A Glittering Gravestone
I recently took a leisurely walk through the Greenmount Cemetery in Baltimore, a few blocks from my office. It is a sprawling graveyard filled with some of Baltimore’s most famous — and infamous — residents.
It was established in 1839 and is one of America’s first “rural” cemeteries. As I strolled around the headstones, I noticed quite a few that stood out. But the single most interesting one was a small, unmarked grave.
Once I saw the sun shimmering from the dozens of pennies that covered it, I knew I had found the right place. It was the grave of John Wilkes Booth, presidential assassin and one of America’s most notorious criminals. Everyday visitors stack pennies, heads up, on his grave. It is said to help “lock the assassin in the ground.”
Two of Booth’s co-conspirators — Samuel Arnold and Michael O’Laughlen — are buried there and receive the penny treatment. The rest of the Booth family is buried right beside him as well. Booth’s father, Junius Brutus Booth, is buried in a much more prominent grave. It has a towering obelisk that seems to extend into the heavens…
First things first — let’s acknowledge the middle name: Brutus. Booth was named after Marcus Junius Brutus. It doesn’t take a history major to tell you that Brutus was the man made famous for murdering Julius Caesar. Not to waste too much time on dead tyrants, but here’s another fun fact. It’s even eerier when you consider that both John Wilkes Booth and his brother Edwin acted in Shakespeare’s “Julius Caesar.”
However, John didn’t play Brutus in the play but took some notes. When Booth took the stage after his mortal shot to Lincoln’s head, he is said to have turned to the audience, as if performing Shakespeare, and shouted, “Sic semper tyrannis!” — “thus be it ever to tyrants.”
Booth the Elder was also accused of threatening the life of a U.S. president. In 1835, Booth sent a letter to Andrew Jackson demanding that he pardon two pirates.
From Jacksonian America:
John Wilkes Booth’s father, Junius Brutus Booth, threatened to kill President Andrew Jackson three decades before the younger Booth assassinated President Abraham Lincoln on that fateful Good Friday in 1865. Junius Brutus Booth was a noted American actor during the antebellum period. In 1835, he sent Jackson a threatening letter. If the president refused to pardon two pirates who faced the death penalty, Booth warned him that he would “cut your throat whilst you are sleeping.” Later in the letter, the actor also promised to have Jackson “burnt at the Stake.”
I guess it just ran in the family…
But I digress. Let’s get back to investing, which is the reason you are here.
Pennies into Dollars
The pennies on Booth’s grave reminded me of one of the unsung investments for the last couple of years: copper.
The Lincoln penny is important for a number of reasons. For one, it was the first American coin to depict a real person. Before it began circulation in 1909, the only person who appeared on minted U.S. coins was “Miss Liberty.” But the outpouring of grief and support after Lincoln’s assassination motivated Theodore Roosevelt to commission the coin with Lincoln’s face, and it has since become the longest-running coin in U.S. history — and among the longest-running coins in the world.
It is possibly the most famous copper object in U.S. history.
Copper really doesn’t get the respect it deserves. Humans have been making currency out of copper since 8,000 B.C.
Editor’s note: Why aren’t pennies made from copper anymore? Since 1982, pennies have been made from 97.5% zinc with a pure copper coating that takes up the other 2.5%. Copper is simply too expensive to justify a one-cent piece.
But copper is crucial for everything from building construction to plumbing to electronics. It’s the best and most affordable conductor of heat and electricity. Electric cars wouldn’t be possible without copper to build the batteries.
Just look at the amount of copper needed for EVs compared to traditional combustion engine vehicles:
By 2030, copper could support the reduction of global carbon emissions by 16%, according to the International Copper Association.
Copper is the third most-consumed industrial metal in the world behind iron ore and aluminum, and the demand for copper has never been greater.
China is set to soak up around half of the world’s supply of copper for infrastructure projects and construction expansion. But China's construction and manufacturing have been seriously halted over the past three years due to the nation's lockdowns and slowing construction activity – which may provide a nice entry point for a copper position.
The price of copper will continue to rise to meet the demand for all of the uses it has. Much of that has to do with the supply glut from mining companies who couldn’t justify mining copper at its low cost.
That will be changing over the next decade.
Like gold, fewer and fewer large copper deposits are being discovered, and the time between discovery and production has lengthened over the years as costs rise. S&P Global Kevin Murphy called the last decade “dismal” in terms of new discoveries. Of the 224 copper deposits discovered between 1990 and 2019, only 16 were found in the past 10 years.
According to the IEA, copper will remain the most widely used metal in renewable energy technologies. Compared to aluminum, nickel, and zinc, its importance is rated high for most new energy-related projects. That’s mainly because its electrical conductivity is the second best after silver and 60% higher than aluminum. Goldman Sachs predicts that by 2030, copper demand will grow nearly 600% to 5.4 million tons.
How do you play that trend as an investor?
Three Ways to Play the Copper Boom
Freeport McMoran (NYSE: FCX)
Let’s start with the big boy: Freeport McMoran (NYSE: FCX). They are the largest U.S. copper producer, producing 3.8 million pounds last year. They are headquartered in Phoenix, Arizona, where they have their biggest copper deposit in nearby Lone Star.
Freeport McMoran also counts the Grasberg minerals district in Indonesia – one of the world’s largest copper and gold deposits – and significant mining operations in the Americas, including the large-scale Morenci minerals district in North America and the Cerro Verde operation in South America.
The company hit a high of $51.29 in March, only to be cut in half, and hit a yearly low of $25.09 in July.
It has since rebounded:
Diamond Hill Capital summed up the shape of Freeport in their second quarter investor letter:
“In Q1, shares of copper-focused mining company Freeport-McMoRan Inc. (NYSE: FCX) were up meaningfully with other copper producers on rising demand for conductive metals and supply risk concerns from Russia.
Despite reporting excellent Q1 results, management raised its cost guidance for the year, attributing it to rising fuel costs and inflation of other materials. Freeport’s share price declined in Q2 with other large miners as a result, and we think the response by market participants is overdone.
The company continues to generate strong free cash flow, which it has returned to shareholders in the form of dividends and buybacks. We also remain attracted to Freeport’s unique exposure to high-quality copper producing mines, which is a key industrial input, particularly for green technologies, and we believe it’s a strong business oriented toward strengthening end markets.”
Speaking of dividends, Freeport pays out a modest yield of ~2%.
All told, the company has plenty of cash on hand and is well-positioned to ride out the current global manufacturing downturn. Freeport is confident in its long-term revenue drivers of renewables and electric vehicles. As the world goes greener and the copper prices rise in conjunction, Freeport is a medium-risk, high-reward play on the copper market.
Stats for Freeport McMoran (NYSE: FCX)
Market Cap: $42.3B
PE Ratio: 8.98
Dividend Yield: 1.97%
52-Week Range: $24.80 – $51.99
Current Price: $30.52
Let’s look at an even bigger miner with a much bigger dividend…
BHP Group (NYSE: BHP)
BHP operates as a global resources company. And when I say global, I really mean it. They operate in Australia, Europe, China, Japan, India, South Korea, the rest of Asia, North America, South America, and beyond.
BHP Group was formed from two small mining companies founded in the mid-1800s – Broken Hill Proprietary and Billington – and is now a world leader in the diversified resources industry.
Broken Hill began with a silver, lead, and zinc mine in Broken Hill, Australia.
Billiton’s roots trace back to a tin mine on Billiton Island – a little-known island in Indonesia from where they took their name. Billiton became a global leader in the metals and mining sector and developed a growing copper portfolio.
The company now operates through three segments: Copper, Iron Ore, and Coal. It also engages in the mining of silver, nickel, zinc, molybdenum, uranium, and gold.
Basically, anything you can pull from the ground, BHP has you covered.
Today, their strategy is focused on the commodities of the future: nickel for electric vehicles, potash for sustainable farming to feed the world, and of course, copper for electrification and decarbonization.
That makes for a diversified portfolio, but we’re here to talk copper today…
BHP produced 1.6 million tons of copper last year, second in the world behind state-owned Chilean company Codelco. They have plans further to grow its copper business upon four key levers:
- Getting more out of their existing assets through innovation, technology, production efficiencies, and expansions, as they are currently doing at their operations in Chile – the largest copper producer in the world, with 28 percent of global copper production
- Growth through exploration, as they are doing at Oak Dam in South Australia
- Through early-stage entry, such as our recent investment in Filo Mining, a copper project located on the Chilean /Argentinian border.
- Through mergers and acquisitions, but only for value and under the right conditions.
The company plans to invest over $10 billion in Chile, aiming to operate there for the next 50 years. They are also developing the Resolution Copper project in Arizona, which is one of the largest undeveloped copper projects in the world and could be the single largest in North America.
That growing copper production should help ensure the payment of one of the best dividends you’ll find anywhere.
BHP is currently yielding a whopping 12.58%!
BHP has aimed for a minimum dividend payout ratio of 50% of its cash flow. Not only that, the company also surprises investors with “bonus dividends” from its excess cash and repurchases shares.
Look no further if you’re looking for medium-sized growth and huge income.
Stats for BHP Group (NYSE: BHP)
Market Cap: $181.31B
PE Ratio: 6.28
Dividend Yield: 12.58%
52-Week Range: $46.28 – $71.06
Current Price: $52.59
Editor’s note: Full disclosure, I own shares of BHP Group (NYSE: BHP) in a retirement fund.
So what if you don’t want to bet on one metals company but want to buy a basket of copper stocks to ride this trend?
I have you covered…
Global X Copper Miners ETF (NYSE: COPX)
While there is currently no physical copper ETF available, you have options for a fund that aims to trade on the future price of the metal while giving you exposure to a number of large to mid-sized copper producers all at once.
Global X Copper Miners ETF is the largest exchange-traded product targeting the metal and covers copper-mining companies’ shares.
The fund has $1.2 billion in assets over 41 holdings, with the largest weightings in Vedanta Ltd ADR (VEDL.BO), Ivanhoe Mines (IVN.TO), and Teck Resources Ltd. (NYSE: TECK).
Canada represents more than 31% of the fund, while Australia is the second-largest country, with a weighting of nearly 15%.
This is not a diversified fund, it is merely designed to measure the broad-based stock market performance of global companies involved in the copper mining industry. It sports a 0.65% and a 52-week range of $26.01 – $47.23.
It’s currently trading at $29.55.
The Rise of Copper
So let’s recap…
The world will need twice as much mined copper in the next 30 years as it has in the last 30 years. I´ll say that again twice as much. A decarbonized world reliant on electrification for vehicles is a world hungry for copper to support this electrification process.
Miners like BHP Group (NYSE: BHP) and Freeport McMoran (NYSE: FCX) will be crucial to making that happen. Every rounded portfolio should have some exposure to copper.
As copper prices rise over the next decade, you’d be wise to take a stake and start turning pennies into dollars.
The Profit Sector