Copper Sector Analysis - October 2021 Update
Copper investment thesis:
Most miners offer 10% earnings yields which is ok, but their stocks are extremely volatile. If copper goes from $2.5 to $3, stocks go up 200%. Stocks also go down 50% if the opposite happens.
My research shows for no medium term large copper deficits which leads me to believe copper price trading ranges might be between $2 and $3 for a while. $4 is possible, but not that likely.
Miner copper supply is expected to grow at 2.4% over the coming 5 years from committed growth. Many projects that could add to that from 2025 and beyond, it all depends on price.
The average investing strategy - as said, most miners give 10% and higher with copper at $3 or above, that is good and positive for long-term investing. Given the environment, I would expect investment returns to be close to 10% over the next 10 years. By 2030 copper could be at $3.2 on average, thus capital gains and dividends should deliver a good return.
However, by 2025 the outlook is of slight surpluses which leads to volatility. So, I will wait for the opportunity for low risk high reward. an opportunity that will likely form itself when copper is around $2.5 and going towards $2 which should be the crisis bottom given cash costs. The potential upside then could also be 100%, but not in 10 years, maybe in months or a year or two. This is the best margin of safety, low risk high reward, waiting for the fat pitch strategy.
Then, on miners, low cost and low risk give peace of mind, allow you to double down and increase long-term returns if things go south. It always looks like the world will and and nobody will ever need copper in crises. Last time the world ended was in March 2020, before that we had January 2016 etc. Best to invest at world end situations.
When the next copper opportunity arises, I will look again at the covered copper mining stocks and elaborate on a strategy which will minimize risk and increase returns.
Two documents below - the strategy and copper situation overview, plus my notes on miner production expectations for those interested in how I came up with the numbers.
The figures represent an overview of copper miners analyzed - to be added to in the future while I wait for the fat pitch.
COPPER STOCKS ANALYZED:
Teck - Coal Exposure + copper + zinc
Southern Copper - SCCO - good one
Norilsk Nickel - Nickel, copper, PGM