While it plays an important role in run-of-the-mill uses such as electrical wiring and plumbing pipes, copper also is vital in the construction of electric vehicles (EV). Demand for the metal, which is used in their batteries and motors, is expected to soar in the coming years as production of EVs accelerates. According to a recent study by IDTech Ex, the growth of the EV market will produce an eightfold rise in copper demand over the next 10 years.
That looming surge in the number of electric cars and buses on the road isn't the only reason investors should consider adding copper exposure to their portfolios. For those generally interested in metals, copper offers an alternative to gold and silver, one that mitigates the risk of a downturn in the precious metal markets. So let's dig in and take a look at the most promising opportunities for investing in the metal: Freeport-McMoRan (NYSE: FCX), BHP Billiton (NYSE: BHP), and Southern Copper (NYSE: SCCO).
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In its 2017 annual report, BHP Billiton characterized Resolution Copper as "one of the largest undeveloped copper projects in the world," and suggested it "has the potential to become the largest copper producer in North America." The next major stage in the project's development will likely start in December 2018, when the company expects to release a draft version of the Environmental Impact Study.
In fiscal 2017, copper represented the company's second-largest segment in terms of revenue, contributing $8.4 billion to its top line, and accounted for $3.5 billion in EBITDA -- 17% of the company's total.
The big name in big reserves
While Southern Copper can't claim the title of world's largest copper producer, it does win recognition for its copper assets. According to the company's estimates, it has about 70.1 million tons in copper reserves -- the most in the industry. To provide some context, the two companies which most closely trail it on that metric are Codelco and Freeport-McMoRan, which have reserves of 56.7 million tons and 36.6 million tons, respectively. Large reserves notwithstanding, the company should appeal to investors who want the greatest exposure to copper. In its fiscal 2016 (fiscal 2017 earnings haven't been released yet), copper accounted for 78% of the company's revenue. Given that there were no significant change to the company's operations in 2017, investors will likely find that the metal played a similarly prominent role -- if not a greater one -- in the company's finances last year.
Looking back on the past year, Southern Copper and its investors had much to celebrate. And it's not only the company's renewed dedication to rewarding shareholders in 2017 through the company's dividend. According to preliminary results, net income before the impact of a one-time tax adjustment due to the recently passed tax overhaul was $1.4718 billion, an increase of 89.5% compared to 2016. Although the 27% year-over-year increase in the price of copper contributed strongly to the bottom line-growth, investors should be pleased by the improvements in the company's operations.
Speaking to the company's performance in 2017, Chairman of the Board German Larrea said, "During 2017 we continued seeing the benefit of our expansion and cost reduction programs which, despite the 18% increase in diesel prices during 2017, yielded a cash cost reduction from $0.95 to $0.92 per pound, the lowest in the industry." And the company is poised for further success in 2018 with the completion of the Peruvian Toquepala expansion project, which management claims will add 100,000 tons to annual copper production, helping the company to reach 1 million tons of annual copper production capacity with an even lower cash cost per pound of copper.
A penny for your thoughts
Interested in adding a more copper hue to your portfolio? Fortunately, there are several compelling choices. Investors looking for more direct exposure to the metal should be drawn to Southern Copper and Freeport-McMoRan, while more conservative investors who want to mitigate their risk by opting for a company with a more diversified portfolio should consider BHP Billiton. All three afford investors the opportunity to benefit from a metal that already plays a pivotal role in our infrastructure, and which will be crucial in the developing EV market.
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Scott Levine has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.