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Why Shares in Copper Miner Freeport-McMoRan Surged in February

By Lee Samaha - Mar 2, 2021 at 8:47AM

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Investors shouldn't underestimate the exposure copper miners have to the energy transition.

What happened

Shares in copper miner Freeport-McMoRan (FCX 3.01%) rose 26% in February according to data from S&P Global Market Intelligence. The move is the result of two related factors.

First, the price of copper rose through the month from around $3.56 per pound to around $4.10 per pound. Although it's only a one-month movement, it continues a remarkable recovery from a low of around $2.20 in March 2020. The rise in copper prices is a function of the improvement in the global economy, with the metal seen as being one of the most economically sensitive commodities.

Copper wiring.

Image source: Getty Images.

Besides, investors have been warming to the investment case for copper as a backdoor way to play growth in electric vehicles (EV) and renewable energy. Electric vehicles tend to use much more copper wiring than internal combustion engine vehicles and renewable energy requires large amounts of transmission and distribution spending.

Second, gold and copper miner Barrick Gold (GOLD -0.14%) backed off from its reported interest in buying Freeport-McMoRan during February. That's good news for investors who want to invest in copper because if Freeport-McMoRan were taken over by Barrick Gold it would mean the addition of gold into the investment proposition.

So what

As long as supply/demand conditions are favorable, copper prices are likely to rise and that's good news for copper miners. Moreover, more investment in EVs and renewable energy will only add to the chorus of approval from Freeport-McMoRan bulls. Meanwhile, the fact that Freeport-McMoRan is still independent means investors can keep holding and buying a focus on copper rather than switch to other options like Southern Copper or Antofagasta.

That said, history suggests copper miners will respond to price rises by investing in expanding capacity, increasing supply, meaning that some downward pressure will appear on pricing.

Now what

Investors should keep an eye on the global economy and its impact on commodities prices like copper. Meanwhile, the continued adoption of EVs and renewable energy projects is a net positive for copper demand. It's all adding up to a favorable environment for copper miners right now.

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Stocks Mentioned

Freeport-McMoRan Inc. Stock Quote
Freeport-McMoRan Inc.
$39.65 (3.01%) $1.16
Barrick Gold Corporation Stock Quote
Barrick Gold Corporation
$20.60 (-0.14%) $0.03
Southern Copper Corporation Stock Quote
Southern Copper Corporation
$62.76 (2.58%) $1.58
Antofagasta plc Stock Quote
Antofagasta plc
$1,470.00 (1.14%) $16.50

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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