Copper has enjoyed a strong year in 2010, with many of the metal's stocks running up accordingly. Will copper prices remain firm? What are the copper mining companies' prospects? Are copper stocks still a good investment? We look at Southern Copper (NYSE:SCCO) in this light. Copper Runs UpLike so many of the commodities, the metal prices have surged in the last year or so. The recent Comex copper price saw the metal's futures trading at $4.26 per pound, where a scant two years ago prices were down in the $1 range. Southern Copper earned $1.59 per share in 2008, $1.10 in 2009, and has earned $1.25 in its first three quarters of 2010. The stock price has climbed back near the ten-year high in the $40s which it reached in 2007 before the global recession. Demand for the metal has been far ahead of the pace of the slowly improving global economy.
Investing In CopperCopper is famously regarded as "Dr. Copper," the smart metal, as its wide industrial uses are a gauge on the health of demand and economic conditions. Copper miners such as Southern Copper, which mines copper and molybdenum in Chile, Peru and Mexico, are the main way to invest. Southern Copper has a $41 billion market cap, does $4.8 billion in annual sales, and has $2.3 billion in cash along with $2.8 billion in long-term debt.
The company pays a dividend currently yielding 3.5%, but this dividend is set each quarter and can fluctuate widely. The company is expected to earn more in its upcoming year-over-year quarters, with analyst estimates that project its fiscal 2010 to finish out at an EPS of $1.84, with a $3.17 EPS for fiscal 2011. Southern trades at just over 27 times current earnings but has a forward P/E under 15.
Other Copper StocksNatural resources behemoth BHP Billiton (NYSE:BHP) mines copper, gold, zinc, silver, and produces potash fertilizer and natural gas. Growth will be substantial, though it's not expected to be quite as robust as some other copper miners. BHP pays a 2% dividend and gives investors exposure to other valuable natural resources. The stock currently sells at 20 times earnings.
Teck Resources (NYSE:TCK), the Canadian diversified miner, is a large copper producer as well. The company pays a small dividend, but is expected to nearly double its earnings this year with sizable growth next year. The stock trades at just under 20 times earnings.
Rio Tinto (NYSE:RIO) is another major diversified miner with its shares trading at an attractive forward multiple of under nine times projected earnings. The pattern for the copper miners is similar; the earnings trajectory continues to be attractive, even accelerating, going forward. Taesko Mines (NYSE:TGB) recently announced its fourth quarter sales of copper, which were for shipments of 33.6 million pounds. Its 2010 total sales were 86.3 million pounds, while its inventory from the third quarter was slashed.
Emerging Markets DemandHigh demand in China is expected to continue for copper as a secular, not merely cyclical, trend. A growing middle class and the expected increase in housing construction in Brazil will continue to fuel copper's demand there, while Australia, home to BHP Billiton, continues to feature a strong economy. All signs point to the global economy gathering steam, so the demand for copper should continue to be increasingly strong.
Southern Copper StockSouthern Copper, with its large reserves of the metal, is considered a purer copper play than the other names. It should continue to benefit from the rising demand for copper and the growing global economic recovery. While copper prices, like any commodity prices, can take sudden turns, the strong industrial and commercial use of copper makes the long term fundamental story appealing for Southern Copper's business and its stock. Just pay careful attention to the stock price and look for a better buying opportunity when its share price comes down. (For related reading, take a look at The Copper King: An Empire Built On Manipulation.)
