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 Taseko Mines Limited (NYSE:TGB) 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 the Yellowhead copper project, the scale of the landscape revealed.
Taseko Mines Limited (NYSE:TGB)
Number of Hedge Fund Investors in Q1 2024: 8
Analyst Average Share Price Target: $3.36
Upside: 52.04%
Taseko Mines Limited (NYSE:TGB) is another Canadian copper producer. The firm’s claim to fame comes from its Gibraltar mine, which it claims is the second largest open pit copper mine in Canada. Its other two copper projects are the Yellowhead mine in Canada and the Florence property in the US. Taseko Mines Limited (NYSE:TGB) is priming itself for future growth, and in March 2024, it acquired an additional 12.5% in the Gibraltar property to own 100% of the site at a price of $117 million to be paid over the next decade. Similarly, the firm kicked off the construction of commercial production facilities at the Florence site this year, and it expects to start copper output from the site in Q4 2025. Through Florence, Taseko Mines Limited (NYSE:TGB) expects to have an annual production capacity of a whopping 85 million pounds and a mine life of 22 years. However, financing for growth isn’t cheap and it necessitates a look at Taseko Mines Limited (NYSE:TGB)’s balance sheet. It has C$1.3 billion in total liabilities and a debt to equity ratio of 1.13 hinting that future debt financing without retiring existing debt might prove to be troublesome. This means that along with copper production and project timeline execution, Taseko Mines Limited (NYSE:TGB)’s share performance is also dependent on its ability to raise capital and manage its debt.
Taseko Mines Limited (NYSE:TGB)’s management remains upbeat though, as it shared during the Q1 2024 earnings call:
We’ve completed a number of key financings in recent months, and we consider the Florence project to now be fully funded.
The remaining project costs can be funded by our available liquidity through the remaining installments coming from Mitsui and of course, cash flow from Gibraltar. Our hedging program has also been extended recently to secure a minimum copper price of $4 a pound for 2025, and that gives us additional protection through the Florence construction period as well. Last but not least, I wanted to make a few comments on our bond refinancing that was just completed in April. We’re very happy with the results and believe it was a significant derisking event for the Company. It was something we wanted to complete this year and bond market conditions were such that it made sense to move forward with the refinancing immediately following our — the announcement of our Gibraltar transaction.
Upsizing the senior notes from $400 million to $500 million provides additional proceeds that can replace more costly bank debt alternatives at Florence, and pushing out the maturity date from early 2026 out to 2030 gives us plenty of time to generate cash flow from Florence and Gibraltar so we can look to delever our balance sheet in the future. And with that, I’ll pass the call over to Bryce.
Overall TGB ranks 2nd 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 TGB 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 TGB 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.
