Metals and Mining: Copper Crossroads

In this report we explore the outlook for the copper sector, analyze the implications of proposed U.S, policy changes, and highlight the potential benefit to equities.

Tariff Policy Review Triggers Tremors in U.S. Copper Premiums

Global copper prices are climbing notably in anticipation of policy shifts from Washington, while COMEX copper premiums experience roller-coaster fluctuations.

Talks of 25% tariffs targeting U.S. imports from Canada and Mexico sparked a slow rise to the premium as we transitioned into 2025. This widening accelerated after a briefing on January 27th, when President Trump suggested a 10% tariff on global imports of copper, aluminum and steel. On February 25, an executive order was signed, requiring submission of a report within 270 days advising on tariffs, export controls, or other incentives to increase domestic copper production.

Figure 1: Premiums for Copper Procured on Domestic U.S. Exchanges Remain Elevated and Volatile

Source: FactSet, data as of March 6, 2025

In contrast to the LME, COMEX typically operates as a financial settlement hub; physical deliveries are rare. A material and prolonged premium over the LME is unusual and indicates heightened trader confidence in tariff implementation.

According to the U.S. Geological Survey (USGS) 2025 Commodity Summaries Report, over the past five years U.S. reliance on refined copper imports has increased to 45% from 38%. Although there’s been a slight dip in refined production, the U.S. exported nearly 320kt of copper in concentrate in the past year while importing none. The country needs to increase its domestic refining capacity.

Last year, Chile contributed 65% of the United States’ 810kt of refined copper imports, while Canada and Mexico contributed a combined 26%. Canada and Mexico have received a one-month exemption from the 25% tariffs, which came into effect March 4 for goods covered by the original USCMA agreement. Both refined copper and copper ore are covered if they originated from these countries.

If these exemptions were lifted, they could modestly challenge the U.S. industrial sector and potentially cause short-term global inflation. Nevertheless, copper trade flows and prices should stabilize quickly as the affected volume is less than 1% of annual global production.

This move appears to be a negotiation strategy related to the USMCA. It reminds us of the 2018 tariffs on steel and aluminum, where Canada and Mexico eventually secured exemptions as part of signing the trade agreement; exemptions that currently face the threat of revocation.

The U.S. hasn't announced any new copper smelters or concentrators yet. Grupo Mexico's ASARCO is thinking about restarting its Hayden smelter, but there's no timeline. This situation is similar to the U.S. dependence on Russian nuclear fuel. Last August, when an import ban on Russian fuel was imposed, waivers had to be granted because transitioning away wasn't feasible for utilities at that time. This pattern suggests that if the suggested 10% global copper tariffs are put in place, it is likely conditions are attached to ease inflationary pressure domestically.

Beyond the proposed tariffs, expectations of deregulation and a reduction in federal spending fueled a significant strengthening of the U.S. dollar to close out 2024. The DXY index, which measures the U.S. dollar against a basket of major global currencies, remains at historically high levels due to monetary policy divergences between the United States and other nations.

Figure 2: FactSet U.S. Federal Reserve Policy Rate Tracker

Source: FactSet (Workstation link), data as of March 6, 2025

As global inflationary readings accelerated toward the end of 2024, the dollar's strength underscored the difficulties faced by other countries in balancing monetary policy and economic stability. This strength has faded since peaking in January, as the domestic inflationary impacts of a prolonged trade war create doubts about near-term United States economic growth prospects.

Figure 3: Increase in the DXY Relative to Global CPI Readings, Indexed to Jan. 1, 2024

Source: FactSet, data as of March 6, 2025

Copper Sentiment and Outlook

ETF fund flows for global copper miners reveal a noticeable surge of inflows to end off the prior year, reflecting post-election optimism for the sector. Despite this, YTD flows remain modest and neutral. The ETF COPX, which commands more than 90% of the AUM among copper ETFs, is only 28% institutionally owned. This indicates that the recent net inflows are likely reflective of retail sentiment rather than institutional investors.

Figure 4: Copper-Focused ETF Fund Flows (LHS: AUM, RHS: YTD Fund Flow)

Source: FactSet (Workstation link), data as of March 6, 2025

The FactSet consensus among sell-side analysts is for global copper prices to average $4.25/lb in 2025. Interestingly, we've observed only downward revisions from sell-side analysts over the last 180 days. Meanwhile, the current spot price on the LME is trading above FactSet’s consensus average estimate.

Figure 5: Quarterly Average Consensus Price Outlook and Revisions Within the Past 180 Days

Source: FactSet, data as of March 6, 2025

Figure 6: CFTC, Copper Futures and Options, Weekly Net Positions

Source: FactSet (Workstation link), data as of February 28, 2025

Figure 7: CFTC Managed Money, Copper Futures and Options, Weekly Positions

Source: FactSet (Workstation link), data as of February 28, 2025

The Copper Equity Landscape: Made in America

The case for investing in U.S.-based copper developers is becoming increasingly compelling as market dynamics shift towards domestic production and resource security. The Trump administration seems to be focused on boosting local mineral supply chains. With streamlined permitting processes, predictable timelines and supportive policy shifts, these developers are set to attract more investment and backing.

Argentina is a great example of a country that successfully attracted investments into the country by cutting red tape and reducing government spending following its last leadership change. Companies like Filo, NGEX Minerals, and Aldebaran (all with significant exposure to Argentina) had their stock prices soar over 50% in 2024 and stood out among global copper firms. With expectations for similar policies in the U.S., it is no surprise to see U.S.-based developers dominate the top performers list from the prior year as well.

Figure 8: Copper Developer Equity Price Performance (>$100M Market Cap)

Source: FactSet, Prospector

Despite tariff uncertainty, there's positive momentum for U.S. copper developers. On January 20, the Trump administration rolled out a series of executive orders. One to highlight was Unleashing Alaska’s Extraordinary Resource Potential, which directs federal agencies to speed up permits and boost development of natural resource and energy projects in Alaska.

Another executive order, Unleashing America’s Energy, was issued the same day, pausing disbursements under the IRA. However, it doesn't affect tax credits, which is positive for copper miners. For instance, Gunnison Copper, a small-cap developer in Arizona, recently received a $13.9 million tax credit under Section 48c of the IRA. The credit helps offset the costs of the planned expansion of its Johnson Camp Mine. IRA provisions allow the credits to be sold or transferred, offering a financing alternative for Gunnison.

Although many copper miners haven't yet tapped into IRA tax credits, recent updates to Section 45x finalized in December 2024 should change that. Moving forward, material and extraction costs of critical minerals will be eligible for a 10% tax credit, extending benefits previously limited to refining costs. To be eligible for the credits, the material must be mined and processed within the U.S.

The Department of Energy labels copper as a critical mineral, which makes it eligible for IRA credits. However, the USGS does not recognize copper the same way. The pending Critical Minerals Consistency Act, up for a Senate vote, could resolve the inconsistency, enabling copper developers to benefit from the FAST-41 permitting process currently available for critical minerals.

That would streamline mines' administrative approvals to within two years, cutting down the lengthy, uncertain timelines that have often deterred investments in the past. Reflecting this optimism, Rio Tinto expressed hope to secure permits for its long-delayed Resolution copper project with BHP this January.

Given the growing momentum, we've compiled a list of U.S. copper developers and producers who have active projects underway. We highlight each developer’s valuation for resources in the ground in Figure 9 and list the assets they own in Figure 10. The companies aren't producing yet (that hinges on effective permitting, feasibility studies, financing, and execution) so they are considered speculative investments.

In Figure 11, we highlight copper miners currently in production, with active development projects underway within the U.S. 

Figure 9: Primary U.S. Copper Developer Equity Valuations, EV/lb of Global Contained Copper Resources (incl. Inferred)

Note 1: This plot represents the acquisition valuation of the Pumpkin Hollow IOCG project in Arizona. The enterprise value used within the valuation is from FactSet's Deals & M&A calculated EV data. (Workstation link)

Note 2: EV Data as of March 6, 2025. R&R data as of December 31, 2023.

Source: FactSet, Prospector

Figure 10: Primary U.S. Copper Developer Assets

Source: FactSet, Prospector

Figure 11: Copper Producers with Development Assets in the U.S.

Source: FactSet, Prospector

Over the past few years, the M&A bid premium has been widely discussed within the copper sector, positively impacting valuations. Recent trends suggest a consolidation phase remains, with major companies aiming to grow their copper portfolios. Speculation around mega mergers (like Glencore/Rio Tinto and BHP/Anglo American) dominate headlines, highlighting a drive for acquisitions that can move the needle in terms of copper production growth. Valuation premiums for copper producer equities currently trade at a 20% premium to their five-year average. With few producers available, the factors are present for valuation premiums to continue their rise as majors continue their search.

Figure 12: Historical Mid-Cap Copper Producer Consensus Valuation - P/NAV

Source: FactSet

Conclusion

While U.S. policy shifts and the direction of global monetary policies may initially seem to cloud the copper market's horizon, they set the stage for identifying standout opportunities across the evolving landscape. The sector consolidation presents opportunities for discerning producers to acquire strategic assets and takeout targets to gain a strong position within global copper supply chains.

The U.S. development scene could become a center for fresh investment against a backdrop of policy changes intended to benefit producers within the country. Investors who can anticipate the ripple effects of these developments stand to capitalize.

The Databook supporting the figures presented in our analysis can be found in the FactSet Workstation under the contributor “FactSet Deep Sector Insights”.

This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.