Three Top Canadian Copper Stocks to Buy in November 2024
Many investors feel uneasy about buying futures contracts, like copper futures, or dealing with commodities in general. So, when they want to invest in Canadian stocks to gain exposure to a precious metal, they typically look for publicly traded producers.
In this article, I will speak on 3 top Canadian copper stocks on the Toronto Stock Exchange that you can look at today to gain exposure to rising copper prices.
Remember, although these are Canadian companies, most of them mine in foreign jurisdictions such as Australia, Peru, Mexico, the United States, Argentina, Ecuador, Mongolia, as well as other countries in South America.
Understanding where a company’s production is coming from is always important since building a mine in a country with an unstable government carries so much political risk.
Remember, there are plenty of small/nano-cap copper producers here in Canada, like Kodiak Copper (TSXV:KDK). However, to reduce overall volatility, I’m going to stick to significant copper producers with a reasonable history of production.
In addition to this, I’m going to focus on companies that have the majority of their production in copper. For example, companies like Rio Tinto, Teck Resources or Freeport-McMoran have copper exposure and produce large amounts in terms of volume. However, it doesn’t make up the majority of their production.
Although copper is down from its March 2022 highs, it is still significantly higher than prices we’ve witnessed pre-pandemic, which bodes well for a copper mining company.
What are the top copper stocks in Canada?
- Lundin Mining (TSE:LUN)
- Ero Copper (TSE:ERO)
- Faraday Copper (TSE:FDY)
Lundin Mining (TSE:LUN)
Lundin Mining (TSE:LUN) is a popular precious metal miner in Canada and one of the largest copper producers, with a market cap of just $8.5B. As of 2022, the company reported copper reserves in the range of 1.7 megatons.
Over 70% of the company’s production profile is copper, with zinc making up the second-largest weight, at just 9%. The company’s portfolio is diverse enough that you gain exposure to quite a few metals, like gold, nickel, and lead.
But make no mistake, Lundin is significantly impacted by the price of copper.
The company is attempting to diversify away from the metal by increasing its zinc and gold exposure. However, this is likely to take years. Simply put, if you’re looking for copper exposure, it’s arguably one of the best miners in the country.
The company’s acquisition of Caserones in March 2023 should help expand its copper profile. It is a large-scale, long-life copper operation. In fact, in the first quarter after Caserones was officially acquired, the company reported copper production was up 50% year over year, hitting almost 90 kilotonnes.
With Lundin, it’s essential to remember that you are investing in a company with some political and geographical risks. In fact, over 83% of its production profile is outside North America, with the majority being in Chile.
The company’s largest copper-producing asset, which accounts for more than 60% of its total copper production, has cash costs of around $1.60 per pound. With copper hovering at more than double this price, Lundin is producing significant cash flow from this asset.
Analysts estimate the company will produce $0.64 in earnings in 2024. If they hit these targets, the company will trade at only 13 times the expected earnings. In addition, analysts expect significant revenue growth in 2024 as the recently acquired Caserones mine boosts results for the full year.
Ero Copper (TSE:ERO)
Ero Copper (TSE:ERO) is another Canadian copper producer that heavily relies on the metal. However, the company also has some gold production.
Much like Lundin, the company poses a jurisdictional risk because its production profile is solely in Brazil. In fact, the company has more than 40 years of operations in the country. Its core mine is the MCSA Mining Complex, which is located in Bahia State.
Still, it also has a developmental project in Boa Esperanca, located in the Para State, and a late-stage development project in Tucuma, also in Para State. Tacuma is projected to start production in the second half of 2024, which will lead to significant revenue growth.
The company’s cost profile is significantly lower than Lundin’s. In fact, both of its mines have cash costs of $1.40/lb or lower, producing some pretty hefty margins right now.
And regarding its gold exposure, all-in-sustaining costs of $550 per ounce is not too bad either.
In terms of free cash flow, the company benefitted from a significant rise in gold and copper prices in 2021 and 2022. However, in 2023, free cash flow went negative as it spent aggressively on Tacuma. We expect this to turn around relatively quickly, as analysts have very high earnings targets on Ero.
It is expected to earn $2.28 per share in 2024, followed by $4.68 per share in 2025. Based on its 2024 earnings, Ero is already attractively priced at only 9X. However, when we compare it to Fiscal 2025 earnings, this forward price-to-earnings ratio gets even lower.
The company’s basket of low-cost, high-efficiency operations is undoubtedly paying off and will likely continue to pay off in the future.
Just keep in mind that it poses significantly more risk as a small-cap copper miner for a few reasons. Its reliance on copper is even more than that of a company like Lundin. Secondly, small-cap stocks tend to be much more volatile overall. At the time of writing, Lundin is nearly four times the size of Ero Copper.
Faraday Copper (TSE:FDY)
A note before I speak on Faraday. At the time of writing, it has a market cap of only $90M. This is significantly lower than that of both Ero and Lundin. If small-cap stocks are not in your realm of risk, consider a larger copper player.
Faraday Copper (TSE:FDY) poses even higher risks because not only is it a small-cap play, but it is a pre-revenue exploration company. The company primarily focuses on exploring and developing assets at its Copper Creek project in Arizona.
This area is one of the largest undeveloped copper projects in North America.
Not only does the mine have open pit potential, but underground extraction as well. And if we look at the current infrastructure, it already has access to rail, water, and electricity.
Interestingly enough, the Lundin Family owns a large chunk of Faraday. It also includes notable investors like Murray Edwards, who is part owner of the Calgary Flames and also Canadian oil giant Canadian Natural Resources (TSE:CNQ).
The vast majority of this company is currently held by strategic shareholders and institutions.
The company hopes to achieve an internal rate of return (IRR) of 16%; if it does, it poses large-scale potential. However, as with any pre-revenue exploration company, that potential comes with significant risks.
Suppose you’re looking for a higher-risk copper exploration company. In that case, you may want to add Faraday to your watchlist.
Is there a copper miners ETF?
As of right now, there are a few copper mining ETFs you could buy. The Global X Copper Miners ETF is the most popular, which trades under the ticker COPX. The fund has $1.43B in assets under management.
Its top holdings contain the likes of Ivanhoe Mines, Lundin Mining, Southern Copper, First Quantum Minerals, and BHP Group.
The fund has 38 holdings, giving investors strong exposure to copper producers. Other notable Canadian options inside of the portfolio but not in the top ten holdings are Capstone Copper, Hudbay Minerals, and Altius Minerals.
Overall, these 3 Canadian copper stocks should benefit from the current environment
I’m not really a fan of investing in cyclical plays like this for the long term. But, there is no doubt that copper prices are likely to stay high for the next few years, and as a result, there are likely to be some short-term gains to be made on Canadian copper stocks.
Remember that although there is likely still value here to be had, a lot of it is priced in. We can also see the overall volatility in these copper stocks as something as simple as a short-term guidance cut to Lundin’s copper profile caused its share price to drop by double digits.
Expect some significant ebbs and flows over the next few years in these copper producers, and be ready to hang on for the ride.
Wondering about airline rebounds? Check out our post covering Canadian airline stocks here.