Copper stocks: should I buy Antofagasta or Atalaya Mining?

The price of copper has soared in the past year and copper stocks have done well too. Do they make a sensible long-term investment?

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With the global transition to green energy well under way, several commodity prices have risen on the prospect of rising demand. Copper is one of them. The price of copper has soared 74% in the past year. In addition, the pandemic caused problems with supply chains leading to a dip in copper supplies, also pushing the price up.

Mining stocks are risky and cyclical in nature but as the price of commodities has risen, so have the values of many FTSE-listed miners. So should I consider investing in Antofagasta (LSE:ANTO) or Atalaya Mining (LSE:ATYM), or have I missed the boat?

The Antofagasta share price takes a hit.

Based in Chile, where 25% of the world’s copper reserves lie, Antofagasta operates four copper mines in the region. Two of these also produce molybdenum and gold as by-products.

The Antofagasta share price has fallen 20% in the past month. Perhaps some investors are profit-taking. Or it could be that the excitement around copper has worn off as economies look to be rebounding. But it’s more likely investors are growing worried about an impending tax.

A government bill is creating concern for Antofagasta investors. If the bill comes to pass, it will bring a royalty tax on copper sales to help alleviate social problems. As a result, analysts at the Royal Bank of Canada believe it could reduce the net asset value of Antofagasta by 50%.

Antofagasta FY20 results

The company produced 733.9k tonnes of copper in 2020, a 4.7% decline year-on-year. The decrease was due to lower grades. It projects a similar level in 2021, between 730k and 760k at a higher cost per pound.

FY20 revenue rose 3.3% year-on-year thanks to the rising commodity prices. The company increased its annual dividend in response, resulting in a 2.6% yield. Plus, it decreased its net debt by 85%.

Its forward price-to-earnings ratio (P/E) is 17, and its market cap is £15bn. This is all very encouraging, but the looming tax makes me nervous. As a result, I’m not planning on investing in Antofagasta today.

Atalaya Mining shares show strength.

Based in Cyprus, Atalaya Mining is much smaller, with a market cap of £442m. It has a P/E ratio of 16, and earnings per share are 19p. It’s mainly a copper miner operating in Europe and is dually listed in London and Canada. It has a wholly-owned Spanish mine called the Proyecto Riotinto project.

The Atalaya Mining share price is up 33% year-to-date but down 12% from its 52-week high. Meanwhile, the price of copper is up 25% year-to-date. Although, it has pulled back 8.5% from its May high.

The company reported Q1 revenues up an impressive 59% year-on-year. And it’s now looking to expand its drill targets in areas that look promising, near to where it’s currently drilling.

Mining stocks are notoriously risky, particularly those listed on the FTSE-AIM index. Nevertheless, I like that it has an experienced management team, it’s generating cash, it’s operating in a reasonably safe jurisdiction, and there’s reason to believe copper demand will continue to rise. 

As far as copper stocks go, I prefer the look of Atalaya Mining over Antofagasta. In fact, I may consider a small allocation of Atalaya shares in my Stocks and Shares ISA.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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