What happened
Extending the 20% rise they'd been on from the beginning of September through the end of November, shares of Southern Copper (SCCO +2.40%) an industry leader in copper production, climbed 12% last month, according to data from S&P Global Market Intelligence.
Besides the ongoing reaction to a late-October news report regarding a long-delayed project, investors responded to the prices of commodities as well as the ebbing of tension in the trade dispute between the U.S. and China.
Image source: Getty Images.
So what
Investors last month continued to be motivated by Southern Copper's announcement from the end of October announcing the Peruvian government's granting of a construction permit for the Tia Maria project. Estimated to have a development budge of $1.4 billion, Tia Maria has potential annual copper production of 120,000 tons, according to Southern Copper's management. The government's decision is notable, considering the development of the controversial project had been delayed in 2011 and 2015 over opposition from locals concerned about the adverse environmental impact of the mine.
The greater catalyst, however, for the stock's movement was simply the rise in the price of copper. Since there's a high correlation between the price of commodities and mining companies that deal in them, the increased buying of Southern Copper's stock is unsurprising, since the average price of copper in December was $2.77 -- its highest level since April, when its monthly average was $2.92.
Besides copper, the 6.9% rise in the price of silver through the month also figured prominently in shareholders' thoughts as they remembered management's 2019 forecast from the Q3 conference call. Estimating silver production of 19.7 million ounces, Southern Copper believes it will achieve a 14% increase in silver production compared with 2018, so the rise in the price of the metal is certainly of interest to shareholders.
Lastly, the seeming cooling of tensions regarding the trade dispute between the U.S. and China excited shareholders -- especially since many analysts project that a resolution to the dispute will result in higher copper prices. Between the mid-December announcement that there was agreement regarding phase one of the trade deal and the apparent confidence that progress was being made toward phase two, investors felt inspired to pick up shares of Southern Copper.
Now what
While there seems to be some momentum growing toward the construction of Tia Maria, the project is likely to face continued opposition from local communities, possibly portending further delays in its development. Therefore, investors shouldn't interpret the Peruvian government's decision as a guarantee that the mine's development will proceed smoothly. In regard to the rise in copper and silver prices, savvy investors recognize the cyclical nature of commodity prices, and they know that this, in and of itself, is a poor foundation to base an investment.
Nonetheless, investors with a long-term perspective -- our favorite type of investors -- would be well served to consider Southern Copper, as it represents one of the more compelling options among copper stocks.
