RE regular news PC9 May 2021 17:57
It was interesting to see in a recent report from Goldman Sachs the comment, presented almost as an aside, that the major copper companies it was analysing had collectively outperformed the copper price by 34% over the past 12 months,
in spite of the fact that copper itself had been on a tear.
The comment lies at the basis of a truism well-known to investors in the mining sector: mining companies in any given commodity always outperform basic metals prices during a bull run.
The reasons are simple enough.
A metal like copper, whether traded forward or at spot, can only rise and fall by degrees. Those that are mining it though, operate on a what’s effectively a fixed cost base, and that means that any increase in copper price goes directly to margin and straight down to the bottom line.
So, if the copper price doubles, as it has done over the past 12 months, it’s quite likely that profits from actually mining it could triple or quadruple, depending on the precise cost base of any given company.
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