lumber and coffee, the prices of most commodities are on the rise this year.
Generally speaking, improving demand and persistent supply chain issues have caused the cost of many raw materials to soar as the global economic recovery unfolds.
As we’ve seen in recent weeks, inflation can have a negative impact on consumer behavior and stock valuations. But today our focus is on how higher commodity prices can have a positive effect on the companies that produce the commodities.
Let’s take the case of mining companies. Whether it be iron ore, gold, silver, or copper, when a miner can sell their product for more, this is going to boost their financial results. Even better if they can find ways to lower their cost structure.
This is why we typically see mining stocks go up alongside a rise in metal prices. The same goes for oil, gas, livestock, wheat, and other commodity producers.
Copper miners in particular have seen their stocks move higher on the backs of surging copper prices. COMEX copper prices have rebounded sharply since March 2020 at the onset of COVID-19. They are up 34% year-to-date and at $4.72 per pound are at record levels.
Soaring global demand for the “red metal” along with the scarcity of new supply and a weak U.S. dollar have been the perfect storm for copper—and the companies that mine it.
Copper plays a critical role in the world economy. It has widespread applications in electrical wiring, plumbing, consumer electronics, telecommunications, architecture, and much more.
Lately, much of the attention has been on copper as a key cog in auto manufacturing. Copper has traditionally been used in radiators, heat exchangers, and brake tubes. Yet it copper’s use in electric vehicles (EVs) that is a major source of the recent demand.
According to the Copper Development Association a single EV can contain up to 183 pounds of copper. An electric bus can use as much as 814 pounds. Due to its electrical conductivity and durability, copper is found in electric motors, batteries, wiring, and inverters. Throw in the fact that copper is a key component of EV charging stations and it’s easy to see why copper is such an important part of the e-mobility movement.
With governments around the globe mandating ambitious carbon emission targets, it’s also easy to see why vehicle manufacturers are scrambling to secure all the copper they can get their hands on.
The favorable backdrop for copper is why many beaten-down mining stocks are suddenly all the rage. It is also why we highlight these four copper stocks as attractive ways to play the copper boom.
COPPER STOCKS TO WATCH #1 FCX
FCX is a large-cap copper play. The stock has advanced in 12 of the last 13 months and is closing in on its all-time high of a decade ago.
The Phoenix-based miner is coming off a sizzling first-quarter performance in which it sold 825 million pounds of copper. Thanks to an average realized copper price of $3.94, revenues were up 73% in the period.
FCX will undoubtedly be a long-term beneficiary of two of the biggest secular trends. In addition to the EV revolution, clean energy development is expected to shift the world’s power landscape for decades to come. And since copper is also a key component of solar energy equipment and wind turbines, FCX will have a two-headed demand monster at its disposal.
The other side of the copper price equation, supply, is also in FCX’s favor. The global pipeline of copper exploration projects is limited. Roughly 33 feasible projects are estimated to be in the works, only seven of which are considered high volume. At the same time, starting a new project is a lengthy and costly endeavor given the time required for permit approval and geological studies.
As one of the world’s largest copper producers, FCX is well-positioned to benefit from favorable copper supply-demand dynamics for years to come.
FCX sits on an estimated 113 billion pounds (51.3 million tons) of copper that is well diversified across its operations in North America, South America, and Indonesia. It projects that it will sell approximately 4.4 billion pounds by 2022, a 38% increase from last year’s sales volume.
FCX investors also get exposure to gold, the company’s secondary asset. And with gold prices also elevated, having 29 million ounces of gold reserves isn’t too shabby either. FCX also owns 3.7 billion pounds of molybdenum, a lead-like metal used to make engine parts, drills, and saw blades.
Rising copper prices are just what the doctor ordered for this low-cost producer. Look for it to generate strong cash flow and its share price to trend higher over the next several years.
COPPER STOCKS TO WATCH #2 SCCO
SCCO is no slouch either. The Mexico City-based mining company has an identical market cap to FCX at $62 billion.
It has operations in Mexico and Peru but most of its copper production will be heading east. That’s because Asia accounts for nearly two-thirds of the world’s copper consumption. China alone consumes almost half.
No one has more copper reserves than SCCO. Its 67.7 million tons are spread across nine open pit and underground mines located in Mexico and southern Peru.
Of course, having reserves and mining copper are two different things. SCCO is the fifth largest copper producer in the world.
Aside from having room to ramp production, one of SCCO’s key attributes is its long mine life, i.e. how long it can produce copper. After the company completes its expansion plans in 2028, its mines will have 50 years’ worth of production. This too is an industry-leading metric. By 2028, SCCO is targeting copper production of 2 million tons, which is twice its production of 2020.
It also has one of the lowest cost profiles in the industry. In its most recent quarterly report, the operating cash cost of copper was $1.51, a good distance away from current copper prices.
SCCO’s other interests are molybdenum, silver, zinc, and other minerals that together represent about 15% of revenue. So, in SCCO you are primarily getting a copper stock but also a diversified play on an industrial metal recovery.
Another thing that separates SCCO from other copper plays is its generous dividend. Income investors will appreciate the 3.6% forward dividend yield.
SCCO is trading near an all-time high but can certainly charge higher as EVs continue to become engrained into our daily transportation lives.
COPPER STOCKS TO WATCH #3 ORRCF
Switching gears to the OTC markets, ORRCF is a small-cap copper play trading around $2.45.
A little over a year ago, the stock traded as low as $0.05 but has since ridden the copper wave to new heights.
Despite the incredible run, Canada-based ORRCF can continue to run. Given the fundamental backdrop of rising copper demand and limited supply, it’s hard not to see copper and copper mining stocks trending higher over the long haul.
ORRCF has a 61% interest in Santo Tomas, a large porphyry copper deposit located in northwestern Mexico. Porphyry is a fancy word that describes a type of igneous rock with large mineral crystals. If the company invests as much as C$30 million in the project its stake would increase to 81%.
A historical pre-feasibility study of the area revealed a large copper resource and good mining prospects. Even though much work remains to reach the point of production, investors have been lining up in anticipation of more good news ahead.
It’s easy to see why. Not only does it have a majority position in a very promising copper resource, but it is in excellent financial health. ORRCF has a cash position of more than C$20 million and carries no debt on its books. This puts it in a great position to invest in Santo Tomas and affords it ample opportunity to obtain additional financing.
Earlier this year ORRCF announced preliminary results from its 3D geophysical survey of Santo Tomas. In the words of CEO Craig Dalziel, the modeling showed “an extensive area of strong chargeability response”. Translation: there’s a lot of copper there. Below is an image from ORRCF’s 3D Survey:
Source: Oroco Resource Corp.
ORRCF’s level of insider ownership is also attractive. Approximately 25% of shares are owned by company insiders. This is a desirable attribute because it means management’s interests are aligned with shareholders’ interests.
Don’t be scared away by the huge move in ORRCF. Although a better entry point could be had, this stock is unlikely to have many bad days ahead. Even modest weakness in the share price should therefore be viewed as a chance to pounce.
COPPER STOCKS TO WATCH #4 DSMTF
DSMTF is an intriguing OTC penny stock trading around $0.20. It has a market cap of just $30 million and a low float of 75 million shares.
It also has a healthy balance sheet with a $5 million cash position and minimal debt. This means that the net cash position represents 15% of the market value.
The Canada-based company’s wholly-owned Haib Copper Sulfate Project in southern Namibia is one of the largest copper deposits in Africa. It is estimated to contain more than 5 billion pounds of copper resources.
Production at the Haib Project is not expected to begin until 2026. From there, the open-pit mine is estimated to have a life of 24 years. It is forecast to produce more than 90 million pounds of copper annually at a cash cost of $1.34 per pound. So, when you compare that cost to where compare prices are (and maybe heading) it’s easy to get excited about DSMTF’s potential profits.
DSMTF is in the midst of a 10,000-meter drill program. As of May 10th, the company had progressed 152 meters. It has noted some higher-grade copper deposits including 30 meters of 0.81% copper equivalent (CuEQ).
Pierre Leveille, President & CEO of DSMTF commented, “We are extremely enthusiastic by the first results from our active drill program. Previous drilling programmes point to the presence of higher grade zones of Cu, probably associated with near vertical structures within the broader mineralised areas of the project.”
If the drilling continues to yield positive data around the mine’s copper resources it could spark a near-term run in the stock.
Further down the road, DSMTF could benefit from the results of a feasibility study which are expected in the first half of 2023. This will involve an infill drill program of up to 12,000 meters designed to expand the mine’s high-grade copper zone.
It is also encouraging that DSMTF management owns 12% of the stock and that its largest shareholder is Teck Resources, a $13 billion Canadian mining company. Pure speculation, but it’s plausible that Teck Resources could someday acquire DSMTF to boost its copper portfolio.
In the meantime, there aren’t many publicly traded copper miners as inexpensive as DSMTF. This makes it a compelling low float penny stock worth digging into.
As we keep saying, there are always opportunities in the markets and it’s our job to find winning penny stocks for our subscribers. Huge gains can be made in such a short amount of time.
If you like any of these 4 copper stocks, our best advice is to be patient and throw bids in below the market. Buying dips and selling rips as swing trades remains the best strategy.
It’s also important to look for penny stocks that have yet to run. There are plenty of opportunities out there and we screen hundreds of penny stocks each week looking for the best alerts for our subscribers.
Remember, all it takes is one or two to become a winner and you’ve crushed the market indices for the year.
As always, good luck to all (except the shorts)!
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Disclosure: We have no position in any of the securities mentioned. We wrote this article ourselves and it expresses our own opinions. We are not receiving compensation for it. We have no business relationship with any company whose stock is mentioned in this article. Insider Financial is not an investment advisor and does not provide investment advice. Always do your own research and make your own investment decisions. This article is not a solicitation or recommendation to buy, sell, or hold securities. This article is meant for informational and educational purposes only and does not provide investment advice.