It’s time to take a shine to copper. Why? Because it’s the second-best performing inflation hedge, and given inflation, that’s saying something, asserts Sean Brodrick, editor of Wealth Megatrends.
Inflation isn’t the only reason to buy copper-leveraged stocks. Goldman Sachs (GS) calls copper “the new oil,” because it’s so important to green technologies.
Southern Copper (SCCO) mines and processes copper and other minerals in Peru, Mexico, Argentina, Ecuador and Chile. Along with copper and copper cathodes, it produces molybdenum, silver, zinc and lead.
Southern Copper has the world’s largest copper reserves. The last time the company updated reserves was late 2020 when it reported 67.7 million tons of copper in the ground. Copper is SCCO’s core product, making up for 84% of sales (molybdenum’s 11% and zinc and silver account for close to 3% each).
Costs have been rising for SCCO (as with most companies) driven by increased costs in labor and fuel. In Q4, costs rose to 76 cents per pound of copper from 69 cents a year earlier. But the price of copper went up even more at the same time.
And 2021 was a very good year for the company. While copper production fell 4.3% year over year, net sales hit a record high of $10,934.1 million, which represented an increase of 36.9% over 2020. This growth was mainly driven by higher market metal prices for copper (+51.1%), molybdenum (+81%), zinc (+32%) and silver (+22.1%).
Net income in 2021 was 116.3% higher than in 2020. And cash flow from operating activities in 2021 was an historic high, and an increase of 54.2% over 2020.
This year, SCCO’s copper production is forecast to fall another 3.7%. A couple of its mines are working through areas of lower ore grades. However, if prices go higher — approximately 5% to 7% higher — the company should be better off, just like it was last year.
Southern Copper is 88.9% owned by Americas Mining Corporation, a Mexican company, and 11.1% by the public. The interests of the Mexican parent company aligns with shareholders, as both want to squeeze out every dollar of profit.
SCCO’s faced local opposition to some of its mines in Peru, particularly one long-delayed project called Tia Maria. But then, most of the big miners deal with local troubles in Peru.
Let’s not sugarcoat it: Things could go wrong. But plenty of delays are already priced in. And things could also go right. If they do, that should be a boost for Southern Copper.
This stock pays out a hefty dividend, recently yielding 6%. The bad news is dividend payouts have varied greatly over the five-year period. The better news is that the dividend is forecast to rise a whopping 41.6% per year for the next three years.
The stock is trending higher. It has overhead resistance to work through, but the Force Index — my favorite momentum indicator — is bullish. I believe SCCO is going to push through that resistance and go to $85 a share fairly soon.
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