Copper plays a key role in renewable energy technology because of its unique properties. Demand for the metal should benefit mining stocks including Arc Minerals, Ivanhoe Mines and First Quantum Minerals – if they are able to take advantage of the current supply-demand challenges.
- Supply imbalance has created a window to gain exposure to copper stocks and funds.
- S&P Global has warned there could be a supply deficit by the end of the decade.
- The Global X Copper Miners ETF is up 8.5% year-to-date.
Arc Minerals [ARCM.L], Ivanhoe Mines [IVN.TO] and First Quantum Minerals [FM.TO] could be among copper mining stocks to watch in 2023, with the metal tipped to benefit from the energy transition.
According to research published by US Global Investors CEO Frank Holmes earlier this month, demand for copper is heating up. But, at the same time, “the global supply pipeline is thinning due to shrinking exploration budgets and a dramatic slowdown in the number of new deposits.”
This supply imbalance has created an opportunity to gain exposure to high-quality miners or commodity funds that hold copper exploration and production stocks, Holmes added.
The Arc Minerals share price is up 27% year-to-date, while the Ivanhoe Mines share price is up 9.2%; meanwhile, the First Quantum Minerals share price is down 8.3 %.
Holmes specifically highlighted the potential of Ivanhoe Mines. At the end of January, the producer published its development plan for its Kamoa-Kakula copper complex in the Democratic Republic of Congo, including a pre-feasibility study for phase-three and phase-four expansions.
A preliminary economic assessment extended the life of the mining complex by nine years, meaning production should continue until 2060. Output at the mine last year was up 215% from 2021. The 333,497 tonnes produced was at the upper end of its guidance range of 290,000 to 340,000; output for 2023 is expected to be between 390,000 and 430,000.
Investors have been buying into Arc Minerals in anticipation of the junior explorer’s joint venture with Anglo American [AAL.L] for its copper interests in Zambia, which is in the process of being finalised. Anglo American is set to pay up to $88.5m for 70% ownership of the joint venture.
First Quantum Minerals has tumbled since the start of the month after the miner suspended concentrate loading operations at the Cobre Panamá port over a dispute. If the concentrate can’t be shipped by the middle of February, its copper mine may have to be temporarily shut down.
Supply imbalance risk
Future demand for copper is set to be driven by renewable power technologies – wind turbines and solar photovoltaics – and battery storage solutions. The miners that are able to accelerate their output to meet this demand are likely to come out on top.
However, the shift towards decarbonisation is at risk if the mining industry as a whole doesn’t increase its investment in mines and new exploration projects, according to S&P Global’s Future of Copper report, published in July last year.
Analysts at S&P Global have predicted that there will be a 1.6 million-tonne shortage worldwide by 2035, and major deficits beginning later this decade. In a worst-case scenario, the world could be short by 9.9 million tonnes.
One of the challenges facing miners is that it can take years – and sometimes more than a decade – for mines to go from discovery to production. But even if permission and construction accelerated, “[p]rojects under development today would likely not be sufficient to offset the projected shortfalls in copper supply”, wrote the authors of the report.
Funds in focus: Global X Copper Miners ETF
The Global X Copper Miners ETF [COPX] holds Ivanhoe Mines and First Quantum Minerals, assigning them 4.87% and 4.07% of their respective portfolios as of 9 February. The fund is up 8.5% year-to-date.
The iShares MSCI Global Metals & Mining ETF [PICK] also holds both stocks, but with much smaller weightings of 0.99% for First Quantum Materials and 0.46% for Ivanhoe Mines as of 10 February. The fund is up 7% year-to-date.
Arc Minerals is held by the Sprott Junior Copper Miners ETF [COPJ], assigning it a 0.54% weighting. The fund is down 6.6% since launching on 1 February.
Another way to invest in copper is through funds that give exposure to listed copper contracts. The United States Copper Index ETF [CPER] is up 5.8% year-to-date.
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