The negative market sentiment of the past eight months has shrunk the already small pool of quality stocks in the copper sector. This makes it a good time to invest in copper equities as the sector is expected to rebound in the next year and beyond.
As risk sentiment retracted, mining stocks bore the brunt of the selloff, even while fundamentals remained the same or improved. Here are some of the key reasons oversold copper equities present a major opportunity for investors right now.
Fundamental Strength
One of the biggest reasons to invest in copper equities at this moment is their strong fundamentals. Copper production is expected to rise by 6% this year and by an even greater amount in 2023. This is due to the increasing demand for copper from the automotive and infrastructure sectors. Copper mining companies have also continued to be well-funded and productive, particularly in the exploration space.
Companies like Solaris Resources (TSX:SLS) (OTCQB:SLSSF) which have seen their stock selloff from a C$17 high at the start of this year (current share price C$7.53) despite delivering major value through an updated mineral resource estimate in April for its Warintza Project in Ecuador and significantly de-risking the asset through the signing of an Investment Protection Agreement locking in the regulatory and fiscal regime to 2041, providing project stability certainty for any potential acquiror. The company has defined a 1.5Bt copper inventory in an open pit with a low strip ratio at the Warintza Central deposit, and within that a high-grade starter pit driving really robust economics, which makes it one of the best greenfield development copper opportunities available globally. In addition, the Warintza Central deposit is one of four discoveries made within the Warintza porphyry cluster representing multiple times resource growth potential beyond the initial 1.5 Bt baseline resource which had a drill cut-off at the end of last year. Solaris has been consistently delivering resource growth drill results this year setting it up for an even larger resource to come in 2023.
Another Canadian mining company with recent positive results is Novo Resources (TSX:NVO). While delivering new assay results and completing a drill program, the company has still seen its stock sell off roughly 75% year-to-date. The disconnect between fundamentals for Novo Resources is just as large as it is for Solaris.
Spot prices have fallen due to demand risks from the world’s largest consumer, China. When copper prices fall, stocks typically follow, which is normal. However, junior mining stocks have fallen much further than expected, and many analysts have said that equities may be in oversold territory now, setting them up for gains in 2023.
Copper’s Long-Term Outlook
Copper prices have risen to new heights in recent years, and while futures have been pointing lower for some time, the long-term outlook for this metal is extremely bullish. Copper is a key ingredient in many consumer products, from cars to smartphones, and is in high demand as the world becomes more connected.
The Energy Equation
The world is making a rapid transition to green, renewable energy. Transitioning from fossil fuels will take some time, but things are moving faster than ever. There are a few areas in which copper is certain to see a boost in demand from this change.
Electric Infrastructure
Across the world, electric vehicles are becoming more popular. This is due in part to the high cost of gasoline, but also to the environmental concerns around gasoline-powered vehicles. Copper is a key component in the manufacture of electric vehicles, and the demand for this metal is only going to increase as the world moves towards greener, more sustainable forms of transportation.
Energy Transportation and Storage
From the power lines that bring electricity to our homes to the batteries that hold the energy we use to run our cars, copper is an important part of the infrastructure that supports our modern lifestyle. EV charging networks are one of the biggest examples of this, requiring a large quantity of copper to build and maintain. Copper is also used in energy storage solutions, such as electric vehicles, and to help stabilize electricity grids.
Electronics
Consumer electronics have become increasingly complex, with more features and more electronics per unit of weight. This has put increased pressure on the materials used in these products, and copper is a key part of many of these products. Copper is used in cables, wires, and other components of electronics, and is in high demand as more and more products are designed with this metal in mind.
Turnover for consumer electronics is extremely high, creating a constant and revolving demand for new materials for things from smartphones to televisions.
The long-term outlook for copper is positive, and while the stock market has been volatile in recent months, this presents unique opportunities to invest in copper equities. Companies like Solaris Resources, which are well-funded and producing strong results, are a good place to start, and prove that the brisk selloff triggered mostly by macroeconomic factors has given investors a perfect moment to jump into the market.
