BHP told the market this month that its copper output slipped, and that it will mine less next year. Regal Partners’ Charlie Aitken says that is a reason to own the stock, not to sell it, because it shows how scarce copper is becoming.
BHP’s latest production numbers looked, on the surface, like bad news. Copper output for the year to June came in below the year before, and the company guided to a further fall in the year ahead. Aitken, investment director at Regal Partners, reads it the other way.
The reason output is falling is the reason he is bullish. BHP is producing less copper because the ore grades are dropping at Escondida in Chile, the biggest copper mine in the world, where the metal in each tonne of rock has fallen to 0.90% from 1.02% a year earlier. The company now expects to dig between 1.65 and 1.8 million tonnes of copper next year, down from about 1.95 million tonnes. That is not a BHP problem. It is a copper problem.
Across the industry, ore grades are falling and the cost of pulling copper out of the ground is rising, according to S&P Global. New large-scale mines are slow to build and few in number. Some fresh supply is coming, but not enough to keep pace with what the world is going to want.
Because demand is set to climb. S&P Global expects global copper use to rise from about 28 million tonnes a year now to more than 42 million by 2040, pulled up by the electricity grid, electric cars, which use close to three times the copper of a petrol car, and the power-hungry data centres behind artificial intelligence.
For Aitken, that makes BHP, his favourite stock and one of the world’s biggest copper miners, a way to own the shortage. He is relaxed about iron ore, still BHP’s biggest earner, sitting around US$100 a tonne, and points to the company’s policy of paying out at least half of its underlying profit as dividends, which he treats as a real return that holds its value against inflation.
His message on the trade is to keep it simple. “Don’t overcomplicate it,” he said.
BHP reports its full-year financial results in August. The grades coming out of Escondida, and what they mean for how much copper the world’s biggest mine can still produce, are the number to watch.
