Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Southern Copper Corp (SCCO), Freeport-McMoRan Copper & Gold Inc. (FCX): Buy This Copper Producer on Lack of New Discoveries

Page 1 of 2

With questions regarding China’s demand, most commodities collapsed in the last year but copper prices have held up relatively well. A couple of factors have contributed to the resilient prices of copper outside of the supply situation at the LME. For one, China’s demand continues to grow at 10% per year while the country accounts for 40% of the global demand. The other is that new copper deposits haven’t been found in decades.

So while copper inventories in China and the LME have remained high over the last year, copper prices have maintained a strong stance above $3 per lb.One of the main reasons is that regardless of inventories, copper remains one of the most difficult commodities to mine and find new supplies. This leads to a long-term thesis of investing in copper producers such as global leader Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) or Southern Copper Corp (NYSE:SCCO). The interesting part about investing in copper is that it’s just about as difficult to find a copper stock, as it is to find the commodity in the ground.

Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX)

Another possibility is to invest in the iPath Dow Jones UBS Copper Total Return Sub-Index ETN (NYSEARCA:JJC), which reflects the price of the copper high grade futures contract that trades on COMEX.

Lack of new supplies
Regardless of the current inventory position, copper remains one of the most difficult base metals to discover and mine. While demand remains strong in China, the weak housing market in the U.S. has led to weak global demand. If the U.S. were to show a dramatic increase in demand, the copper market would surge. When the U.S. last saw strong demand in 2006, China was a fraction of what it is now.

As opposite of oil and gas where new supplies are discovered regularly, copper remains a relic of past finds. The latest major discovery was Grasberg in 1988 or 25 years ago. Prior to that it was Escondia in 1979 or nearly 35 years ago. The below slide from the Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) investor presentation highlights the limited discoveries in the last few decades:

Source: 2Q Conference Call

Freeport or Southern Copper?
The major issue with investing in copper is that limited options exist outside of Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) or Southern Copper Corp (NYSE:SCCO) and both have drawbacks. Freeport has always been the major proxy for copper until it recently purchased significant assets in the oil and gas industry. It still remains primarily a copper play with over 50% of revenue from copper products.

Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) operates 13 mines all around the world with production in North America, South America, Africa, and Indonesia. The company listed its second-quarter net cash cost of producing copper at $1.85 per pound, a level significantly higher than the $1.49 per pound from the prior year due to the issues surrounding casualties in Indonesia that shut down the operation for up to six weeks.

Southern Copper Corp (NYSE:SCCO) remains a difficult investment theory with the 81.5% ownership by Grupo Mexico, a Mexican company listed on the Mexican stock exchange. Though Southern Copper Corp (NYSE:SCCO) is based in Phoenix, it isn’t as transparent as Freeport, and it remains a smaller competitor with plans to expand to 1,175,000 tons by 2017. Conversely, Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) expects to expand beyond 5 million tons by that time frame.

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!