Investing in mining companies can be – quite literally – a gold mine. Metals are big business, and one of the mainstays of the industrial world. But that raises an important question: Which metal to invest in?
It’s tempting to stick with the old reliables, gold and silver, the original precious metals, among the earliest forms of money, and to this day still considered stable stores of value. All of that is true. But it doesn’t take into account the expense of exploration and mining. It can take a long time for a gold mine to start turning a profit.
There are other metals, however, not as rare as gold, or as high priced, but in some ways more valuable in the economy. Copper is typical of that lot. It has uses in jewelry and currency, or course; even today, a lot of our small change is minted with a high copper content. But it’s more important in industry. Everything wires depends on copper, which is the most cost-efficient electric conductor out there, and the most common metal used in the manufacture of electric wiring.
This makes copper mines almost as good as gold. Copper is more plentiful – it is sold by the pound, rather than the ounce – and its necessity ensures a ready market. And, the metal is rarely found in isolation. Copper miners routinely extract other metals from the mines, notably zinc, silver, and, yes, gold.
Bearing this in mind, we used TipRanks’ database to pinpoint three Buy-rated copper mining stocks that have earned a thumbs up from members of the analyst community. Not to mention each boasts substantial upside potential of over 40%.
Western Copper Corporation (WRN)
Western Copper is the sole operator of the Casino project, a major copper and gold operation in Canada’s Yukon territory. The mine, which is currently in process of being opened, has an estimated lifetime of 22 to 25 years, and proven recoverable reserves of 4.5 billion pounds of copper an 8.9 million ounces of gold.
Casino is a major asset, and Western has used the mine’s potential to raise capital. Earlier this month, the company closed out a successful stock offering of 4 million common shares, which brought in $3.28 million.
Roth Capital analyst Jake Sekelsky sees potential in Casino, especially as a magnet for attracting business partners. The scope of the project, in his view, likely exceeds Western’s current capital – but the metals prices are going up. Sekelsky writes, “Casino is a large-scale copper-gold project that we believe could attract a joint-venture partner in a rising price environment. Given the scarcity of projects Casino's size and development stage, we believe a rising metals price environment may spark M&A activity…”
Western Copper is a penny stock – but that doesn’t mean it hasn’t got upside potential. Sekelsky rates WRN a Buy and sets a $2.10 price target, suggestive of a 154% upside potential for the coming year. (To watch Sekelsky's track record, click here)
Western Copper has two recent analyst reviews, and both agree: this is a stock to buy, and one with high potential. The average price target is $1.95, implying a one-year upside of 136%. Shares are currently priced at 82 cents. (See WRN stock analysis on TipRanks)
Teck Resources, Ltd. (TECK)
Next up is Teck Resources, a major company with operations in Canada, the US, Peru, and Chile. The company mines copper, zinc, and gold, as well as metallurgical coal – a vital product in the production of steel. Teck’s diversified operations provide some insulation against market downturns in particular metals.
Teck’s largest current operation is Highland Valley, a copper-molybdenum mine in British Columbia. The mine has an average production of 160,000 tonnes of metal per year, and is expected to maintain that through 2023. Production is expected to decline after that date, to 150,000 tonnes annually, through 2027, the projected lifetime of the mine.
Other major copper mines are in Chile and Peru. Chile is well-known as one of the world’s major copper producers; Peru is a power in mining, with resources throughout the Andes. On May 27, Teck announced that its Antamina copper mine in Peru was resuming operations after a shutdown due to COVID-19.
Writing for CIBC, analyst Oscar Cabrera says, “We expect the company’s cost saving and operating efficiency initiatives and strong liquidity to support TECK’s financial flexibility in a challenging macro environment. We believe strong operating execution and the ability to adjust production to changing market conditions while maintaining (or improving) cash returns to shareholders will be key to re-rate TECK’s shares vs. its large mining diversified peers.”
Cabrera rates TECK shares a Buy. His price target, at $15.40, implies a 53% upside potential for the stock. (To watch Cabrera’s track record, click here)
TECK gets a Strong Buy from Wall Street’s analyst consensus, with 7 Buy reviews and 2 Holds on record. The stock is selling for $10.04, and the $14.19 average price target implies a healthy upside of 40%. (See Teck stock analysis on TipRanks)
Last up, Arizona-based Freeport is a major mining company with operations in North and South America as well as the Indonesian archipelago. Most of the company’s operations produce copper; molybdenum and gold are also extracted. Freeport boasts a $15.7 billion market cap, and in the market’s rally has seen its shares bounce 100% from their trough value.
Which isn’t to say that the coronavirus quarter wasn’t tough on Freeport. Earnings turned sharply negative, and are expected to only partially recover in Q2. Freeport reports a ~400 million pound reduction in copper sales due to the COVID-19 pandemic, and to compensate has announced a $1.3 billion cut in operating expenditures, and $800 million cut in capex, and a $100 million cut in administrative expenses.
The aim of those cuts is twofold: to maintain the company’s ability to generate cash, and to maintain a strong liquidity position. While the company’s cash on hand is down 43% year-over-year, Freeport still has available some $1.6 billion in cash and cash equivalents. Looking forward, the company is expecting 3.1 billion pounds of copper production this year, as well as a modest increase in gold production from 775K to 780K ounces.
Lucas Pipes, of B. Riley FBR, is impressed by FCX’s actions. He writes, “In our opinion, the costcutting measures FCX put in place were very impressive and the primary reason for the positive reaction to the release by investors... As a result of these measures, the company expects to be FCF-positive for the remaining nine months of the year, a remarkable achievement considering the decline in spot copper prices and the fact that 2020 continues to be a transition year for the company.”
Pipes gives FCX a $19 price target, implying a robust upside potential of 76% and fully supporting his Buy rating on the stock. (To watch Pipes’ track record, click here)
This is another Strong Buy stock, with 10 Buys and only 3 Holds from the analyst consensus. FCX shares are selling for $10.89, and the $12.50 average price target suggests an upside of 18% for the next 12 months. (See Freeport’s stock analysis at TipRanks)
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