The price of copper is on the rise. This is starting to look like a theme that could hold up for longer and not just be a quick theme that we look back to in a 2024 recap. With copper on the move, it’s time for me to look for some cheap shares that have exposure to the commodity.
Copper
Copper futures are trading above $11,000/tonne after starting this year below $8,700/tonne. Prices have increased just shy of 30%. That puts copper as one of the best-performing assets in 2024, ahead of other metal peers (gold and silver) and major indices such as the Nasdaq 100, S&P 500, and FTSE 100.
There are several tailwinds helping copper higher. Increasing expectations of Federal Reserve monetary easing are seeing the dollar fall, which helps the price of commodities rise and also increases investors’ appetite for riskier assets.
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However, there are some deeper fundamental tailwinds that are supporting a further move: China.
Last Friday, the Chinese government announced important measures to address the housing market issues, including providing additional funding and making it easier to get mortgages.
On the same day, it was reported that China’s industrial output grew by 6.7% in April, which was better than expected. These announcements had a positive impact on industrial metals.
In 2008, at the peak of the China-led commodity boom, the metal briefly reached a price of over $8,000/t. When adjusted for inflation, the same real value for copper would need to be $14,000/t.
Central Asia Metals
Central Asia Metals (LSE: CAML) produces copper from its Kounrad mine in Kazakhstan and produces lead and zinc in North Macedonia.
2023 was a year of investment for the company. Nigel Robinson, the miner’s chief executive, said it was a “year of development and investment” in both its lead and zinc operations in North Macedonia and in the copper operations in Kazakhstan.
Currently, the company’s stock is considered undervalued, with a price-to-earnings-growth ratio of 0.4. Anything below 1 would suggest an undervaluation by the markets. Analysts predict a 26% increase in annual earnings in 2024, followed by a 15% increase in 2025.
Central Asia Metals ticks two boxes for me. The first box is that it has copper exposure. The second is that, by valuation metrics, I can call these shares ‘cheap’. Who doesn’t like a bargain? I don’t think I could name anyone who would turn one away.
Mining stocks are operationally leveraged. They can benefit greatly when their underlying products perform well. However, price declines can also hurt revenue forecasts and projections, and commodities can be volatile. This is an inherent risk when allocating capital to commodity-exposed assets.
An investment case
What would I say for my own investment case? The CEO actually said it well in the 2023 annual report: “The metals we produce are essential for modern living and a technologically advancing future. They play a key role in transmitting power and transporting people to foster economic growth and development.”
I really like the outlook for copper and would like to increase my exposure to the commodity via a company that I find attractive at current prices.
