Buy Hold Sell: 3 hot copper stocks (and 2 high-conviction calls)

According to global consulting house McKinsey, the electrification of the global economy will increase copper demand to 36.6 million metric tonnes per annum by 2031. Currently, supply projections point to a pathway to 30.1 million metric tonnes, with a few million metric tonnes still yet to be found. 

Just four years later, S&P Global Market Intelligence projects that a further 20 million metric tonnes (50 million in total) will be required. For context, production from all the copper mines around the globe was just 22 million metric tons in 2022.

That said, there are mixed forecasts on the outlook for copper prices. Goldman Sachs believes that copper prices will soar from US$8500/t to US$11,000/t this year, increasing to US$12,000/t in 2024. 

Meanwhile, Australia's Department for Industry, Science and Resources recently predicted that copper prices would average US$9,000/t in 2022 as new supply meets rising demand. By 2028, our local government believes prices could grow to US$9,200 - a long way off from Goldman Sachs' bullish call. 

So how are fund managers investing in the copper thematic? 

In this episode, Bell Direct's Grady Wulff was joined by Eley Griffiths Group's Tim Serjeant and Tribeca Investment Partners' Todd Warren for their analysis of three of the few copper stocks remaining on the ASX. 

And for a bit of fun, we also asked them to name their highest-conviction call for the next five years - two stocks that have already soared more than 20% and 50% respectively since the beginning of the year. 

Note: This episode was filmed on Wednesday 19 April 2023. You can watch the video, listen to the podcast, or read an edited transcript below. 

Edited Transcript 

Sandfire Resources (ASX: SFR)

Grady Wulff: With a market cap of $3.2 billion, its share price is up about 25% in the last 12 months. Tim, is it a buy, hold, or a sell?

Aeris Resources (ASX: AIS)

Grady Wulff: Now Aeris Resources is next up. Market cap of $435 million. Quite a lot smaller than Sandfire. Has copper, gold and zinc as part of its assets. So Tim, buy, hold or sell?

Grady Wulff: Todd, they completed a seven-for-one share price consolidation last year in July. It's been a rocky ride since then. Buy, hold or sell for Aeris?

AIC Mines (ASX: A1M)

Grady Wulff: And the next one is AIC Mines. Smaller market cap, $189 million. And it recently announced a significant increase in mineral resources and ore reserves at its Eloise Copper Mine. Buy, hold, or a sell for you, Todd?

Grady Wulff: Tim, buy, hold, or sell? Shares are down 5% over the last 12 months, does that tempt you in any way?

Iluka Resources (ASX: ILU)

Grady Wulff: Now, we asked our fundies to bring along one stock they are bullish on or have high conviction in for the next five years. Tim, what have you brought for us today?

I think the inherent value in Iluka that's not captured today, but I think will be in five years' time, is the value of the Eneabba Rare Earths Refinery, which they're building in conjunction with the federal government. If we fast-forward to that timeframe, you'll have a cracking and leaching and separation facility. So something equivalent to what Lynas (ASX: LYC) has in Malaysia, but in Australia. 

Similar in output terms, third-party user access. And from a strategic point of view, obviously being in Australia, I think that's a big tick. From a scarcity point of view as well, there are not many of those facilities currently around or nor will there be in that timeframe. So I think there's a material rerating opportunity for Iluka if it can execute.

Alpha HPA (ASX: A4N)

Todd Warren: We've gone with a lesser-known name called Alpha HPA. The ticker is A4N here in Australia. They've actually just commenced producing high-purity alumina, which is a precursor material used both in batteries but also in sapphire glass, LCD, lighting, etc. And that's going to be a big thematic in the decarbonisation space. 

These guys have some funding from the government as well, albeit not to the tune of Iluka, but building their first-stage facility up in Gladstone, now in production. They've delivered on their promises to date, and there's a lot of news flow between now and the end of the year in regard to their next stage - the big expansion. And so far, they've ticked all the right boxes. It's run a fair way since we talked about this stock, but we still like it.