Top mining picks in race for copper growth

Glencore (LSE:GLEN) and Anglo American (LSE:AAL) have retained City support after the mining sector’s results season reinforced copper as the industry’s “new centre of gravity”.

A record price and demand drivers around copper’s end-uses in relation to the AI-led grid and electricity generation build-out have fuelled a re-rating for many of the leading miners.

• Invest with ii: Top UK Shares | Share Tips & Ideas | Open a Trading Account

The share price gains held during the results season as firms absorbed some of this year’s oil-linked inflationary pressures and their capital returns met expectations.

However, the broader strategic debate around the diversified miners continues to move from their focus on portfolio restructuring and cash returns towards achieving a “copper multiple”.

The shift was highlighted by BHP Group Ltd (LSE:BHP) annual results on Tuesday, when copper contributed more than half of the Australian miner’s earnings for the first time. It also generated significant free cash flow, meaning that BHP’s copper growth is self-funding. 

BHP declared that its project pipeline across Chile, Australia and Argentina can potentially lift copper production by around 40% by 2035. New chief executive Brandon Craig added: “Copper is the engine that is driving BHP’s growth.”

Rio Tinto  Ordinary Shares (LSE:RIO) disclosed that about 57% of its exploration and evaluation expense in the first half was by the copper product group, while Glencore has already announced its ambition to double copper output to 1.6 million tonnes by 2035.

• Gold miners back in focus as price spikes
• eyeQ: buy into the gold rally?

Meanwhile, the merger of Anglo American with Canada’s Teck Resources is set to complete by the end of the year and make Anglo Teck one of the world’s premier copper companies.

In its review of the results season, Bank of America said copper dominated “both the earnings story and the investment story” but that the debate had moved beyond whether big miners needed more copper exposure: “The key question is who can grow in copper at acceptable capital intensity and execution risk?”.

The bank has Buy recommendations on five global miners including Glencore and Antofagasta (LSE:ANTO), alongside Neutral positions on BHP, Rio Tinto and Anglo American.

Glencore shares have rallied 40% so far this year to 571p, but with the bank seeing further upside to a price target of 630p.

The mining and commodities trading company recently doubled the value of its shareholder distribution planned for 18 September after posting an 86% jump in underlying earnings to $10.1 billion (£7.4 billion).

Glencore is also planning a secondary listing on the Australian Stock Exchange as it attempts to boost liquidity and broaden its investor base. It is targeting an October admission in a move that will see it trade alongside other large-cap miners BHP and Rio Tinto.

• Can a bucket strategy carry you through retirement?
• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis

BofA said: “We think an Australian listing could help Aussie investors to become familiar with Glencore’s business model. In turn, this might help set the scene for further large-cap consolidation in the space.”

Meanwhile, UBS’ preferred diversified miner is Anglo American-Teck as the stock shifts from a complex merger and restructuring story to simple copper pure play with growth and self-help.

The bank remains constructive on copper equities as it expects prices to remain elevated. However, after material commodity and share price gains and in some cases valuation re-ratings, it sees better risk/reward in some of the more complex equity stories that can deliver earnings growth and a catalyst driven re-rating.