AI Fuels Copper Demand! 5 Stocks to Watch

The rise of artificial intelligence has created surging demand not only for NVIDIA GPUs to support computing power but also for the construction of data centers. Two critical components for data centers are: substantial electricity supply and copper.

Copper is a key material for the energy transition, playing a crucial role in producing electric vehicles, solar farms, and power grids. AI data centers also require significant amounts of copper. BHP predicts that global copper demand will increase by 70% by 2050 compared to 2021. This projection is supported by recent data: in the second half of 2024, BHP's copper production increased by 10% year-over-year, while its flagship iron ore business grew by just 1%.

Underpinned by the global shift to clean energy (despite partial Republican skepticism) and the development of AI data centers, global copper demand is expected to double by 2035 compared to 2022. This outlook bodes well for the copper industry and suggests copper prices could rise significantly in the coming years.

Here's a closer look at five leading copper stocks poised to benefit from this transition:

1. BHP Group

BHP operates multiple copper mines in South America and one in Australia, producing 1.7 million tons of copper in 2023. The company is heavily investing in expanding copper production at its existing mines to meet the rising demand.

BHP's growing copper output is expected to support higher dividend payouts. The company has a minimum dividend payout policy of 50% of its cash flow and often distributes additional dividends or conducts share buybacks from excess cash.

2. Freeport-McMoRan

Freeport-McMoRan is one of the largest publicly traded copper producers globally, with 4.2 billion pounds of copper produced in 2023.

Freeport has an extensive pipeline of organic development projects that could significantly increase its copper output in the coming years. Short- and medium-term initiatives to improve leaching technology could boost annual production by 800 million pounds. In addition, several expansion projects are expected to provide substantial production growth over the medium and long term.

The company's increasing copper output will likely drive higher returns for shareholders. Freeport plans to allocate up to 50% of its excess cash flow toward dividends and share repurchases.

3. Teck Resources

Teck Resources is a diversified Canadian mining company producing copper, zinc, and steelmaking coal. In late 2023, the company spun off its coal business to focus on copper production.

Teck has heavily invested in expanding its Quebrada Blanca (QB) mine in northern Chile. The QB2 project, completed in late 2023, is set to double the company's copper output. Teck is also developing several other copper projects, which could increase production from 600,000 tons as QB2 ramps up to 1.7 million tons in the future.

4. Southern Copper

Southern Copper is one of the world's largest integrated copper producers, operating mines in Mexico and Peru. In Q1 2024, the company produced over 240,000 tons of copper.

Southern Copper expects significant production growth in the coming years. Its board has approved several projects projected to increase annual output by 176,000 tons by 2027. Additionally, other planned projects are expected to add 545,000 tons of annual production by 2032.

5. Rio Tinto

Rio Tinto is a diversified global mining company with several large copper mines. The company has multiple copper growth projects in its pipeline, including Resolution Copper in the U.S. and Winu in Australia. The Winu copper and gold resource, discovered in 2020, has the potential to become a large-scale mining operation.

Rio Tinto's expanding copper production is expected to sustain its attractive dividend payouts. The company aims to return 40% to 60% of its earnings to investors annually through dividends.

These companies are well-positioned to capitalize on the rising demand for copper driven by AI, clean energy initiatives, and the construction of data centers. Investors should keep an eye on these opportunities as the copper market heats up.