5 Copper Stocks to Watch on Rising Prices

NEW YORK (TheStreet) -- Southern Copper (SCCO), Freeport-McMoRan Copper & Gold (FCX), Teck Resources (TCK), Vale (VALE) and Rio Tinto (RIO) are five copper stocks with potential upside of 17%-39% based on consensus analyst estimates for the upcoming 12 months.

A Standard Bank analyst comments that on a seasonally adjusted basis, April is a strong month for copper demand. China accounts for nearly 39% of global copper demand and the same is expected to expand by 9.5% in 2011, outpacing Europe by more than five times, as per median estimates of a Bloomberg survey of 19 economists. As Japan moves toward its restructuring program, demand for copper is set to boost.

A Goldman Sachs analyst believes that despite copper prices stalling in the next few months, prices will rebound and rally to $11,000 in 12 months on tightening supply and bullish demand -- an 18% increase from the current level.

A senior director at Fitch expects copper to remain in deficit in the current and the upcoming year with LME copper inventories hitting one- to two-week supply levels. Market analysts expect copper supply deficit of 444,000 tons in 2011, and a narrower 184,500 tons deficit in 2012, but prices are expected to remain high.

5. Southern Copper, an integrated copper producer and a subsidiary of Mexican miner Grupo Mexico, also engages in the production of molybdenum, zinc and silver. The company has exploration, mining, smelting, and refining activities through facilities located in Peru, Mexico and Chile. Broadly, the company operates through three segments: Peruvian operations, Mexican open-pit operations, and Mexican underground mining operations.

Of the 18 analysts covering the stock, 33% recommend a buy while 50% rate a hold. On average, analysts estimate 16.6% upside to $47.2 from current levels.

Southern Copper, one of the world's largest copper producers, expects its production to increase to 600,000 tons in 2011 from 450,000 tons in 2010 as its Buenavista mine in Mexico reopens after being shut down for more than two years. The company is focusing on new operations in South America with copper exploration in Argentina advancing and exploration plans underway in Ecuador. Southern Copper estimates demand to recoup as Japan starts its reconstruction.

For the latest fourth quarter, Southern Copper's profit was up 36% from the same quarter a year ago. While the company foresees China's consumption to remain strong, Brazil's demand is likely to increase by 500,000 tons in 2011 from 2010 levels. The company expects its $1.3 billion Las Chancas project in Peru to start production in 2014 or 2015, pending its feasibility study report. The company's 2011 production guidance for molybdenum is 17,000 tons.

4. Freeport-McMoRan Copper & Gold, through its wholly owned subsidiary Phelps Dodge, is involved in the mining of copper, gold and molybdenum. The company's asset portfolio includes the Grasberg minerals (Indonesia), which contains the single recoverable copper reserve, and the single gold reserve, mining operations in North and South America, and the Tenke Fungurume minerals district in the Democratic Republic of Congo (DRC). Besides, FCX also operates Atlantic Copper, its wholly owned copper smelting and refining unit in Spain.

Of the 17 analysts covering the stock, 76% recommend a buy while 18% rate a hold. On average, analysts foresee 17.5% upside to $66.5 from current levels.

Freeport, which generates a major portion of its revenues from copper, recently reported sales of 262 million pounds, up from 130 million pounds in 2009. Going forward, the company estimates production to increase as its African mine since it has started operating at full capacity. With a strong reserve base coupled with full capacity, copper production is seen soaring. The company declared a quarterly cash dividend of 25 cents per share payable on May 1, 2011.

Meanwhile, market speculation is that Freeport will bid for acquiring Lundin Mining, a Toronto-based miner producing copper and zinc through its operations in Sweden, Ireland, Spain, Portugal, Congo and Russia, as the company seeks to aggressively increase its copper production. The deal, if finalized, will boost Freeport's revenue. For 2010, Lundin produced 240 million pounds of copper, besides selling significant amounts of zinc and lead.

3. Teck Resources operates as a diversified mining company involved in exploration, development, processing, smelting and refining. The company's primarily produces metallurgical coal, copper, zinc, and other products like precious metals, lead, molybdenum, electrical power, fertilizers, and various specialty metals.

Of the 19 analysts covering the stock, 79% recommend a buy while 11% suggest a hold. On average, analysts estimate 22.1% upside to $71.3 from current levels.

For 2011, the company has narrowed its coal production estimates as workers at its Elkview mine went on a strike and shipments were disrupted due to avalanches out of the East Kootenays mine during winter. Elkview is the company's second largest coalmine with annual production capacity of 5.6 million tons.

Coal sales, excluding the expectation of the strike lasting through the second quarter, were cut by almost one million tons to 23.5-24.5 million tons, with a major impact on the 2011 first quarter results. For the first quarter, the company is seen meeting 23% of the lower end of its full year copper production.

However, Teck Resources has reportedly reached a memorandum of settlement with mineworkers at Elkview. Once the agreement is ratified, production will resume by April 8, 2011 to enable recovering at least a fraction of the estimated production losses. Prices of metallurgical coal were expected to hit $330 per ton from April 1 onwards as compared to $225 in the previous quarter.

Genesis Minerals recently announced that it has entered into an agreement with Teck Argentina, a subsidiary of Teck Resources, to acquire two high-grade gold projects - Poncha and Los Openas in Argentina. Under the terms of agreement, Genesis will issue 250,000 Genesis shares to Teck -- 50,000 in consideration for Los Openas and 200,000 for Poncha.

2. Vale, a metals and mining company, produces a range of ferrous minerals, non-ferrous metals, coal, fertilizer nutrients, and provides logistics services. Vale is ramping up operations at Tres Valles, a copper project in Chile, with a capacity of 18,500 metric tons per year of copper cathodes. The first phase of its main project Salobo, with a capacity of 100,000 metric tons per year of copper in concentrates, is expected to come on stream in 2H11.

Of the 25 analysts covering the stock, 80% recommend a buy while the remaining rate it a hold. There are no sell ratings on the stock. On average, analysts estimate 24.4% upside to $42.6 from current levels.

Of the total 17.6% contribution of non-ferrous metals to total revenue, copper accounts for 3.5%. For fourth quarter 2010, copper revenue soared 91% from the third quarter. Vale recently revealed that it has identified copper and fertilizers as important areas for its expansion plans. The company foresees copper prices to exceed $10,000 per ton in 2011, mainly led by the China's demand. Moreover, the company believes that as a few mines are cutting production levels and demand has been soaring, the company's foray into the copper segment will prove beneficial.

With copper deposits and operations in Brazil, Chile, Canada, Angola, Congo, Zambia and Kazakhstan, Vale expects to produce 332,000 tons of copper in 2011. The company recently said that declining metal prices would not affect its expansion plans, as production costs are still low enough to justify new supply entering the market.

1. Rio Tinto is an international mining group engaging in every stage of metal and mineral production, producing aluminum, copper, diamonds, minerals, energy, iron ore, uranium, gold and industrial minerals. Besides, the company also has two global support groups - exploration and technology, and innovation. The company's operations are spread across more than 50 countries, with production coming mainly from Australia and North America.

All the five analysts covering the stock rate a buy on it. There are no sell ratings on the stock. On average, analysts estimate 39.2% upside to $100.6 from current levels.

For full year 2010, the company reported record earnings of $14 billion, up 122% from 2009 levels. Meanwhile, cash flow from operations were $23.5 billion, rising 70% from the earlier year. Final dividend of 63 cents per share resulted in a total dividend of $1.08 cents, up 20% from the earlier commitment of 90 cents per share.

In 2010, the company restarted the construction of phase-1 of its Oyu Tolgoi copper and gold mine in Mongolia at a total approved cost of $5.9 billion. During December 2010, the company consolidated Oyu Tolgoi following the signing of a new agreement with Ivanhoe Mines. The first ore production is estimated to commence in late 2012 with an initial throughput of 100,000 tons ore per day. Looking ahead, the company announced a capital management program including a $5 billion share buyback program by the end of 2012.

Meanwhile, the company believes that the short-term moves in copper prices bear little relevance to the broader investment decisions made by mining companies, with China's long-term demand and contracting supply remaining the key factor for metals prices to soar. Further, Rio adds that China will ultimately buy copper for its roads, buildings, and electronic equipment. Notwithstanding the present slowdown, the outlook for copper demand remains positive.

>>To see these stocks in action, visit the 5 Copper Stocks to Watch portfolio on Stockpickr.

More from Stocks

Week Ahead: Trade Fears and Stress Tests Signal More Volatility To Come

Week Ahead: Trade Fears and Stress Tests Signal More Volatility To Come

3 Great Stock Market Sectors Millennials Should Invest In

3 Great Stock Market Sectors Millennials Should Invest In

Why Millennials Are Ditching Stocks for ETFs

Why Millennials Are Ditching Stocks for ETFs

Trump's 'Space Force' Could Launch a $1 Trillion Industry, Morgan Stanley Says

Trump's 'Space Force' Could Launch a $1 Trillion Industry, Morgan Stanley Says

Abiomed Stock Should Rise Some 12% From Here, Piper Jaffray Analyst Says

Abiomed Stock Should Rise Some 12% From Here, Piper Jaffray Analyst Says