There's no way to avoid the elephant in the room. If the price of copper doesn't rise or stays within the current range, it won't make sense to buy copper miner Freeport-McMoRan (NYSE: FCX). That said, the investment case for the stock rests on the case for copper and some stock-specific reasons.
The demand case for copper is robust and comes from the metal's importance to the clean energy transition and the electrification of everything megatrend. Electric cars, solar power, and storage, let alone the networks needed to connect renewables to the grid, imply significantly more demand for copper. In addition, data centers, industrial automation, and smart infrastructure/buildings/grids are also all part of the electrification of everything megatrend.
Meanwhile, the growing difficulty of obtaining mining permits and the length of time it takes to expand production suggest that supply will struggle to catch up.
While the miner has mining expansion projects from which it can expand production by hundreds of millions of tons over the next decade, its most exciting, cost-effective, and near-term initiative is its leaching technology, which will recover copper from existing stockpiles.
The initiative is significant. For example, management expects to produce 4.1 billion pounds of copper in 2023. The leaching initiative produced 211 million pounds over the last 12 months, and management expects 300 million pounds to 400 million pounds in 2026, rising to 800 million pounds a year in three to five years.
The last figure represents almost 20% of current production and is equivalent to a major mine. In addition, management estimates that the initiative requires an investment of less than $1 billion -- significantly less than the multibillion-dollar capital investment that a mining expansion project takes, let alone a new mine.
The initiative is a cost-effective way to add production quickly, so Freeport-McMoRan is the pick of the copper mining sector.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.