Three Top Canadian Copper Stocks to Buy in September 2023

Posted on September 29, 2023 by Dylan Callaghan
best canadian stocks

In an inflationary environment, commodities tend to outperform.

However, many investors are uncomfortable purchasing futures contracts such as copper futures or commodities in general. So instead, if they are looking to buy Canadian stocks to gain exposure to a specific precious metal, they often go to publicly traded producers.

In this article, I will speak on 3 top Canadian copper stocks on the Toronto Stock Exchange that you can look at today to gain exposure to rising copper prices. 

Remember, although these are Canadian companies, most of them mine in foreign jurisdictions such as Australia, Peru, Mexico, the United States, Argentina, Ecuador, Mongolia, and many other countries in South America. Understanding where a company's production is coming from is always important.

Remember, there are plenty of small/nano-cap copper producers here in Canada, like Kodiak Copper (TSXV:KDK). However, just to reduce overall volatility, I'm going to stick to significant copper producers here in Canada, ones that have a reasonable history of production.

In addition to this, I'm going to focus on companies that have the majority of their production in copper. For example, companies like Rio Tinto and Teck Resources have copper exposure and, in terms of volume, produce large amounts. However, it doesn't make up the majority of their production.

Although copper is down from its March 2022 highs, it is still significantly higher than prices we've witnessed pre-pandemic, which bodes well for a copper mining company.

Is there a copper miners ETF?

As of right now, there are a few copper mining ETFs you could buy. The Global X Copper Miners ETF is the most popular, which trades under the ticker COPX. The fund has $1.67B in assets under management. Its top holdings contain the likes of Lundin Mining, Teck Resources, First Quantum Minerals, and BHP Group.

The fund has 44 holdings, giving investors strong exposure to copper producers. Other notable Canadian options inside of the portfolio but not in the top ten holdings are Ivanhoe Mines, Hudbay Minerals, and Altius Minerals.

What are the top copper stocks in Canada?

  • Lundin Mining (TSE:LUN)
  • Ero Copper (TSE:ERO)
  • Faraday Copper (TSE:FDY)

Lundin Mining (TSE:LUN)

Lundin Mining

Lundin Mining (TSE:LUN) is a popular precious metal miner in Canada and one of the largest copper producers, with a market cap of just $8B. As of 2022, the company reported copper reserves in the range of 1.7 megatons. 

Over 70% of the company's production profile is copper, with zinc making up the only other double-digit weighting at 10%. The company contains a diverse enough portfolio that you gain exposure to quite a few metals like gold, nickel, and lead. 

But make no mistake, Lundin is significantly impacted by the price of copper.

The company is attempting to diversify away from the metal by increasing its zinc and gold exposure. However, this is likely to take years. Simply put, if you're looking for copper exposure, it's arguably one of the best miners in the country.

The company's acquisition of Caserones in March 2023 should help expand its copper profile. It is a large-scale, long-life copper operation. In fact, on a pro forma basis, it would have increased Lundin's copper production by over 50%.

With Lundin, it's essential to remember that you are investing in a company with some political and geographical risks. In fact, over 83% of its production profile is outside North America, with the majority being in Chile.

The company's largest copper-producing asset, making up more than 60% of its total copper production, has cash costs of around $1.80-$195. With copper hovering at nearly double this price, Lundin is producing significant cash flow from this asset.

Analysts estimate the company will produce $0.77 in earnings in 2023 and $0.84 in 2024. If they hit these targets, the company trades at only 12 times expected earnings. Along with this, it's trading near book value with a PEG of only .27, suggesting that the market is not pricing in an appropriate amount of growth for Lundin at this time.

Ero Copper (TSE:ERO)

Ero Copper

Ero Copper (TSE:ERO) is another Canadian copper producer that heavily relies on the metal. However, the company also has some gold production.

Much like Lundin, the company poses a jurisdictional risk because its production profile is solely in Brazil. In fact, the company has more than 40 years of operations in the country.Its core mine is the MCSA Mining Complex, which is located in Bahia State.

Still, it also has a developmental project in Boa Esperanca, located in the Para State.

The company's cost profile is significantly lower than Lundin's. In fact, both of its mines have cash costs of $1.20/lb or lower, producing some pretty hefty margins right now.

And regarding its gold exposure, all-in-sustaining costs of $550 is not too bad either.

In terms of free cash flow, the company benefitted from a significant rise in gold and copper prices in 2021 and 2022. However, over the last 6 months or so, cash flow has gone negative. We expect this to turn around relatively quickly, as analysts have very high earnings targets on Ero.

It is expected to earn $1.73 in 2023, followed by $2.91 and $4.97 in 2024 and 2025, respectively. Ero is already attractively priced based on its 2023 earnings, coming in at only 13X. However, when we expect it out to Fiscal 2024 earnings, this forward price-to-earnings ratio shrinks to just 8X. 

The company's basket of low-cost, high-efficiency operations is undoubtedly paying off and will likely continue to pay off in the future.

Just keep in mind that as a small-cap copper miner, it poses significantly more risk for a few reasons. Its reliance on copper is even more than a company like Lundin. And secondly, small-cap stocks tend to be much more volatile overall. At the time of writing, Lundin is nearly 4X the size of Ero Copper.

Faraday Copper (TSE:FDY)

Faraday Copper

A note before I speak on Faraday. At the time of writing, it has a market cap of only $150M. This is significantly lower than that of both Ero and Lundin. If small-cap stocks are not in your realm of risk, consider a larger copper player.

Faraday poses even higher risks because not only is it a small-cap play, but it is a pre-revenue exploration company. The company primarily focuses on exploring and developing assets at its Copper Creek project in Arizona. 

This area is one of the largest undeveloped copper projects in North America.

Not only does the mine have open pit potential, but underground extraction as well. And if we look at the current infrastructure, it already has access to rail, water, and electricity. 

Interestingly enough, the Lundin Family owns a large chunk of Faraday. It also includes notable investors like Murray Edwards, who is part owner of the Calgary Flames and also Canadian oil giant Canadian Natural Resources (TSE:CNQ). The vast majority of this company is currently held by strategic shareholders and institutions.

The company hopes to achieve an internal rate of return (IRR) of 16%; if it does, it poses large-scale potential. However, as with any pre-revenue exploration company, that potential comes with significant risks.

Suppose you're looking for a higher-risk copper exploration company. In that case, you may want to add Faraday to your watchlist.

Overall, these 3 Canadian copper stocks should benefit from the current environment

I'm not really a fan of investing in cyclical plays like this for the long term. But, there is no doubt that copper prices are likely to stay high for the next few years and as a result, there are likely some short-term gains to be made on Canadian copper stocks.

Remember that although there is likely still value here to be had, a lot of it is priced in. We can also see the overall volatility in these copper stocks as something as simple as a short-term guidance cut to Lundin's copper profile caused its share price to drop by double digits.

Expect some significant ebbs and flows over the next few years in these copper producers, and be ready to hang on for the ride.

Wondering about airline rebounds? Check out our post covering Canadian airline stocks here.

Disclaimer: The writer of this article or employees of Stocktrades Ltd may have positions in securities listed in this article. Stocktrades Ltd may also be compensated via affiliate links in this post. Stocktrades Ltd will run advertisements on our posts. These advertisements do not represent an endorsement by us.

Dylan Callaghan

About the author

Dylan is the co-founder of Stocktrades.ca and an avid self-directed investor. He holds a portfolio of Canadian growth and dividend growth stocks, and believes that anyone, regardless of financial status, stands to benefit from investing in the stock market. His ultimate goal with his writing and the continual development of Stocktrades.ca is to create a resource that helps Canadians, and investors from around the world, make more money and retire earlier.