ETFs
The Copper Miners ETF is just one kind of copper ETF. Is this a purchase?
You can get exposure to copper by owning a Copper Miners ETF, but you also get much more than just copper.
Sometimes there is no easy way to adhere to an investing theme. This is the big story behind Copper Miners ETF (COPX -4.05%), which states that it “allows investors to access a wide range of copper mining companies”.
However, as with all index exchange-traded funds (ETFs), you don’t really know what’s going on unless you take the time to look under the hood.
There are good reasons to buy copper
Copper is an important metal. It is used by all kinds of industrial companies due to its ability to conduct electricity and the ease with which it can be manipulated. To be fair, there are other metals that are more conductive, like silver. It is the cost/benefit ratio of this metal that makes copper so attractive for industrial uses. Due to its industrial use, copper demand is often linked to economic cycles. That said, the world is increasingly moving toward electrification and digitalization, two huge trends that will likely increase demand for copper.
Image source: Getty Images.
However, the cyclical nature of copper demand must be juxtaposed with supply dynamics. The metal must be mined and processed before it can be used. This is where the copper miners come in.
If you are looking for direct exposure to copper, buy an exchange-traded fund designed to directly track the price of copper would probably be the best option. US Copper Index Fund (CPER -4.49%) does this via futures contracts.
But, as for other metals (like gold), tracking copper prices means that the value of the metal will determine performance. Commodity prices can be volatile and there is no potential for business growth, as there is when investing in a mining company. Quite simply, a minor can build a new mine and increase its production, but a pound of copper will always and only be a pound of copper.
The Copper Miners ETF is not quite an accurate name
A fund such as Copper Miners ETF exists to provide investors with a combination of indirect exposure to copper and the opportunity to benefit from the growth of miners who produce the metal. Obviously, copper exposure comes from the sale of mined copper, which will impact a mining company’s financial and financial results. However, it is the growth potential of mining companies that is probably the most important factor for investors to consider when comparing the Copper Miners ETF to the United States Copper Index Fund.
Only, there’s another little wrinkle here. Remember that the objective of the ETF is to give “investors access to a wide range of copper mining companies”. What does this mean exactly? To keep things simple, miners generally don’t mine just one metal. And even if they focus on a single metal, like copper, there are usually other metals that go along with it, like silver and gold. So there really isn’t a pure copper miner.
This is where a look at Copper Miners ETF holdings can provide insight. There are several significant investments in foreign mining companies (non-US holdings make up around 90% of the ETF’s assets), so to keep things simple, only a few US-listed mining companies will be considered here. However, they are big names, notably Technical resources (TEAK -3.63%), Freeport-McMoRan (FCX -3.86%), and Southern Copper (SCCO -4.36%). All three are among the ETF’s top 10 holdings.
Teck Resources is a top 10 copper producer, so it’s certainly a major copper miner. However, it also produces zinc and steelmaking coal. In fact, in 2023, copper and zinc together accounted for only 25% of the company’s earnings before interest, taxes, depreciation and amortization. To be fair, Teck is looking to get out of the coal business, so copper and zinc will ultimately be its focus. But copper still won’t be the only focus, even after the company’s overhaul.
Freeport-McMoRan bills itself as a copper company. It owns three of the eight largest copper mines in the world. But when we look at the miner’s actual production, it includes copper, gold and molybdenum. Certainly, copper represented 75% of the company’s turnover in 2023, but gold still represented 15% and molybdenum 8%. This is a long way from investing purely in copper, even if it is primarily a copper miner.
Southern Copper claims to have the highest copper reserves of any publicly traded company. And copper still only accounted for about 76% of its sales in 2023. The rest was a mixture of molybdenum (13% of sales), zinc (3%), sulfuric acid (3%), money (3%) and “other.” It’s most definitely a copper miner, but again, it’s not a pure space play.
Is it worth buying a Copper Miners ETF?
While this is only three of the ETF’s miners, it highlights what you are likely to find in almost every miner it has. Mining is more complex than the Copper Miners ETF suggests. And given the strong exposure abroad, the fund expense ratio is a bit high at 0.65%. So you’re paying a lot to own a fund that mostly does what you expect it to do, but doesn’t completely do what you expect given its very specific name.
This might be suitable for some investors, provided they know what they are getting when they buy a Copper Miners ETF. But for many people, simply investing directly in a few mining stocks could work just as well. And it could end up costing a lot less if you use a broker that offers free trading and fraction of share purchases.