Ero Copper's Caraiba Operations in Bahia state, Brazil
The Brazil-focused miner offers decarbonization exposure without the drama
The stock: Among the vaunted “critical minerals” required to effect the global energy transition away from fossil fuels, copper stands out. First, the world already produces and consumes a lot of it, enough that it’s known as “Dr. Copper” for its ability to predict economic booms and busts. Second, it’s not tied to any particular electrification technology that could be supplanted by something better (as, say, lithium and cobalt are). Whatever happens, we’re going to need more copper for its conductive properties wiring everything from electric vehicles to photovoltaic arrays. The challenge for investors is finding affordable pure-play exposure to the orange metal (see the ongoing saga around splitting Teck Resources in two). But one copper-heavy miner based in Vancouver, Ero Copper Corp. (TSX, NYSE:ERO), has quietly doubled its share price (to $22.65 as of March 14) and market capitalization (to $2 billion) since last summer.
The drivers: Copper supply and demand right now are in a rare state of balance. Production is off due to resource depletion in Chile, unrest in Peru and delays in new mine openings and expansions elsewhere. But orders are down too due to macroeconomic uncertainty. Assuming a global recovery takes hold towards the end of this year or 2024, analysts expect prices for the element to move upward—perhaps very rapidly should EV sales continue to double every year.
So yeah, there’s an element of suspense to investing in the sector. Amid it all, Ero is a low-drama option. All its mines and development projects are in Brazil, a mining-friendly jurisdiction. In its 2022 year-end results released last week, the company reported copper output of 46,371 tonnes, a new high and slightly above its earlier guidance. Revenues and net income were down from 2021, to $426.4 million and $103.1 million, reflecting the decline in copper prices. Construction began last year on a new mine and processing complex, Tucuma, which is projected to add 27,000 tonnes of production per year.
Word on the street: Scotia Capital analyst Orest Wowkodaw raised his price target on ERO to $30 on Tuesday with a “sector outperform” rating. “In our view, exploration upside (for both copper and nickel) remains essentially an attractive free option at the current share price,” he wrote.
Coming & going: Effective March 20, S&P Dow Jones Indices is adding two Vancouver-based companies, International Petroleum Corp. (TSX:IPCO) and Lundin Gold Inc. (TSX:LUG) to the S&P/TSX Composite Index, Canada’s most watched market benchmark. Purchases by index funds could give their share prices a lift, if they haven’t already.