Bank of America Merrill Lynch: Bullish on copper prices reaching $12,000, with t

After Goldman Sachs and Citigroup, the Wall Street giant Bank of America Merrill Lynch also sounded the strongest note for bullish copper prices.

On Friday local time, analysts including Jason Fairclough from Bank of America Merrill Lynch released an in-depth industry report, stating that copper prices are expected to reach $12,000 per ton by 2026, more than 20% higher than the current level, which is closest to Citigroup's forecast. Goldman Sachs believes that copper prices could reach this level by the end of the year.

The report points out that due to energy transition, the growth of demand in India, and the rise of the wave of AI and data center construction, the market demand for copper is soaring. It is predicted that by 2026, the global supply and demand gap will double to 743,000 tons.

Bank of America Merrill Lynch is generally optimistic about copper mining companies, giving buy ratings to giants such as Freeport-McMoRan Copper & Gold, Antofagasta Minerals, Ivanhoe Mines, Zijin Mining, and Jiangxi Copper. High-quality copper assets "hidden" in integrated miners such as Teck Resources, Anglo American, and Glencore are worth paying attention to.

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The institution also believes that once copper prices rise, the profit growth of smaller and higher-cost companies such as KGHM may be more significant.

The gap in 2026 may double

The report, titled "Everybody wants copper," shows its optimism for copper demand.

Bank of America Merrill Lynch points out that BHP Billiton's recent century-long acquisition of Anglo American has made the market fully realize one thing: under the expectation of soaring copper prices, high-quality copper mine assets have become increasingly scarce, and the value of holding copper resources is also increasing day by day.

The report points out that the world is currently accelerating the pace of energy transition, and the core of this process lies in "decarbonization." To achieve this goal, the demand for metals such as copper will significantly increase.

In addition, the rise of emerging economies such as India, as well as the rapid development of emerging industries such as artificial intelligence and data centers, will also provide strong support for copper prices.Against the backdrop of a tight copper supply, Bank of America Merrill Lynch estimates that there will be a deficit of 324,000 tons in copper supply and demand in 2024, and this gap is expected to reach 743,000 tons by 2026.

High-quality pure copper mining companies to watch: Freeport-McMoRan and Southern Copper

Bank of America Merrill Lynch points out that the valuation of copper mining companies is influenced by a variety of factors, including both fundamental factors such as costs and reserves, as well as market factors like scale and liquidity. Companies that excel in all aspects will receive a higher valuation premium and are worth the close attention of investors.

For the valuation analysis of the world's major pure copper mining companies, Bank of America Merrill Lynch has introduced a new valuation metric: the enterprise value (EV) per ton of annual copper production capacity, abbreviated as EV/ton.

Upon calculation, Bank of America Merrill Lynch found that the average value of each ton of copper production capacity is approximately $55,000.

However, there is a significant variation in the EV/ton across different companies, mainly depending on the following factors:

Cost position—The lower the cost, the higher the EV/ton tends to be.

Mine life—The longer the mine life, the higher the EV/ton.

Location—Different political and economic risks in various countries and regions will also lead to differences in EV/ton.

Equity "packaging"—The EV/ton of publicly listed companies is usually higher than that of private companies.At the corporate level, Bank of America Merrill Lynch points out that the enterprise value (EV) per ton for the two major U.S.-listed copper mining giants, Freeport-McMoRan and Southern Copper, exceeds $90,000, which is significantly higher than the industry average.

Diversified Mining Giants: The "Hidden" High-Quality Copper Assets Should Be Recognized

For large diversified mining companies, Bank of America Merrill Lynch continues to use the EV/ton metric to derive the implied value of high-quality copper operations within these companies.

Analysis shows that the copper operations under these diversified mining giants are quite valuable, but often overlooked by investors:

BHP, with an annual copper production entitlement of about 1.4 million tons, could be valued between $79 billion and $96 billion based on the EV/ton metric.

Anglo American's copper operations, though not as large as BHP's, with an annual production entitlement of about 700,000 tons, could also be valued at between $41 billion and $50 billion.

As for Glencore, with an annual copper production entitlement of about 860,000 tons, the implied value could be between $49 billion and $59 billion.

These figures amply demonstrate that the copper operations of diversified mining companies are by no means a "side business," but rather a "value lowland" of real gold and silver. It's just that due to the multitude of businesses these companies are involved in, the value of their copper operations is often underestimated by the market.

These Copper Companies Have Great Profit Elasticity

In its report, Bank of America Merrill Lynch specifically mentions a type of copper mining company, namely those with higher production costs, known as the "non-first-tier" copper mining companies.Compared to industry leaders, they have higher costs, which implies relatively lower profit margins; the mining assets have a shorter life span, raising doubts about their future sustainable profitability; they are smaller in scale, lacking economies of scale; and they have a higher debt-to-asset ratio, which means relatively greater financial risks.

From an investment perspective, these producer companies seem to be of "poor quality." For instance, the EV/ton for companies like Poland's KGHM Group and Spain's Atalaya Mining is less than $20,000.

However, if copper prices rise, the potential for profit growth may be greater. Bank of America Merrill Lynch points out that these stocks may have another appeal, which is higher price leverage.

So-called price leverage refers to the extent to which changes in copper prices affect a company's profitability. Bank of America Merrill Lynch believes that for producers with high costs, when copper prices rise, their profit growth may be more significant.

Assuming a 10% increase in copper prices, KGHM's EBITDA in 2025 could potentially grow by 26%; Atalaya Mining's EBITDA increase for the next year could also reach 25%.

Of course, this "high leverage" also implies a higher risk. If copper prices fall, the decline in the stock prices of these companies may also be greater.