Copper. Peru ETF Outperforms the S&P500.

Native copper. Wiki Commons. Used with permission.

Copper. The iShares Peru ETF (symbol: EPU) Outperformed the S&P500 in 2024 (year-to-date),
Chile is the #1 producer of copper in the world, while Peru is #2.
 
Copper is essential to electricity, EVs, and the transition to renewables. However, reduced demand in China and rising inventories have led Goldman Sachs to cut its 2025 forecast for prices from $15,000/metric ton to $10,100 (source: Bloomberg). What does this mean for copper mining companies and the top-producing countries?

Below are the topics we’ll cover in this blog.
 
Copper Prices
Copper: High Demand
Chile vs. Peru
Argentina’s Recession (McEwen Copper)
Country Diversification ETFs
 
And here is more color on each point.
 
Copper Prices
When you look at the headline and the forecast, it might appear that copper prices are going to tank in 2025. However, that summation is erroneous. One look at the chart below tells a better story. At $9,237/metric ton, today's copper price is actually near an all-time high.


​

The all-time high for copper was $11,464 per metric ton, set on May 20, 2024. The new forecast of $10,100 is still quite high, which is why many publicly-traded copper mining corporations are reporting 17%-38% year-over-year sales growth and double-digit net profit margins. Hudbay Minerals, Southern Copper and Freeport-McMoran are also sporting very high price-earnings ratios. Email [email protected] if you’d like an updated Copper Stock Report Card.

Copper: High Demand
The two largest economies in the world – the U.S. and China – are both experiencing a slowdown in economic growth, which is negative for copper. Conservative governments tend to put the kibosh on clean energy projects, which could subdue copper demand. However, the automotive industry is in the middle of a transition from ICE* to EV, with China leading the charge. 8.1 million EVs were sold in China in 2023, with 11.4 million in sales forecasted for 2024. In July of 2024, more than half (51%) of all vehicles sold in the country were battery electric or plug-in hybrid. Tesla is worth more than General Motors, Ford Motor Company and Toyota Motor Company combined. The move toward EVs seems well-entrenched.
 
*Internal Combustion Engine
 
On the other hand, copper inventories are rising. Freeport-McMoran has increased their inventory by 43% over the past three years, from $4.5 billion in 2021 to $6.4 billion in 2024. However, the company expects “the deferral of approximately 85 million pounds of copper and 85 thousand ounces of gold… to be sold as refined metal in 2025.” 2025 is expected to see more demand than supply, so this foresight by Freeport could prove to be a great business strategy -- stockpiling to sell during a period of high demand and low supply. UBS is projecting a deficit in copper supply of 200,000 tons in 2025.

Chile vs. Peru
Chile is the #1 copper producer in the world, while Peru is #2. Chile is ranked higher on the Index of Economic Freedom than Peru and has a higher credit rating. Yet, since early 2022, we’ve leaned into Peru in our country diversification ETF, while underweighting Chile. Why? Chile’s economic growth has lagged behind Peru’s over the past few years. That bet paid off. The iShares Peru ETF (symbol: EPU) is trading at an all-time high, with cumulative share price gains of 47% since 2022. The current yield is 3.90%.
 
Both countries face a delicate balance of environmental protection, while also trying to streamline business procedures to encourage mining and capital investment – which are key to their exports. Copper is the kinpin of both economies. If the price of copper stays high (as predicted), Chile and Peru benefit – particularly with more interest rate cuts on the horizon. If copper prices drop, both countries will suffer, with Peru in danger of getting a rate cut. Fitch Ratings has had a BBB rating with a negative outlook for Peru since October 2022.
 
Argentina’s Recession (McEwen Copper)
Argentina was one of the few countries that experienced a recession this year. Fitch Ratings notes that the economy likely bottomed out in April, with an annual contraction of -3.6%. 2025 could be a recovery year, however, with the IMF projecting GDP growth of 5% in Argentina -- above Peru (2.6%), Chile (2.4%), and even the United States (2.2%). Argentina’s President Javier Milei is an economist, which gives companies like McEwen Copper greater confidence in their Argentine business operations. McEwen Mining hosted their 3Q 2024 earnings call on Wed. Nov. 6, 2024. (Click to hear it back.)  
 
In the 3rd quarter of 2024, McEwen Mining enjoyed year-over-year revenue growth of 36%, to $52.3 million. This was as a result of higher gold and silver prices, as well as increased production at their 100%-owned mines. Yet this company is one of the few in the gold/silver/copper industry that is undervalued. The most recent round of funding by McEwen Copper puts the post-money value of that company at $984 million, of which McEwen Mining owns 46.4% ($456.6 million). 2023 revenue at McEwen Mining was $166.23 million. McEwen Mining’s current market value is $643 million.
 
Why aren’t investors piling in on the potential for McEwen Copper and McEwen Mining? It has to do with an extended rough period (hopefully behind them) for McEwen when gold and silver prices were low, operations were cash negative (while the company develops McEwen Copper in Argentina with partners, including Rio Tinto), and the fact that McEwen Copper is still pre-production. A McEwen Copper Feasibility Study is expected to be published in the first half of 2025. If this study is impressive, investors might be attracted back to McEwen Mining (symbol: MUX), particularly if copper prices remain high and the projected 2025 deficit in copper supply makes headlines.
 
Argentina is a country with a very volatile political history, with a junk bond sovereign rating. McEwen Mining is a micro-cap company surrounded by companies worth $70-$100 billion. This makes McEwen Mining a risky bet. However, Rio Tinto and Stellantis have been willing to take that risk. The companies own 17.2% and 18.3% of McEwen Copper, respectively. Part of that has to do with their faith in Rob McEwen, the Chief Owner of McEwen Mining and a respected, 40-year veteran of the mining industry.
 
Country Diversification ETFs
If you peek into the industry breakdown of most U.S. funds (both ETFs and mutual funds), you’ll find them very light on copper and materials. That makes it difficult to invest in the surge of copper in your retirement account. If you have a self-directed plan or an individual retirement account, one of the easiest ways to get exposure to copper is to invest in Peru. The added benefits of an ETF like iShares Peru ETF (symbol: EPU) include:
 

• Materials industry exposure (portfolio diversification)
• Higher yields
• Better performance (potentially)

 
As you can see in the chart below, the iShares Peru ETF performed above the S&P500 in 2024 (42% share price gains vs. 27%), while offering a competitive yield of 3.90% that was double that of most U.S. based value funds.

Bottom Line
Each year, what’s hot and what’s safe changes. It’s a good idea to examine the data to see if what’s hot (such as Peru) will continue to be. (This is why so many of our Brain Trust Volunteers attend our Financial Freedom Retreats at least once a year.) While there are risks, if the expected demand and constrained supply of copper materialize in 2025, Peru could continue to outperform the U.S.-based indices.
 
Having said that, it’s always a good idea to rebalance and capture gains at least once a year. If you haven’t checked to see if your current wealth plan is age-appropriate and properly diversified, it’s a great idea to do this after the Santa Rally (assuming we have one this year). Take our Rebalancing IQ Test (click to access) and consider getting an unbiased 2nd opinion in our private coaching. Email [email protected] or call 310.430.2397 for pricing and information.
 
While McEwen Mining (McEwen Copper’s largest shareholder) is a risky bet, this company has the most to gain from copper being so essential to renewable energy, EVs and the electric grid.   
 
 


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Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. Natalie is the bestselling author of The ABCs of Money and The Power of 8 Billion: It's Up to Us, and is the co-creator of the Earth Gratitude Project. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). Her book The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 6th edition of The ABCs of Money and the 2nd edition of Put Your Money Where Your Heart Is are the most recent releases of these books. Follow her on Instagram. 
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