Copper, a linchpin of the old energy economy, will play a crucial role in the new green one, too.
Supplies, already tight as the global economy recovers, could be further strained by a predicted fivefold rise in green energy demand in the current decade, leading to significant shortages, starting in the mid-2020s, according to a report by Goldman commodity analyst Nicholas Snowdon.
However, a pullback seems unlikely, given that green power-related demand, just 3% of copper usage in 2020, could hit 16% by 2030, the Goldman analysts estimate.
An electric vehicle contains as much as 180 pounds of the red metal, four times the amount in an internal- combustion-engine vehicle.
In commodity markets, higher prices normally elicit greater production, but copper might have to hit $6 a pound to convince miners to add new capacity, argues Jefferies analyst Chris LaFemina.
There are a limited number of good mining locations left worldwide, and lead times for new projects can stretch from six to eight years, due to permitting and environment reviews.
“Freeport has world-class assets and it’s a good operator,” says LaFemina, who has a Buy rating on the stock, with a price target of $55 and an above-consensus 2022 earnings forecast exceeding $4 a share.
Freeport is expected to produce almost four billion pounds of copper this year.
It produces about half as much copper annually as Freeport does and is more leveraged, with net debt of $7 billion.
With mining operations in Mexico and Peru, Southern Copper has the industry’s largest reserves and some of its lowest production costs.
Controlled by billionaire German Larrea Mota-Velasco, Grupo Mexico owns 89% of Southern Copper and 70% of Grupo Mexico Transportes, which owns a top Mexican railroad.
For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.