Copper’s rise to its highest price in a decade is no temporary “spike” but a reflection of strong underlying fundamentals, the head of the world’s biggest listed producer said as his company prepares to step up its output.
Richard Adkerson, chairman and chief executive of Freeport-McMoRan, said stocks were already at their lowest level since the mid-2000s even though many big economies were still hampered by Covid.
“This is not a spike like we’ve seen in oil and natural gas prices because of cold weather in Texas, because there is a lot more fundamental support for the copper market,” Adkerson told the Financial Times. He added that “from a supply standpoint, copper cannot be turned on with a spigot”.
Copper is used in everything from power cables to electric vehicles and demand is expected to increase in coming years because of the “greening’’ of the global economy.
After dropping to $4,600 a tonne last March, its price has doubled on the back of supply constraints and strong demand from China. It broke above $9,000 a tonne last week for the first time since 2011 as speculators started to pile in, with one Chinese brokerage amassing a $1bn long position in the metal.
If demand holds up, several big investment banks including Goldman Sachs reckon copper could surpass its 2011 high of $10,190 a tonne.
“There is still recovery to happen. Now there could be another curveball tomorrow, and we have to be prepared for it, but copper prices are strongly supported by fundamentals,” said Adkerson.
While there was much discussion about the role copper would play in the electrification of the global economy, Adkerson, who became Freeport CEO in 2003, said it had yet to affect the 23m tonne a year market.
“Tackling carbon emissions is not impacting today’s price in any significant way but it will impact demand in a very significant way going forward,” said Adkerson.
In a recent report JPMorgan said “green” copper demand from electric vehicles and renewable energy would rise from 925,000 tonnes this year to 4.2m tonnes by 2030.
The run-up in the copper price comes as Phoenix-based Freeport is set to increase output from a multibillion-dollar underground expansion of Grasberg, its giant Indonesian copper-gold mine.
Over the next two years Grasberg’s copper and gold production is expected to double to 725,000 tonnes and 1.6m ounces respectively.
If prices hold, JPMorgan reckons Freeport, which has just reinstated its dividend and set out a new policy for shareholder returns, could generate $14bn of free cash flow from 2021 to 2023.
The potential for bumper cash returns is already being reflected in the share price of New York-listed Freeport, which has risen from a March low of less than $5 to almost $35 on Friday.
Freeport now has a market value of $52bn — $18bn more than Barrick Gold, a rival miner that has been stalking the company.
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“We ended up being the eighth-best performing stock in the S&P 500 last year. If you had told that me that in April when we planning for $2-a-pound copper ($4,400 a tonne) I would have said you were dreaming,” said Adkerson
Asked if he had any plans to step down and hand the reins to Kathleen Quirk, Freeport’s chief financial officer who was recently appointed president, 74-year-old Adkerson said he hoped to continue a while longer.
“But the reality is this: Freeport has a 30-year-plus reserve life. I don’t. So we have to prepare for my departure. I don’t have a timetable. I’m healthy and doing OK. But we are setting the company up for life beyond my term.”
