Is Copper Worth the Risk?

How will higher copper prices and increased global demand affect these five companies?

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Copper investing is not for the faint of heart. Production interruptions, price volatility, and significant capital outlays for expansion can spook companies and investors. What does it all mean for the following five companies?

1. Barrick Gold

Barrick Gold (TSX: ABX)(NYSE: ABX) produced 539 million pounds of copper in 2013. As of December 31, 2013, the company’s proven and probable mineral reserves were 14 billion pounds of copper. This year, the company expects copper production to be 410-440 million pounds.

Barrick’s Lumwana copper mine is in Zambia and has a multi-decade reserve life. In 2013, it produced 260 million pounds of copper. But a processing disruption at Lumwana has caused Barrick to revise its copper production guidance. Barrick’s copper production for Q1 2014 was 104 million pounds, down 18% over Q1 2013. This was because of lower production at Lumwana and at Zaldivar, in northern Chile. Barrick noted that Lumwana contains a large mineral inventory with strong leverage to increase copper prices.

2. First Quantum Minerals

First Quantum Minerals (TSX: FM) increased its copper production by 43% to 113,118 tonnes in the first quarter of 2014. It lowered its cash cost of production for copper to $1.38 per pound. This represents a 9% decrease.

The company has its Kansanshi mine, 80% owned by Kansanshi Mining PLC, a subsidiary of First Quantum. The Kansanshi mine is the largest copper mine in Africa. Kansanshi can now produce 340,000 tonnes of copper (and more than 120,000 ounces of gold) each year. A multi-stage expansion project aims to increase copper output capacity to approximately 400,000 tonnes by 2015.

3. Freeport-McMoRan Copper & Gold

Freeport-McMoRan Copper & Gold (NYSE: FCX) is one of the globe’s leading copper miners. For Q1 2014, the company sold 871 million pounds of copper, versus 954 million pounds of copper for Q1 2013. “Our first-quarter results reflect solid operating performance in our North America, South America and Africa mining operations and a meaningful contribution from our oil and gas business, partly offset by the effects of reduced output from Indonesia and lower copper prices,” Freeport-McMoRan said.

According to Thomson Reuters’ GFMS Copper Survey 2014, copper prices are expected to remain under pressure for the rest of this year. The reason? The market has a moderate supply/demand surplus. In 2013, copper prices dropped to $7,346 per tonne on an annual average basis.

4. Imperial Metals

Imperial Metals (TSX: III) had revenues of $187.8 million in 2013 in comparison to $199.4 million in 2012. This revenue decrease was because of lower copper and gold prices. In 2013, the company’s Mount Polley Mine produced 38.5 million pounds of copper, versus 33.8 million pounds of copper in 2012. Its Huckleberry Mine produced 41.2 million pounds of copper in 2013, versus 35.1 million pounds in 2012.

For this year, its Mount Polley mill throughput has been excellent, with an average daily throughput of 23,930 tonnes per day achieved in April. A new hydraulic excavator was commissioned in the mine. Additionally, Imperial Metals installed a fleet-management system to increase productivity and reduce costs.

5. Southern Copper

Southern Copper (NYSE: SCCO) is set to commence construction on its important Tia Maria copper project in southern Peru in the second half of this year. The company expects to produce 670,000 tonnes of copper in 2014, and approximately 800,000 tonnes of copper in 2015.

For Q1 2014, mine production grew by 13,683 tons, or 9.2%, versus Q1 2013. In Q1, operating cash cost per pound of copper before by-product credits was $1.87. This represents a drop of 1.4% compared to $1.90 in Q4 2013. This was chiefly because of lower production costs.

Cost containment is essential to the viability of mining companies. For example, noted that at the 13th World Copper Conference in Santiago, Chile, delegates said they perceived a trend towards insourcing from traditional outsourcing in Chile. It said that miners were again investing more in their own management and operational efficiency.

Can copper provide long-term gains for companies and investors willing to endure short-term pain? With a price rebound, greater global demand, and cost controls in place, these companies could be positioned for growth.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Michael Ugulini does not own shares in any company mentioned.

More on Investing

growing plant shoots on stacked coins
Dividend Stocks

2 Oversold TSX Dividend Stocks to Buy Now and Own for 25 Years

These top TSX dividend stocks look oversold and now offer attractive yields for TFSA and RRSP investors.

Read more »

money cash dividends

Passive-Income Power: How to Make $105/Week TAX FREE in a Bear Market

Investors may want to pursue a passive-income strategy in this bear market by snagging dividend stocks like Freehold Royalties Ltd.…

Read more »

Money growing in soil , Business success concept.
Energy Stocks

3 Growth Stocks up +30% in 2022

These three growth stocks are up over 30% in 2022 alone but have come down in the last few weeks…

Read more »

Oil pumps against sunset
Energy Stocks

2 Energy Stocks That Jumped Over 60% This Year

Consider investing in these two energy stocks amid the recent pullback after putting up stellar gains earlier this year.

Read more »

Profit dial turned up to maximum
Dividend Stocks

RRSP Investors: 2 Undervalued TSX Stocks to Buy Now for Total Returns

Top TSX dividend stocks are now on sale for RRSP investors seeking attractive total returns.

Read more »

TFSA and coins
Dividend Stocks

2 Beaten-Down Stocks to Buy for Your TFSA

Two beaten-down, but high-yield TSX stocks are profitable options for TFSA investors.

Read more »

Volatile market, stock volatility
Stocks for Beginners

3 Top TSX Stocks to Buy in Volatile Markets

Sitting on cash? Consider these three TSX stocks for the long term.

Read more »

Hand writing Time for Action concept with red marker on transparent wipe board.
Dividend Stocks

Inflation Soars to 7.7%: 1 Dividend Stock to Buy Now

Enbridge (TSX:ENB)(NYSE:ENB) stock looks like a magnificent dividend stock to help Canadians deal with inflation at 7.7%.

Read more »