Copper (Cu) is a metal most people know as the soft, malleable metal we used to toy with at school when making electric circuits. Around the globe, this reddish-orange metal is used in all aspects of heat/electricity conduction, as building material, and as a component of metal alloys such as in jewellery, coins, etc…
Copper is the third most consumed metal in America and this raises the question of whether as the world continues to develop, the demand for the metal will grow. Below is a chart which shows how prices have moved for the metal over the past few years.
Not the most exciting price chart, but Arnoud Balhuizen, Chief Commercial Officer at BHP Billiton, recently said “Copper is the metal of the future”, referencing the electric car revolution that is to come. BHP have said they believe the biggest impact from the trend-to-come will be seen in copper given these kind of vehicles require almost 4x more copper. And they have been investing a lot into that space!
Now, if this trend continues, the world should see Copper prices steadily rise as more people realise this is the place to be investing. So what are the best Copper stocks to hold if you want to be exposed?
Based on 2014 data, Australia was ranked 6th in the amount of copper they produced. Chile being #1, followed by China, Peru, the U.S. and Congo; and most global Companies have exposure in all sorts of regions including the above.
Within the ASX, depending on what you are looking for size wise, you can look at the top two, first of all: BHP and RIO, then move down to OZL, SFR, followed by IGO and a smaller player MLX with its “Nifty” copper mine. If you are looking for promising explorers, we think KGL and PEX are worth a mention.
Around the world, there haven’t been any new major discoveries for some time, so supply might be under pressure in the not too distant future.
Our favourite in the bunch is Independence Group (IGO), a diversified miner in Nickel, Cobalt, Copper and Gold valued at around $2.2B market cap so far. Strong balance sheet with plenty of cash, and a diversified portfolio of metals to smooth out the volatility in metals prices. Note, the electric car revolution should also see Nickel and Cobalt prices increase.
Although IGO hasn’t had the most exciting share price history, we’ve been following the story with eyes on its Nova mine (fairly new bought at around cyclical lows), and Tropicana continuing to do well year on year. Furthermore, our expectations are that Nickel and Copper prices will continue to improve and this story could really surprise on the upside. Definitely a longer-term play as we wait on macroeconomic trends to shape up and Nova to be ramped up, upon which we expect IGO to pursue further growth options.
If the overall resources play is something you’re looking for, and your speculation on commodity prices are that they will improve over the medium-long term, IGO is an overall great play. FY18 guidance sees Nova producing 23-27kt of Nickel and 10-12kt of Cu, at current prices equals about ~$350M in revenues; lower capex, and if gold prices manage to hit and maintain +US$1,300 (as it did a couple weeks ago), IGO will potentially see a great year ahead.