These days not many people use copper’s old nickname — Doctor Copper — a title earned by the red metal’s ability to indicate the health of the global economy. If the copper price was rising it meant big construction projects were under way, but copper usage is no longer confined to pipework and flashing on roofs.
It’s a key metal in the transition to green energy and demand keeps rising, with shortages predicted. Commodity producers’ earnings and ratings are often aligned with the strength of demand for their specialist metal, but investors should tread carefully — the per tonne price can spike in the short term, for example over tariff fears, but then fall back.
Even when the price per tonne rises, fatter margins aren’t always in the bag as the cost of extracting metals climbs. There are taxes, licences and environmental concerns to negotiate with governments who are keen to secure higher royalty payments.
The rise of resource nationalism meant Rio Tinto hit obstacles in its efforts to operate the giant Oyu Tolgoi copper mine in Mongolia, and more recently gold and lithium miners in Mali have been held over a barrel by the military government.
Other risks include strikes and, in certain regions, power shortages. Building new mines is costly and takes years — Antofagasta is spending billions to expand its copper production.
One solution is to buy a copper miner, as BHP tried to do with its failed bid for Anglo American last year. In short, despite high metals demand, volatility is never far away.
HOLD: Antofagasta (ANTO)
As the major miners race to increase their exposure to copper, old hand Antofagasta is showing the everyday reality of running a red-metal-devoted business, writes Alex Hamer.
The Chilean company reported higher cash profits in 2024 and beat analyst forecasts for its dividend, but has also confirmed a significant uptick in spending this year as management invests in major new processing capacity. This project, a new plant at the Centinela mine, will reduce the per-tonne cost and also boost production later in the decade. Last year, the company said capital spending for 2025 would be $3.5bn-$3.9bn (£2.8bn-£3.1bn) — it has now confirmed the figure will be at the very top end of that range.
Ebitda for 2024 climbed 11 per cent on last year, to $3.4bn, driven by higher average copper prices, while the company managed to keep costs level. This was helped by an accounting treatment that takes byproduct credits from gold mined off the cost side of the income statement rather than adding it to revenue. The higher gold price took $132 per tonne of copper mined off the cash cost, which was $2,800 a tonne on a net basis. Copper averaged over $9,000 a tonne last year.
Chief executive Iván Arriagada said the company was investing because of the supply squeeze the industry is forecast to face later in the decade. “There is no wall of new supply on the horizon,” he said. “A shift in the market balance is under way, one that will support pricing in the medium term.”
Investors have clearly noted the forecasts and bid up the miner’s shares to a forward price/earnings ratio of 26 times, ahead of even US group Freeport-McMoRan.
BUY: HSBC (HSBA)
The Asia-focused bank is pushing ahead with a major restructuring plan, writes Jemma Slingo.
HSBC is on a mission to become a “simple, more agile, focused bank” — and it is making decent progress. Its latest profit figures exceeded market expectations, with pre-tax profit up by 6.5 per cent to $32.3bn (£25.6bn) in 2024. Shareholders will be rewarded with a buyback of up to $2bn and another dividend increase.
HSBC is intent on slimming down, and has recently sold businesses in Russia, Argentina and Armenia, as well as retail banking operations in France and Mauritius. Its statutory profits are flattered by $1bn of “notable items”, therefore, including a $4.8bn gain from the disposal of its Canadian banking business.
However, there has been good underlying growth too. The wealth management division — a key focus for the bank — increased revenue by 18 per cent in 2024 and HSBC attracted 800,000 new customers in Hong Kong. Management also noted strong progress in the global banking and markets unit. Despite the benefit of the bank’s structural hedge, however, net interest income fell by 8.6 per cent in the period. This was partly the result of the disposals and partly due to higher funding costs.
HSBC has more ambitious plans for the future. New chief executive Georges Elhedery has unveiled $300mn of cost savings for 2025, and committed to an annualised cost reduction of $1.5bn by the end of 2026.
Management has also set out new targets for return on tangible equity (ROTE) — a key measure of profitability for banks. HSBC is aiming for mid-teens ROTE in each of the three years from 2025 to 2027, excluding one-off items. This is better than the market expected, according to Shore Capital analyst Gary Greenwood. Elhedery acknowledged, however, that the outlook for interest rates “remains volatile and uncertain, particularly in the medium term”.
Shares in HSBC are approaching a 20-year high. However, we believe its simplification plan could drive shares higher yet.
HOLD: InterContinental Hotels (IHG)
Holiday Inn operator adds 59,000 rooms and signs deals for 106,000 more, writes Michael Fahy.
InterContinental Hotels has benefited from strong demand for hotel stays, particularly in the US and Europe.
The operator of more than 6,600 hotels and nearly 1mn rooms said revenue growth of 7 per cent drove a 10 per cent increase in adjusted operating profit, to $1.12bn (£889mn). However, once adjustments to its system fund and higher interest costs are factored in, reported pre-tax profit and earnings per share were lower.
A 3 per cent increase in revenue per available room (revpar) was driven by a 2.1 per cent increase in room rates, with occupancy edging up by 0.6 per cent. Growth was strongest in its EMEAA (Europe, Middle East, India, Africa and Asia Pacific outside China) region, where revpar increased by 6.6 per cent on the back of strong gains in both room rates and occupancy. This helped to offset weakness in China, where a revpar decline of 4.8 per cent was attributed mainly to falling rates.
The company reported net system growth of 4.3 per cent after it added more than 59,000 rooms and removed 18,000. It also signed deals to add a further 106,000 rooms — almost a fifth of which will come from the agreement with Germany’s Novum Hospitality to add its 119 hotels into the network. IHG also announced the purchase of the Ruby chain of premium hotels for €110.5mn (£91.7mn). The Munich-based company currently operates 20 hotels in seven European countries and has 10 more in its pipeline, but IHG sees scope for 120 Ruby hotels within the next decade.
The higher interest charge was the result of a $510mn increase in net debt, which is partly due to higher investment, but also the $800mn spent on buybacks. The company was confident enough in its ability to keep money rolling in to increase the size of its planned buybacks for this year to $900mn. If the pace of dividends is sustained, this should mean a total return of $1.1bn this year, or 5.9 per cent of its £15.8bn market cap at the start of the year.
IHG’s shares dipped in early trading, but they are not far from their 12-month high after a gain of about a third over the past year. They trade at 26 times forecast earnings, in line with their five-year average, but at a premium to most European (and some US) peers. We think there’s better value elsewhere in the sector.
