February 6, 2007
Another Great Disconnect: Southern Copper Still Going North
Dr. Copper peaked around the middle of 2006 but Southern Copper (PCU) is now trading at all-time highs. What gives? Shouldn’t PCU track the price of the metal pretty darn closely? Both Peru Copper (CUP) and Encore Wire (WIRE) are behaving “properly” anyway. Any metallic gurus out there who can give me some insight?
Cat: | Time: 10:09 pm (utc+8)
February 6th, 2007 at 11:17 pm
Maybe PCU hedges well?
February 6th, 2007 at 11:40 pm
Might get bought by someone?
We’re probably heading towards a metal cartel of BHP, RTP, CVRD, and Russia owning everything worth owning.
February 7th, 2007 at 4:26 am
You’d have to determine if they shorted copper futures to lock in some of their profit margins. Also, the cartel comment also makes sense. PCU earnings are much higher, investors willing to pay up for them.
A common mistake; investors assume the commodity always follows the producers stock.
February 7th, 2007 at 5:14 am
I am dollar-cost-averaging into PCU. I like it for the dividend - maybe this is why it bucks the trend while copper producers like CUP struggle???? It paid out over $5 a share in 2006.
February 7th, 2007 at 6:48 am
I’m no guru, but there seem to be a few things at work here. Copper prices may be down, but Southern expects to produce about 12% more of the red metal this year (given that it can avoid the labor troubles that slowed production in 06). And perhaps the market believes the company’s prediction that copper will get back to $3/lb. in 2007. Add to those factors that Friday is the ex-date for that fat $1.70 dividend (a yield of more than 10% even at today’s 52-wk. high), and it’s just a good time to have a good couple of weeks.
February 7th, 2007 at 8:27 am
Thanks for your insight, guys.
February 7th, 2007 at 11:24 am
the reason it is going up is simple. I’ve been trying to buy on pullbacks using limit orders for weeks. naturally, it keeps going higher. the minute i give in and chase it to get a fill, it will drop by 10% and then gap down 10% the next day… never fails for me.
February 7th, 2007 at 12:09 pm
Born2: Ah yes, the old persecution complex. ;-)
February 7th, 2007 at 4:32 pm
P.S. Congrats on the Tech Analysis Stock & Comm. piece.
February 7th, 2007 at 4:58 pm
The real reason is that Cramer likes PCU. That man is what really drives the market. All he has to do is say the word and the market jumps.
(That’s sarcasm since it’s not easy to tell…)
In reality, I’m not sure why PCU continues to climb higher… There’s a rumor that Northern Copper could get bought out, but… uh… only the directionally challenged would make that mistake.
It could be a lot of short covering, or the domestic costs are falling faster than the price of copper… the float isn’t tiny (73m shares) and the daily volume is pretty hefty too (3m shares/day) so this isn’t trivial…
This one is on my watch list too to see what happens…
February 7th, 2007 at 8:41 pm
Declan: Thanks, I should post something about it I guess.
February 7th, 2007 at 10:04 pm
Nice, Max. You gave WIRE a 10% flu bug this morning. Any other market-moving comments! :)
February 7th, 2007 at 10:17 pm
jtay: Are you behaving properly? ;-) WIRE Q4 earnings were apparently terrible, so it was more than my magic 12 readers hard at work.
February 8th, 2007 at 5:58 am
PCU is going up because they have solid fundamentals, are trading at a modest value, and pay a nice dividend. Despite the crash in copper prices, the company is still growing in production and earnings. That’s what matters, not the price of copper.
Next year they’ll grow 12% they believe. So if earnings increase by 12% plus a 10% div, its a 22% before tax ROI on the stock. That’s probably double what the market will do. I have no idea why it’s only trading at 9 times earnings, but to me this stock is a bargain, a true Buffett stock. I’m in at $40 and $57. Hoping for a pull back to buy more. A solid company.
February 11th, 2007 at 1:48 am
I don’t think this has anything to do with dividends or earnings but more with takeover potential.
In Canada, copper producers AUR and FM and have similiar charts to PCU; while copper has been weak, they have been strong. The latter are all small producers that may be attractive targets for large players like FCX BHP RTP etc. Incidentally, all of the latter peaked when copper did.
February 13th, 2007 at 10:53 am
Copper is still nearly a dollar higher than at any time in the last one hundred years. It costs producers 5-7 cents to get it out of the ground. Copper at $3 or at $2 or at $1 or at $4 is still attractive as long as oil is dropping and the global PMI & demand is constructive. Whether companies make money or are losing money has more to do with their individual dynamics (costs, hedging, etc) as opposed to whether one can make money with copper at $2.50
Cheers
February 13th, 2007 at 5:39 pm
BDG: Thanks for your insight on the red metal.
November 9th, 2007 at 1:10 pm
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