Investing in ASX copper shares

Copper is already among the world's most highly consumed industrial metals. But experts predict demand will double over the coming decade. This is because copper is a key component of solar and wind energy systems, which will be crucial to the global renewable energy transition. 

What are ASX copper shares?

ASX copper stocks provide investors with exposure to the copper industry. They include companies already producing copper, such as mining giants Rio Tinto Limited (ASX: RIO) and BHP Group Limited (ASX: BHP), as well as junior miners with copper projects in the development phase, like Alara Resources Limited (ASX: AUQ) and Havilah Resources Ltd (ASX: HAV).

'Pure play' copper companies focus exclusively on copper production. As their fortunes rest almost entirely on the value of the red metal, their share prices will be sensitive to movements in the market price of copper. They include miners like Hot Chili Ltd (ASX: HCH), a micro-cap company developing several copper mining assets in Chile.

Other mining companies, like BHP and Rio Tinto, operate a diversified portfolio of mining projects and produce many different metals and minerals in addition to copper. They are less dependent on the price of copper to turn a profit, so their share prices may move due to a range of factors, such as the prices of the other commodities they produce.

Pure play companies offer investors more direct exposure to copper, but because they rely so heavily on the copper price, they can also be higher risk.

Why invest in copper stocks?

Copper has a wide range of applications across multiple industries, making it one of the most in-demand industrial metals globally. Copper is used in electrical wiring and many common electronic appliances, as well as in car radiators and heating systems. It is alloyed with tin to form bronze and alloyed with zinc to form brass.

Demand for copper is expected to increase even further over the coming years as countries transition to more renewable forms of energy. Because copper conducts electricity so well, it is a crucial component in solar and wind energy systems and even electric vehicles.

Copper prices rose by more than 30% in 2021, and demand for the red metal is soon forecast to outstrip supply.¹ This could mean the copper price will be heading even higher over the next few years as a supply crunch hits the green energy sector.

How have copper shares fared recently, and what's ahead?

Despite these industry tailwinds, most copper shares didn't fare particularly well in 2022. Companies like Aeris Resources Ltd (ASX: AIS) and Sandfire Resources Ltd (ASX: SFR) all saw their share prices drop substantially last year amid soaring inflation and global recession fears.

The share prices of these copper companies have continued to be volatile in 2023, with Sandfire, Aeris and Hot Chili all experiencing big swings in prices. High interest rates and persistent inflation have continued to dampen the economic outlook, hurting the share prices of many copper companies.  

Although long-term trends for copper remain positive, heightened economic uncertainty puts pressure on the commodity's price. Copper is often seen as a bellwether for the health of the wider economy because it is used in so many industries. Rising interest rates curb business activity and slow economic growth, which causes short-term demand for copper to wobble.

However, the long-term potential for the red metal is difficult to ignore, with analysts predicting copper shares could continue to benefit from some healthy tailwinds. 

Recent developments in the Australian copper industry

In an article about the Australian copper industry, we would be remiss if we didn't mention the recent takeover of OZ Minerals Limited by mining giant BHP. Up until it was acquired, OZ Minerals was the largest pure-play copper miner on the ASX, with BHP paying $9.6 billion in a takeover deal completed in early May.

The deal means that BHP now owns the OZ Minerals portfolio of copper assets. These include operational and in-development copper mines across Australia and in Brazil, as well as several exploration projects underway in Australia, Peru, and Sweden.

The deal creates a bit of a shakeup of the copper sector, and means there are now few options left for investors seeking exposure to pure-play copper miners on the ASX. Micro cap Hot Chili is just about the only pure-play miner left, and, given its size, it is only a highly speculative investment at present.

Top copper stocks on the ASX

Ranked by market capitalisation from high to low.

BHP

It's impossible to exclude BHP from any list of major mining stocks. It is, after all, the largest mining company in the world – and with a market cap of well over $200 billion, it is also easily the largest company currently trading on the ASX.

BHP operates the largest copper mine in the world at Escondida in northern Chile. Construction on the mine was completed back in 1990. It is a joint venture between BHP, Rio Tinto and Japanese company, JECO Corporation. BHP also operates copper-producing mines in Australia, the United States, Peru, and elsewhere in Chile.

And, as we just mentioned, it has now also added the considerable copper mining assets of OZ Minerals to its portfolio.

BHP is also a diversified mining company operating many large mining projects right across the world. This makes it a great investment for investors seeking some copper exposure but who would also like exposure to other commodities, like iron ore.

Sandfire Resources

Sandfire is a junior mining company with a diversified portfolio of mining assets. In 2022, Sandfire paid US$1.865 billion for the MATSA mining operation in southwestern Spain. The project produces copper, zinc, and lead from a network of three existing mines, with the potential for further exploration nearby.

In addition to its Spanish operations, Sandfire owns the DeGrussa and Monty copper-gold mines in Western Australia. Plus, the company has two further copper projects currently being developed in Botswana and the US, with further explorations underway.

Aeris Resources

With a market cap under $300 million, Aeris Resources is by far the smallest copper company on this list, which also means it is the riskiest. Aeris is a mid-tier metals producer with mostly copper mining assets, some of which are still in the development phase.

Its flagship copper project is the Tritton Copper Mine in central NSW. It is a long-life mining asset, with production first commencing at the site back in 2005. Significant new copper ore deposits have been found in the area since, further extending the life of the mine. 

As part of its diversification strategy, Aeris acquired the mining assets of Australian miner Round Oak Minerals from investment company Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) in 2022. In addition to adding more copper projects to its portfolio, the deal meant Aeris also added zinc and silver to its growing list of mining assets.

Pros and cons of investing in copper shares

We have already discussed some of the benefits of investing in copper. It is one of the most highly consumed metals out there, with a wide range of everyday uses, so investors can be reasonably confident that demand will remain high over the long term.

It is also a crucial component in most of the infrastructure required for the transition to renewable energy. This could see demand for the red metal quickly outstrip supply, pushing up the market price for copper.

The drawback to investing in copper is that its value tends to correlate with changes in the broader economy. 

Demand for industrial metals like copper will often decrease during a downturn or recession. When interest rates and borrowing costs increase, businesses tend to cut back on new projects. This means the construction and manufacturing industries may slow down. 

This, in turn, may impact the price of copper shares negatively. This may compound short-term losses on other shares in your portfolio, meaning that copper shares may not provide good diversification benefits in a bear market.

Are ASX copper shares right for you?

As discussed, there are some compelling reasons to invest in copper. It is a highly consumed industrial metal with various applications, and it will be crucial to the global push towards renewables. It is forecast that demand for copper may outstrip supply, which could cause the value of the red metal to rise over the longer term.

However, there are also risks to investing in copper. Short-term price declines on copper shares may add to your portfolio's losses during a recession when demand for copper is likely to be lower.

You should weigh up these risks and rewards before you decide whether to invest in copper shares. Before making any sort of investment, it is always important to consider whether it fits with your personal risk tolerance and investing goals.