Title: 5 Copper Stocks: Which Is Best? | Copper Series Show: Peter Lukacs Research (YouTube) Guest: Peter Lukacs Date: 2026-09-11 URL: https://youtu.be/ic-qQsOMpac Length: 16:45 Note: YouTube auto-transcript; fillers (uh/um/like/I mean), stutters and a snort removed, wording otherwise verbatim. Obvious ASR fixes: "Glancor"/"Lancor"/"Glenor" = Glencore; "Valet"/"Bal"/"Wally"/"valley" = Vale; "Riotinto"/"Riointo" = Rio Tinto; "free port"/"Vreport" = Freeport; "depth" = debt; "Samarco and Bumadino"/"brumadino" = Samarco and Brumadinho; "eBay"/"EID" = EBITDA; "corporate thesis"/"corporate growth" (02:22, 12:03) = copper thesis / copper growth; "V" 02:54 = wheat; "grassroots source discovery" = grassroots discovery; "shared toal" = share of total; "pure clay" = pure play; "grasp" 15:22 = Grasberg; "decaracterization" = decharacterization; "singular territory" = single-A territory; "real estate meal" = real estate mess; "57 copper" 15:47 = $5 / $6 / $7 copper.
00:00 Good day investors. Today we are going to continue our copper series with comparing the five most recently covered copper stocks. First we're going to look at the copper thesis. Then we're going to compare these five names against each other, pair some KPIs, and finally rank and summarize.
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00:31 Looking at the stocks of these five names excluding dividends indexed at 100 for 2020 January, US-based stocks, so FX should not be a factor. You can see that Freeport massively outperformed everybody given it's a pure play on copper and copper had pretty good price appreciation over the years. Now what you can see is Glencore is a decent second to Freeport.
01:00 And one thing I would like to point out for Glencore is that you can see these more drastic spikes in 26 and 2022 when there is a war breaking out. So you have the Ukraine war, you have the Iran war. Commodities usually rally. So you can see that rally in each of these commodity stocks. But Glencore benefits particularly well because of its trading business.
01:26 So higher war and geopolitical volatility results in higher earnings for Glencore. Now what you can see is that third and fourth together basically hand in hand is Rio Tinto and BHP and Vale is a distant fifth. Now, Vale actually traded together in tandem basically until 2024 and with 2024 onwards, Vale has been outperforming everybody, but in this particular example, underperforming Rio Tinto and BHP.
02:01 How come? Well, Vale has the smallest exposure to copper around 23% and the rest is mainly iron ore. Iron ore has been weak and copper has been strong and that sort of explains Vale's weakness. It's also worth mentioning that other than Glencore only Vale has meaningful buybacks.
02:22 So actually Rio Tinto, BHP and Freeport doesn't really do any buybacks just dividends. So keep that in mind. Buybacks not necessarily push your stock price higher. Now the copper thesis is really simple. Demand keeps growing while supply struggles to keep up creating a potential structural deficit. Decarbonization, electrification, digitalization, data centers are accelerating demand with the supply shortfall potentially reaching 10 million tons annually the next decade.
02:54 And we'll talk about why because if you are thinking about the commodity business, what usually happens? Let's think about wheat. This year wheat prices go up, that means next year farmers plant more wheat and wheat prices go down. So solution for high prices are high prices. Not necessarily for every industry because for wheat you can just plant more in next year.
03:12 Copper you need to find it, you need to develop it, you need to get permits. So it takes much longer. Now major copper discoveries have collapsed despite exploration spending recovering. So you can see in the black dotted line exploration spending has been recovering but actually from 2020 through 2025 just six major discoveries added around 9 million tons far below previous decades making future supply growth increasingly difficult.
03:40 Now much of the copper already discovered still isn't producing. You can see roughly 500 million tons are still in feasibility. Well I'm going to add to that in a couple slides on the next slide. Now meanwhile exploration has shifted away from grassroots discovery towards existing mines meaning fewer major new deposits are also being found you can see and this is what I wanted to add.
04:12 Copper supply is also geographically concentrated with Latin America roughly 55% of major discovered copper. Recent discoveries remain concentrated in a handful of regions. What that means is look at this share of total per year and then you can see how it changed. Now Africa is a bigger part but Asia Pacific is a smaller but you are more concentrated that adds geopolitical and permitting risks for future supply.
04:39 So maybe I found the copper, but I also need to get permitting. I have to be on a good footing with the local government, local communities, and then we've seen in the past how shaky that can be. Now, this shows how different copper exposure really is among these five names. So Freeport is essentially a pure copper play.
05:00 BHP has 54% exposure to copper. So that's a decent second. Rio Tinto 30 I think six% exposure to copper but they also have a decent 20some percent exposure to aluminium and the rest is iron ore. So Rio Tinto is not copper plus iron ore that would be Vale. So this is also decent with aluminium and you know aluminium to some extent can be a substitute for copper.
05:25 Of course not it's good and you shouldn't ground it blah blah blah but keep that in mind. Glencore is roughly 30% 29 30% of their business is copper based on most recent EBITDA numbers. Of course they are also doing trading. They have a lot of coal. I like the coal story of their business. And then Vale is clearly a laggard here.
05:46 They are 20% copper 23 and 80% iron ore. And they are later to the game but their copper growth is very meaningful and they are a South American company. Now that is meaningful. I will add to this in a couple slides. Now valuation none of these looks cheap. So that's not surprising given the copper thesis has been out there for a couple years now at least that I'm aware of.
06:14 Yeah. And people just buy the story. It's a good story. Fundamentally the story is good. Optimism is there. I think much of the story or the optimism is priced in. Of course BHP and Rio Tinto are trading at a premium. So let's just quickly look at the chart. This is free cash flow yield as I expect them to have it by 2026 full year and this is the valuation on the discounted future free cash flow.
06:40 Keep also in mind that their future free cash flow is somewhat pressured by higher capex. So most of these companies since 2024 and onward spend much more than in the previous years to develop especially copper. So free cash flow is somewhat lower still. BHP Rio Tinto trade at a premium.
07:02 Vale is the cheapest name. But also Glencore is relatively okay fairly priced and Freeport is fairly priced. So none of this is cheap. Now historically profitability needs some context. So first what is the chart showing us is a seven-year average on return on investment and return on equity. What you see is that the iron ore producers BHP, Vale and Rio Tinto are up there because if you average out the past seven years, 2020 and especially 21 and 22 were very very strong years for iron ore especially 21 and that is just
07:39 ruining the past seven years profitability picture. So the past is not indicative necessarily of the future. Also maybe on the profitability side I would like to add that if you think about who are using copper the most it's of course Asia Asian markets China Japan major Asian economies and if you think about Asia I think about Australia so BHP and Rio Tinto are relatively close of course their copper mines are not necessarily in Asia either yes copper of course no Vale is a South American company so it's a longer distance to
08:13 deliver copper but also for iron ore. So I think that's some of the lag for Vale is that much of their business is iron ore which is much bulkier than copper and they have to move it to Asia. BHP and Rio Tinto heavy bulky iron ore they are much closer to Asia and then of course these other two are different.
08:34 Freeport is much of a copper story future reinvestment and Glencore is I think the profitability is somewhat misleading because companies carry as a trading business so that somewhat distorts financials with the higher levels of debt but we're going to talk about here. So debt isn't really a concern to me for any of these companies.
08:56 leverage has generally increased as they fund much heavier growth capex especially into copper since 24 onwards but most remain comfortably within my rule of thumb healthy levels what is which is basically 50% debt to equity and five times interest coverage ratio. So this green area is basically just a simple intelligent investor book type rule of thumb.
09:19 Now Glencore looks like something that's way out of proportion. So it has much weaker interest coverage, much higher debt. But keep in mind that Glencore that headline number for Glencore is misleading. Its large trading business requires significant financing while it also holds substantial liquid assets. So net debt is much healthier than gross leverage suggests which is why they have a decent credit rating.
09:44 So their gross debt is like 45 billion but net debt is like 10 billion. So just keep that in mind. Glencore is also a safe balance sheet player and here you can see the credit rating. So all five companies remain investment grade but there is a clear difference. BHP and Rio Tinto lead by far in the highest ratings in the single-A territory and then you have Glencore and Vale sitting in BBB plus BBB.
10:15 Freeport is the lowest at BBB minus still investment grade but right above the speculative grade cutoff. So this is how you should think about their credit rating their balance sheet altogether. And with that this is going to be my summary for the copper story for the copper investment. My number one pick and this is purely my perspective.
10:36 This is how I'm thinking about this. I used to be more valuation focused but I realized that I have to just focus much more on quality. So because of that BHP is my number one. So best overall package you have tier one assets strong profitability over the years credit quality is very high with 54% copper EBITDA exposure and qualitatively I would like to also add that the company has a strong dividend focus.
11:02 What does it mean? They don't do buybacks. So this is also some Australian tax rule or something like that. I would have to dive deeper that Australian companies just generally do much more dividends. At least the coal companies and miners I looked at. So the only drawback for BHP is why I'm not a buyer today is the valuation.
11:24 It's just damn too expensive. I'm going to wait if there's a bigger pullback. I think yesterday BHP and most of these miners dropped 5%. If there is a recession or something like that, this could crash. I could maybe load the truck. Now, Rio Tinto, similar story to BHP, high quality diversified miner.
11:44 I really like that they have an excellent balance sheet, of course, very good credit quality, aluminium diversification, and the growing copper exposure. So, they have meaningful copper and then they have 20 something% in aluminium and then the iron, right? to BHP and Rio is very nice from that perspective. They are also same.
12:03 So they are also just paying dividends, no buybacks and my weakness on the story is really their valuation. Glencore you have strong copper growth plus the marketing exposure that benefits from war driven commodity volatility. So Glencore is an especially interesting story to me from that perspective. If you watch my video on my macro framework, I'm convinced that we are looking at a more fragmented world going forward.
12:32 So there is going to be more volatility and the trader plus commodity player like Glencore could benefit. Now reported debt looks elevated partly because the trading requires financing while net debt is much lower. now reflected overall in a very solid investment grade credit and the buybacks are plus so Glencore is doing buybacks and maybe to add Glencore is listed in London they are listed in Johannesburg South Africa and they are going to list this October according to the most recent
13:06 company deck in Australia so that should help its liquidity and possibly valuation multiples I used to own by the way many years ago. I think even in 2024 or 25 I yeah I think I bought it 10 11 and then sold it in 13 14 range and reinvested into oil. never mind.
13:34 So Vale has the best valuation. They also lagged on the stock performance. They have solid profitability over the past seven years although especially with the iron ore boom in 2023 more recently not so good. Of course Vale has some issues around their legacy liabilities around Samarco and Brumadinho that is going to pressure their free cash flow going forward.
14:00 Of course, capex is going to pressure everybody's free cash flow, but for Vale, there is also that best valuation very good profitability if those free cash flow misery stuffs are out on Samarco and decharacterization of the dams and Brumadinho. Very solid growth in copper although they have relatively small exposure to copper today.
14:24 that could double maybe I think they are projecting that their copper production is going to double now if copper prices go higher plus your volume goes higher and iron ore stays flat then you should see more than double in your share of copper overall but it's still an iron ore dominated story iron ore is I think kind of going to sit around the 100 that's your best case it's going to sit there you have a Chinese real estate mess problem and it's just going to be a cash cow funding your business. So Vale is I think going to
14:59 lag a bit but they are the cheapest nonetheless. And then Freeport. So it's the purest copper play with a strong balance sheet and dividend focus again. Vale is doing nice buybacks by the way. So they've always focused on buybacks. Vale and Glencore is buyback. The other three are dividends.
15:22 But they have a limited diversification. So this is a series on copper. So if you want pure play copper that's Freeport and you had not just diversification issues within the metals. But also Grasberg you had execution and concentration risk there with the mudslide. So that's operational risk and I don't see that much of a room for valuation.
15:47 Historical profitability and other numbers are fine. So this is not indicative of the future. With much stronger copper prices, profitability should look much different than it looked in the past seven years. But again, Freeport if I just price it around 5 6 7 copper for my three scenarios using six as a base case doesn't look as cheap.
16:09 Now, if it would be seven, it looks of course cheaper but not as cheaper, right? So, there is a risk-reward play. So, that's my core issue. So let's summarize. That's my core issue. Story is great. Fundamentals are there, but valuation is something that I'm waiting for to change. I want them to basically crash and then I can pick my favorites.
16:33 So let me know what you guys think about this. And if you found this video helpful, please consider liking and subscribing, checking out the YouTube membership. And with that, thanks for watching and I'll see you in the next one. Take care.