We recently compiled a list of the 7 Best Copper Stocks to Buy According to Analysts. In this article, we are going to take a look at where Vale S.A. (NYSE:VALE) stands against the other copper stocks.
Copper is one of the most important metals in the world. Without it, the global industrial and electrical infrastructure will collapse since nearly every electrical system depends on the metal. Data from the Copper Development Association shows that an average single family home covering 2,100 square feet has 439 pounds of copper. More than half of this, or 346 pounds are for wiring and plumbing fittings. Similarly, an average air conditioner has 52 pounds of copper.
At the same time, while copper’s dominance in residential and industrial use cases is permanent and is unlikely to change, its demand should grow in the future due to today’s emerging technology trends. The biggest trend right now is artificial intelligence and systems such as OpenAI’s ChatGPT use as many as 10,000 GPUs for their training. These GPUs require power, and transporting power requires wires that use copper. According to Rob Thummel, senior portfolio manager at Tortoise Capital, the demand for electrical infrastructure is an overlooked aspect of the AI boom, since he believes that there “is no AI without EI (energy infrastructure) because you need this critical infrastructure to provide the fuel to keep their lights on and electricity flowing 24 hours a day.” You can check out which stocks might benefit from the potential gold rush by reading 9 Best AI Energy Infrastructure Stocks to Buy Now.
Naturally, should this demand materialize, then global copper demand will naturally have to grow. However, since copper mining is a capital intensive activity, it takes time for the supply to catch up with demand due to the long development times for copper mines. This means that investors pile into copper stocks with the hope of catching the right picks before they take off, and as AI stocks have soared, copper has followed. Despite a global industrial slowdown led by China (one of the largest users of copper in the world) copper futures have gained 19% since ChatGPT was released. These gains come after an 8.8% drop in July after Chinese economic growth missed analyst estimates. Copper traded on the London Metal Exchange (LME) opened at $8,500 per ton in 2024, and its latest closing price is $9,213 to mark an 8% gain. Since the launch of ChatGPT, copper prices have gained roughly 12%.
So what’s driving global copper demand despite an industrial slowdown? Well, research from the commodity trader Trafigura shows that cumulatively, the growth in electric vehicles, electricity demand, and AI use cases will create an additional 10 million pounds of copper demand over the next decade. Each of these use cases will account for a third of this demand, and industry sources speaking to Reuters also add that copper supplies are tight these days. As of April 2024, copper stocks in LME registered warehouses dropped by a strong 35% since October 2023 to sit at 121,000 tons. This trend continued in June, with the latest data outlining that as of June 27th, headline LME copper stocks slid to 77,050 tons from 100,100 tons three weeks prior despite the fact that 30,000 additional tons were added. Global copper stock inventory sat at the lowest level since 2008, so it’s clear that the market is quite tight even as industrial activity in China and Europe is slow and America battles with high interest rates.
This crunch has come on the back of a broader industrial tightness as well as specific developments. Starting from the former, the S&P Global released a detailed report on the state of the copper industry in May. Its research outlines that copper in initial resources tanked by a stunning 42% in 2023 and sat at 7.6 million for a four-year low. This came on the back of reduced mining activity and lower budgets. The subsequent fall in copper prices due to lower industrial activity also led to a mere 2% growth in initial copper exploration budgets in 2023, which sat at $1.43 billion at year end.
As for the specific developments that have constrained copper supply, a major copper mine in Panama capable of producing 300,000 tons per annum was closed after a court order found that its contract violated the country’s constitution. The Cobre Panama mine accounted for 5% of the country’s GDP and 1% of global supply, and the ruling in November was followed by one of the biggest copper producers in the world cutting its 2024 production guidance. The miner shared that its 2024 production would range between 730,000-790,000 metric tons to mark a 20% cut from the previous estimate to account for disruptions in its facilities in Chile and Peru.
As copper capacity remains tight, global mining giants are already eyeing the future. They are now focusing on Argentina, where a new government is eager to invite foreign capital to stimulate the economy. While Argentina’s share in global copper production is negligible, estimates show that if just six mining projects come online then it could produce one million tons by 2035 and lead to $8 billion in exports. Copper miners have to fork out $130 billion over the next decade if they want to avoid a 7.7 million shortfall in 2034, and for their Argentinian plans, they’ll have to contend with a hostile population, geographic problems, and environmental constraints.
Before we get to the top copper stocks that analysts are optimistic about, fund L1 Capital shared quite a bit of relevant insights for the industry in its Q1 2024 investor letter. It pointed out that by 2027, new data centers could add as much as 1 million tons of additional copper demand per annum, and added that supply needs to grow by quite a bit:
Market supply has tightened into 2024 as existing mine production downgrades and suspensions flowed into the physical markets. The most notable event here was the Cobre Panama mine (~400kt p.a.), which was placed into suspension by the local authorities in November 2023. Other major producers such as Anglo American have also significantly reduced near-term production guidance (Figure 10). While these disruptions provide a catalyst for supply tightness, the industry is structurally challenged in the longer term by a declining existing asset base, as the geological characteristics (i.e. mine grades) deteriorate over time (Figure 11). Escondida, the world’s largest copper mine, has seen copper grades decline from ~3% in the 1990’s to ~0.5% today. This means to produce the same amount of copper, roughly six times the material is required to be mined than at the start of the mine’s life.
While supply growth has been robust over the last three years with numerous projects commissioned (10 projects, bringing ~2Mt of incremental supply), this is largely already factored into current supply estimates, as incremental new project growth slows from 2025. Going forward, BHP estimates the world may need incremental supply of ~10 Mtpa of copper by 2030 (7 Mt to meet growth and 3 Mt to offset projected decline at existing operations), while in 2023 only 340kt of new supply was sanctioned (Figure 12). BHP further estimates the capital requirement to achieve the 10Mtpa production is a staggering US$250b, of which a small amount has been committed today (Figure 13). For context, Sandfire is the largest listed ASX copper producer – the capital requirement to meet market demand represents ~100x their current market cap (i.e. the world needs 100 more Sandfires spent)
With these details in mind, let’s take a look at the best copper stocks to buy according to analysts.
Our Methodology
To make our list of the best copper stocks to buy according to analysts, we ranked all publicly traded companies on US exchanges engaged in copper mining by their average analyst percentage share price upside and picked out the top stocks.
We also mentioned the number of hedge funds that had bought these stocks during the same filing period. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Aerial view of a giant iron ore mine, showcasing the mineral deposits of the company’s Ferrous Minerals segment.
Vale S.A. (NYSE:VALE)
Number of Hedge Fund Investors in Q1 2024: 34
Analyst Average Share Price Target: $15.22
Upside: 38.26%
Vale S.A. (NYSE:VALE) is another global mining giant that mines copper along with other industrial metals. Just like its peer Rio Tinto, the firm also relies on iron for a large portion of its earnings. And just like Rio, Vale S.A. (NYSE:VALE) is also pivoting towards metals that are being used in electrification – copper and nickel. Its Salobo mines in Brazil are the largest copper deposits in Brazil, and they allow Vale S.A. (NYSE:VALE) the opportunity to rapidly capture a piece of the global copper pie as other miners gradually invest in new sites. Salobo also contributed to a hefty growth in Vale S.A. (NYSE:VALE)’s copper production in Q1. During the quarter, it produced 81.9 kilo tons of copper which marked a 22% annual growth. Similarly, its copper sales also jumped by 22.5% during the quarter and sat at 76.8 kilo tons. The Q1 figures built on strong copper production in Q4 and full year 2023. During Q4, Vale S.A. (NYSE:VALE) produced 99,100 tons of copper (50% annual jump) and it ended the year by producing 326,000 tons for a 29% annual growth. Not looking to slow down, Vale S.A. (NYSE:VALE) aims to spend $3.3 billion in its Brazilian and Canadian mines to expand annual production to 500,000 tons by 2028.
Commenting on these developments and how they’re leading to lower costs as well, Vale S.A. (NYSE:VALE)’s management shared during its Q1 2024 earnings call:
Our copper all-in costs decreased by 26% year-on-year driven by continued successful ramp-up of Salobo 3 and improved operational performance at Salobo 1 and 2. The higher proportion of Salobo 3 volumes in the product mix has also contributed to an increase in unit by product revenues with higher gold sales. Nickel all-in costs were down 14% year-on-year supported by higher unit by product revenues. The unit COGS increase was expected and largely related to the furnace rebuild at Onça Puma. I would like to also mention that Mark Cutifani and the VBM team continue to make significant progress on the asset review. The Vale unlock opportunities are being assessed and designed for implementation over the next two to three years with some benefits already being captured in the shorter term.
Overall VALE ranks 4th on our list of the best copper stocks to buy. You can visit 7 Best Copper Stocks to Buy According to Analysts to see the other copper stocks that are on hedge funds’ radar. While we acknowledge the potential of VALE as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than VALE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
