The global demand for copper is closely tied to growing economies and the manufacturing sector, which is growing rapidly in China and beginning to come back in the United States. As the United States automotive industry begins to gain traction again and China shows increased demand for copper in order to add to its growing infrastructure, the world's largest copper miners are poised to benefit from the increase in demand. The following companies could be on the brink of a major recovery after making a turn in the right direction after poor performances several years back.
Freeport-McMoRan Copper & Gold (FCX) is the largest copper producer in the world and single-handedly produces around 12% of the global output of copper. The company has operations in North America, South America, Africa and Indonesia -- where its primary focus lies. Freeport-McMoRan produced almost 4 billion pounds of copper in 2010, and its gold operations provide another reliable source of income. Its stock has grown from $14 per share to $43 over the last three years. I believe we will see continued growth in 2012, and that this is a safe buy when considering recent history.
Freeport-McMoRan has recovered nicely from an enormous loss of over $11.3 billion in 2008 and has made a turn into the black for the three years since. In 2009, it produced $2.3 billion in profit followed by $4.2 billion in 2010. It reported over $3.8 billion in its first three quarters in 2011, putting it on track to break its 2010 profit. It recently announced the sale of three, five and ten year bonds in the amount of $500 million for each tranche and the bonds provide a safety net to investors through the provision that they may be redeemed for 101 cents on the dollar in the event that Freeport-McMoRan is bought out.
The Southern Copper Corporation (SCCO) had a record breaking year in 2011, setting new records for sales and revenue with a net income of $2.3 billion. It showed an increased production of 23% and its income rose by over 50% when compared to 2010. Over the last three years, Southern Copper stock more than doubled from $14 per share to $32, but its success in 2011 has shown a real step in the right direction. From 2008 to 2010, its profits stayed between $1 billion and $1.5 billion, remaining consistent but lacking signs of growth.
The Southern Copper Corporation is poised to continue moving forward at increasing momentum and will succeed on China's increased demand and the return of the United States auto industry. I believe this is a safe buy for 2012.
Sterlite Industries (SLT) is the riskiest pick in the group, and its stock value has been anything but stable over the last three years. It has fluctuated between a low of $5 per share three years ago to a high near $20, and is currently at $10. Its net income grew from $880 million in 2009 to $1.5 billion reported in 2011, but it recently reported a drop of 17% in its third quarter earnings for its upcoming fiscal year. The recent history of this stock suggests that it could take a sharp move in either direction in 2012, which gives the opportunity for investors to make or lose quite a bit of money.
Its stock value has just moved past its six month moving average, making me believe that it could move to $20 rather than making a drop back down to $5, but its recent earnings report could dissuade investors, and push the stock back down just as easily. I would straddle here, placing a put and call option on the stock and benefiting from its move in either direction, because while I'm uncertain of where it is going, I believe it is going to make a move.
Lihua International Inc. (LIWA) provides copper replacement products and is poised to gain as China shows a rapidly growing demand for fine wire. This small company has grown from $5 per share to $6 over three years, but could have a breakaway year in 2012 on China's demand. It made almost $14 million in 2009, which has grown to a profit of $38 million over its last fiscal year. I believe this is a low risk opportunity to get into a growing company while it is cheap. I wouldn't be surprised to see Lihua International move to $10 per share before the year is over.
The copper market is poised for record breaking gains across the board in 2012, and I believe that all of these positions should be given some consideration. For the best results, I would diversify between all of these stocks, but the lowest risk lies in Freeport-McMoRan and the Southern Copper Corporation, which are both showing consistent growth and have a strong footing in the ever-growing copper market. Sterlite and Lihua International pose some risk, but I think that if you play the option game with Sterlite, you will not lose and that Lihua International has much less to lose than it stands to gain.