Shareholders of OZ Minerals Limited (ASX: OZL) can look back on a highly profitable 2020, so far. Despite plummeting 41% in the pandemic-driven market rout earlier this year, the OZ Minerals share price is up 61% since 2 January.
In comparison, the broader S&P/ASX 200 Index (ASX: XJO) is down 1.5% year-to-date.
The OZ Minerals share price action since the 23 March lows has been stellar, with the miner trading up 184% from those lows. And despite the strong share price gains Oz Minerals has already booked, there could be more ahead.
That’s because OZ Minerals’ owes much of its good fortune to the soaring price of copper, its primary focus. And as with most miners, its share price tends to rise (and fall) significantly more than the price of the metals it digs from the ground. Which is why you’ll often hear that miners are ‘leveraged’ to the price of their metals.
Copper, not coincidentally, also bottomed out on 23 March at US$4,630 (AU$6,300) per ton. At time of writing, it’s trading for US$7,694 per ton, a price increase of 66%.
That’s a 7-year high for copper. But many market veterans are thinking back further, to 2011 when copper fetched more than US$10,000 per ton.
We’ll look at why below, but first…
What does OZ Minerals do?
Based in South Australia, OZ Minerals is mining company primarily focused on copper. It owns and operates the high-quality Prominent Hill copper-gold mine and the Carrapateena advanced exploration copper-gold project. Both sites are located in South Australia.
OZ Minerals also has extensive operations in Brazil and an exploration project in Sweden.
Why copper – and the OZ Minerals share price – could run higher
A boom in expected government infrastructure spending and even larger forecast growth into green energy stimulus spending are both touted as supporting higher copper prices. The highly conductive metal is used in building construction and a core component of batteries.
Mark Hansen is the chief executive of London-based metals trading house Concord Resources Ltd. As reported by Bloomberg, Hansen says:
We’re in an unprecedented situation as there’s more money than ever before sitting around looking for something to do. Copper may not have had an investment theme with the potential of ‘green’ applications since the demand-driven bull market 10 years ago.
Copper market veteran David Lilley, founder of hedge fund, Drakewood Capital Management, adds:
The world is re-engineering transportation, power generation, information storage and goods distribution… Governments across the world are supporting and encouraging the transition. The consequences for metals demand are exciting.
The OZ Minerals share price is up 2.05% at $16.94 in afternoon trading.