Will a Copper Revival Boost the Sprott Junior Copper Miners ETF?

Copper is an essential metal for clean energy technologies, but mining supply chain issues and high-interest rates meant its price stagnated last year. Predictions for 2024 are mixed, with Chinese demand tipped to slow and a supply deficit potentially in the pipeline.

• Sprott Junior Copper Miners ETF falls 2% last week, slumps 8% over past year.
• Top-holding Buenaventura bolstered by Antofagasta investment.
• COP28 commitments are “extremely bullish for copper,” said Citibank.

The Sprott Junior Copper Miners ETF [COPJ] sunk 2% last week, and is down 7.8% over the past 12 months.

The share price of the fund’s top holding, Peruvian mining company Buenaventura [BVN], gained 1.1% last week, and has jumped 100.9% in the last 12 months.

BVN shares spiked in December after reports that UK-based Chilean multinational Antofagasta [ANFGF] was increasing its stake in the company to 19%. On 15 December, the day of the announcement, shares closed up 25.1%, and have gained another 22.6% since.

The ETF’s second-biggest holding, Ero Copper [ERO:TO], rose 2.9% last week but is flat over the past 12 months.

The COPJ fund offers exposure to 41 companies that are tipped for revenue growth in the field of copper mining. As of 31 December, 70.9% of holdings are small-cap companies worth £2bn or less, and 29.2% are mid-cap firms worth less than $10bn.

Copper is regarded as a critical metal in the clean energy transition, with applications varying from electric vehicles to solar and wind power technology.

However, the 2024 outlook for the mineral remains mixed. In January, research firm BMI predicted average copper prices would overall be higher than in 2023 but could be suppressed by dwindling demand from China.

Buenaventura Posts Output Increase

Buenaventura, the largest holding in the COPJ fund as of 2 February with a 7.4% weighting, is Peru’s leading publicly traded precious metals miner.

It issued its Q3 2023 report at the end of October, reporting EBITDA from direct operations of $53.3m, up from $22.2m in the year-ago quarter. Net losses of $24.3m widened from $22.6m. Total revenues of $211.3m increased 8.1% year-over-year from $195.4m.

Buenaventura said that its copper production for the first nine months of 2023 had grown 35% year-over-year. Other resources the company mines include zinc, gold, silver and lead.

In a statement announcing Antofagasta’s investment in BVN in December, Chairman Roque Benavides said the company looked forward to “leveraging [Antofagasta]’s deep expertise and proven track record in responsibly developing and operating world-class copper assets”. Antofagasta is not held in the COPJ fund.

Canadian mining firm Ero Copper is the second-largest holding in the ETF with a 5.9% weighting. On 16 January the company reported that its Tucumã project in Brazil was 85% complete, with copper production on track to begin in the second half of the year.

Ero announced Q3 2023 results in November when it reported producing 10,766 tonnes of copper at cash costs equal to $1.82 per pound.

Macro Factors Could Spur Copper Growth

Copper prices fluctuated in 2023 but remained flat between January and December.

However, the market could be stimulated by factors including a weaker US dollar, according to research by BMI.

“The positive view for copper is more on macro factors,” Matty Zhao, Head of Asia-Pacific Basic Materials at Bank of America Securities, recently told CNBC. For example, more than 60 nations at the COP28 conference committed to increasing clean energy output three-fold by 2030, which would be “extremely bullish for copper”, said Citibank.

Goldman Sachs forecast last December that copper supplies will grow 3% in 2024, down from previous predictions of 5%, with a 534,000-tonne deficit, steeper than a previously forecast 155,000-tonne deficit. Supply chain disruptions at mines in South America may be playing a part in the strain on supply.

One analyst at TipRanks offering a rating considers Buenaventura stock a ‘moderate sell’. Ero Copper shares are regarded as a ‘hold’ by a consensus of 10 analysts at TipRanks.