Tight global supply and rising demand for copper in China has driven the price of the soft metal up over the last month. Yesterday, copper touched its highest price since 26 October on the London Metal Exchange (LME) at $9,880 per tonne. After a loss of momentum earlier this year, its price has rebounded well and is up 25% in 2021.
The main reason behind this has been new regulations by the Chinese government to counter the impact of the Evergrande fiasco. Banks were asked to issue more loans to property companies to bolster the falling sector. Analysts expect this uptrend to extend into 2022 with real estate projects restarting and the EV revolution taking over the automobile sector. Here are two UK copper shares that I’d consider buying to capitalise.
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Miner with a 6.3% yield
Given the rising demand, I am looking at miners with large copper reserves and Anglo American (LSE:AAL) stands out. The largest producer of platinum in the world also has impressive copper reserves. The company has interests in four major mines in Chile including a 50.1% controlling interest in the Los Bronces mine.
Anglo American improved its copper yield from the Collahuasi mine by 6% in the third quarter of 2021 (ended 30 September). Overall output improved by 1%. The company is on track to meet its overall copper production estimate for 2021 of 650-660 kt (kilo tonnes). The company also owns diamond giant De Beers, which is an added bonus. The Anglo American share price is up around 24% over the past 12 months
Some analysts expect the surge in copper prices to taper once global demand neutralises. And with a resurgence of Covid case in Asia, manufacturing and construction could shut down temporarily. This could bring prices of the soft metal tumbling back down again.
However, the company also offers a massive 6.3% dividend yield and is operating at a forward profit-to-earnings (P/E) ratio of seven times. I think this makes it a great income option for my portfolio if copper demand keeps rising.
British copper giant
Antofagasta plc (LSE: ANTO) is one of the largest miners in the world and primarily focuses on copper ore and by-products. It has major holdings in Chile in the Antofagasta region where it operates four mines. The company owns 60% of the Los Pelambres mine and a 70% stake in the Antucoya mine.
The miner has been improving its output. And in Q3 2021, group copper production was 181,100 tonnes, 1.5% higher than in the previous quarter. Anto’s current share price of 1,480p looks attractive to me, given its all-time high was 1,920p in April 2021. Its forward price-to-earnings growth (PEG) ratio of 0.1 for 2021 makes it a strong bargain.
The new copper mining royalty bill was recently passed by the Chile mining committee and will go to the senate floor for debate soon. If passed, this bill could double the tax burden on mining operations in the country. This could lead to a drop in revenue and a subsequent fall in share price as well.
However, the ever-increasing reliance on copper, especially in the electric and electronic sectors ensures steady demand. The taxes could be offset by a jump in prices, given the importance of copper in EV manufacture as well. I am very bullish on mining shares right now and Antofagasta’s focus on copper makes it a strong front runner for my long-term portfolio.