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Investing in Copper Stocks

Updated: Dec. 6, 2021, 4:08 p.m.

Copper demand is on track to double by 2030. The main driver is the energy transition; copper is a crucial metal for the electrification of the transportation sector and renewable energy. The forecast suggests that copper prices could be much higher in the coming years.

This outlook bodes well for the copper industry. Here's a closer look at some of the top copper stocks for investors to consider.

Top copper stocks

Copper is the third most consumed industrial metal in the world, according to the U.S. Geological Survey. Because of its importance to the economy, many mining companies operate copper mines. However, while many companies produce copper, only a few focus on expanding their copper production because they have reserves and viable expansion projects. The top copper stocks include:

Top Copper Stock Ticker Market Cap Copper Reserves Description
BHP Group (NYSE:BHP) $136.1 billion 41.1 million tons A leading global natural resources company.
Freeport-McMoRan (NYSE:FCX) $56.3 billion 51.3 million tons A leading copper miner.
Teck Resources (NYSE:TECK) (TSX:TECK.B) $14.7 billion 7 million tons A diversified natural resources company.
Southern Copper (NYSE:SCCO) $66.0 billion 67.7 million tons The largest holder of reported copper reserves in the world.
Rio Tinto (NYSE:RIO) $100.3 billion 14.8 million tons A diversified mining company.

Data source: Company websites and Ycharts. Market cap data as of Nov. 3, 2021.

Here's a closer look at these five leading copper company stocks.

1. BHP Group

BHP Group is a leading global natural resource producer based in Australia. It mines copper, iron ore, nickel, metallurgical coal, and potash. It also produces oil and natural gas, although it’s merging those operations with Woodside Petroleum ((ASX:WPL)) in a deal that should close in 2022.

BHP operates several copper mines in Chile and one in Australia. Its business produced 1.7 million tons of copper in 2020, which is enough to provide material for more than 420,000 wind turbines. It's investing heavily to expand its copper production to meet growing demand. BHP recently completed an expansion of its Spence copper mine in the Chilean desert to add 185,000 tonnes per year. It hopes to increase its annual copper output by 300,000 tonnes over the next five years. BHP has also secured several long-term exploration partnerships and early-stage growth opportunities to help meet the projected increase in copper demand in the coming years.

The company's growing copper production should support higher dividend payments. BHP aims for a minimum dividend payout ratio of 50% of its cash flow. It often pays out additional dividends from its excess cash and repurchases shares.

2. Freeport-McMoRan

Freeport-McMoRan is one of the world's largest publicly traded copper producers. It also produces gold and molybdenum, an element used in high-strength steel alloys.

The crown jewel of Freeport's portfolio is the Grasberg mine in Indonesia, one of the world's largest single copper and gold sources. Freeport also operates large-scale mines in Arizona and Peru.

Freeport's largest near-term copper growth driver involves the ramp-up of underground mining activities at Grasberg, which was expected to produce an average of 1.55 billion pounds of copper annually. The company has several other longer-term growth drivers, including expansions in Arizona, Chile, and Indonesia.

The company's growing copper production should support increasing cash returns to shareholders. Freeport has set a framework to use as much as 50% of its excess cash flow for shareholder returns, including dividends and share repurchases.

3. Teck Resources

Teck Resources is a diversified mining company based in Canada. It produces copper, zinc, and steelmaking coal. In addition, it has investments in oil sands mining projects.

Copper contributed 44% of Teck’s gross profit in 2020. It produced 276,000 tonnes of copper from four mines in Canada and South America.

The company expects to deliver industry-leading copper production growth in the coming years. It's on track to increase its output by 102% by 2023, driven by its Quebrada Blanca Phase 2 (QB2) project in northern Chile, one of the world’s largest copper sources that should launch in the second half of 2022. In addition to QB2, Teck has several other copper growth projects in the pipeline to help meet future global copper demand.

Teck expects QB2 to drive significant earnings growth, positioning the company to return more cash to shareholders via dividends and share buybacks.

4. Southern Copper

Southern Copper is one of the largest integrated copper producers in the world and operates copper mines in Mexico and Peru. The company is owned by Grupo Mexico, a conglomerate focused on mining, transportation, and infrastructure.

Southern Copper is currently the fifth largest copper producer in the world. In the near term, the company expects its production to decline as legacy reserves deplete. However, over the longer term, Southern Copper sees significant production growth. By 2029, it anticipates increasing production 82% from its 2019 level. The company has approved several large-scale expansion projects that should drive long-term copper growth. It expects to invest an average of $1.7 billion annually over the coming decade to increase its copper production.

Even with increased investments, Southern Copper aims to continue paying out a sizable portion of its earnings via dividends.

5. Rio Tinto

Rio Tinto is a diversified global mining company based in the U.K. It produces aluminum, copper, diamonds, gold, industrial minerals, iron ore, and uranium. It also produces other basic materials, including borates, lithium, salt, and titanium dioxide.

The company's copper business consists of two large-scale mining operations. Oyu Tolgoi in Mongolia is one of the biggest known copper and gold deposits in the world. Rio Tinto has an interest in the mine through its majority stake in Turquoise Hill Resources (NYSE:TRQ). They are working on completing an underground mining project to increase production. By 2030, Oyu Tolgoi should be the world's fourth-largest copper mine. Rio Tinto also operates the Kennecott mine in Utah, the largest man-made excavation in the world.

In addition to its mining operations, Rio Tinto has several growth projects, including Resolution Copper in the U.S. and Winu in Australia. The recently discovered Winu copper and gold resource has the potential to become a large-scale mining operation.

Rio Tinto's growing copper production should enable it to continue paying attractive dividends. The company aims to return 40% to 60% of its earnings to investors via dividends each year.

Copper-driven growth

The world needs more copper to support its transition to lower-carbon energy sources. Demand for the metal should rise considerably in the coming years. The increased demand should support additional copper expansion projects from the world's top mining companies, enabling them to increase production and benefit from higher prices.

Those factors should allow these companies to increase their cash flow, providing cash to pay more dividends and boost stock prices. That upside makes the copper industry an attractive one for investors to consider.

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