Investing in copper has probably been around the longest, however, most people focus on the prominent metal, Gold. In this article, we are going to educate you on how to invest in copper and help you figure out if it’s the best investment choice for you.
Copper is the unassuming metal that has spent millennia as a third fiddle to gold and silver, its more prestigious counterparts in Group IB of the periodic table. Copper is such a third-rate metal that it has to be alloyed with tin before it’s used to make Olympic medals. Despite copper’s status, it’s among the most versatile metals in existence.
Why Should I Invest In Copper?
The copper industry supports sustainable economies. According to the leader of one global mining company, the global mining industry drives almost half of the world’s Gross Domestic Product (GDP), either on a direct basis or through the use of products that facilitate other industries.
Mines create employment opportunities, support and strengthen community public transportation systems, commercial/business infrastructures, and community energy demands, and enable farmers to produce more and get their products to markets.
The copper industry outlook is also looking positive for the global economy. A 2016 report from the Internation Council of Mining and Metals notes that the mining industry is a major force in the world economy, emphasizing many low and middle-income countries depend on mining for national economic success. ICMM case studies show that foreign exchange earnings from mining can create positive developmental effects. In many countries, the mining and metals industry contributes to job creation, poverty reduction, and an increase in the quality of life.
According to Copper Alliance, we can rest assured that the availability of Copper is guaranteed as copper is located in the Earth’s core. Global copper reserves are estimated at 870 million tonnes (United States Geological Survey [USGS], 2020), and annual copper demand is 28 million tonnes. These copper resources are estimated to exceed 5,000 million tonnes (USGS, 2014 & 2017).
Key Metrics
Ore grade: An ore grade measures the percentage of copper oxides or sulfides in a rock. A commercial copper deposit will usually contain between 0.5% to 1% copper ore as well as other metals and such as gold, silver, molybdenum, lead, and zinc. While higher ore grades typically suggest a mine is more valuable, however, that’s not always the case.
By-product credits: A by-product credit is a cash payment that a mining company receives for producing another metal as a by-product of mining its primary target.
For example, most copper mines contain small quantities of other raw minerals that a miner will sell to another company for processing.
Net cash costs per pound: This metric measures what it costs a miner to produce a pound of copper after factoring in the benefits of the by-product credits.
For example, it cost mining giant Freeport-McMoRan $2.05 per pound to produce copper out of its North American mines in 2018.
However, because these mines also produced some gold and silver, Freeport-McMoRan was able to sell those precious metals in their raw form to other miners for processing.
The by-product credits it received from those sales helped reduce its net cash costs by $0.26 per pound to $1.79 per pound of copper, thereby improving the profitability of its mines.
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What Are The Factors Affecting The Copper Market?
One of the biggest factors affecting the price of copper is demand. Copper is a material used in a lot of applications, including new construction and remodeling. If economies are growing, then the demand for new construction and more copper also grows along with it.
Another factor is that supply may increase or decrease over time, the trend tends to show an overall decrease in the amount of copper being mined. Copper production comes mainly from America, Europe, and Asia, which combine for more than 90% of the copper produced in the world. As less copper is produced, the more precious of a commodity it becomes, and thus the higher copper prices tend to be.
The increase in various hedge funds that have a focus, or at least a partial focus on commodities also affects copper prices. Managers of these funds look at data and try to determine supply and demand statistics.
This has a real-world link, such funds can increase instability in copper prices, especially in the short term. In the past, prices tended to change more gradually but there are more spikes, both high and low in the current marketplace.
Stockpiles help to offset some of those pressures on copper prices, may be used with more regularity. Copper stockpiles reached their lowest levels in six years in 2010, which led to higher prices that year.
As long as demand continues to outpace production then copper prices will likely continue to remain high. The use of existing copper stockpiles is however a short-term solution to pricing pressures.
How is Copper Traded?
The most common financial instruments for trading copper are:
- Bullion– Traders can purchase copper bullion bars and coins from metals dealers, much like gold or silver bullions.
- Futures– A copper futures contract is an arrangement whereby traders agree to sell or buy copper at a future date.
- Options– Like futures, options are derivatives with an expiration date. However, unlike futures, option trades are only successful if the price reaches a set level by the expiration date. In exchange for higher leverage and higher potential payouts, options traders pay a premium to own the option. Traders profit in options trading when the price increases enough to compensate the trader for the initial premium paid.
- Contracts-for-Difference (CFD) assets– One way to trade copper is through contracts-for-difference (CFDs), a derivative instrument. Copper CFDs allow traders to speculate on the price of copper without actually owning bullions, ETFs, futures, options, or mining shares.
- Exchange-Traded Funds– ETFs (exchange-traded funds) trade as shares on exchanges in the same way that stocks do. Traders can purchase ETFs that include bullion, futures, options, or some combination of the three.
An understanding of the market fundamentals that move Copper prices as well as technical analysis on the charts is essential for those interesting in trading copper. It is always important to note that leverage can work in the trader’s favor and also against the trader. Leverage can magnify profits as well as losses.
We hope this has been able to help you gain a bit of insight into the world of Copper investment. Please keep in mind that this article is in no way encouraging nor discouraging you to invest in copper, however, it is to educate you on how to invest in copper should you decide to do so.
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Top Copper Stocks To Invest in This 2022
#1 Northern Dynasty Minerals (NDM)
Current share price: C$0.81, year-to-date gain: 97.56 percent
Northern Dynasty Minerals is focused on developing the Pebble project in Alaska, which according to the company holds the world’s largest undeveloped copper-gold-molybdenum resource.
#2 Xanudu Mines LTD. (XAM)
Current share price: C$0.06, year-to-date gain: 85.71 percent
ASX- and TSX-listed Xanadu Mines is a copper and gold exploration company with several advanced exploration projects in Mongolia.
#3 Capstone Mining (CAM)
Current share price: C$4.14, year-to-date gain: 73.95 percent
Capstone Mining is a base-metals-focused company with two producing copper mines: Pinto Valley in the US and Cozamin in Mexico. Also, Capstone has a large-scale 70 percent owned copper-iron Santo Domingo development project in Region III, Chile, in partnership with Korea Resources, as well as a portfolio of exploration properties.
#4 Copper Mountain Mining (CMMC)
Current share price: C$3.11, year-to-date gain: 71.82 percent
Copper Mountain Mining’s flagship asset is the Copper Mountain mine, located in British Columbia near the town of Princeton. It produces about 100 million pounds of copper equivalent per year.
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