Shares of copper and gold miner Freeport-McMoRan (FCX 0.13%) soared 98% in 2020 according to data from S&P Global Market Intelligence. The move is mainly about copper and comes from upgrade expectations to near and long-term growth prospects.
First, a recovery in the global industrial economy, and particularly in Asia, led to a strong recovery in copper prices. Having started the year at around $2.50 per pound, the price of copper fell to $2.10 in March as the pandemic spread from its country of origin, China. However, a strong recovery has taken place since then, and it ended the year at around $3.50 per pound.
Second, there's an increasing appreciation for the fact that investment in two hot technologies, renewable energy and electric vehicles, is likely to lead to increased long-term demand for copper. Simply put, generating electricity from renewable energy requires significantly more copper wiring than conventional electricity. Similarly, electric and hybrid vehicles also require significantly more amounts of copper wiring than internal combustion engines.
In theory, miners should be priced on a long-term assumption for copper prices and an assumption over the miner's current and future reserves. However, the volatility in the stock prices of mining stocks suggests that sentiment play a huge role in determining stock price movements.
Consequently, the stock market has reacted strongly to the near-term increase in copper prices -- a rate of increase that may slow as copper supply catches up with the boost in demand from the recovery in Asia. In other words, don't be surprised if the stock price of Freeport-McMoRan corrects at some point.
Indeed, the near-term the price of copper may well moderate in 2021, but that won't worry long-term bulls too much. Instead, longer-term investors will focus on the ongoing growth in hybrid and electric vehicle sales and renewable energy as well as the global economy in 2021 and beyond. As such, any significant weakness in the share price, and/or the price of copper could lead to a buying opportunity. Something to keep an eye out for in 2021.