Copper is trading close to six-month highs following heightened speculation that demand from the U.S. to China will strengthen at a time when stockpiles are at their lowest levels since August 2009, according to Bloomberg. We look at short interest and investor sentiment towards the copper mining stocks and main ETFs serving the sector.
Stocks covered include: Freeport-McMoRan Copper and Gold Inc. (NYSE:FCX), Antofagasta Plc (LON:ANTO), Quadra FNX Mining Ltd (TSE:QUX), KGHM POLSKA MIEDZ SA, Copper Mountain Mining Corp (TSE:CUM), Lumina Copper Corp (CVE:LCC).
The Copper Giant
As the world’s largest publicly traded copper producer, Freeport-McMoRan Copper and Gold Inc can be used as a measure to gauge performance of copper related stocks. Its share price fell close to 50% in the third quarter of 2011 from annual highs as the copper market suffered from high volatility. Although the shares have since recovered to levels recorded in August, short interest has been building up in the stock until recently. Short interest peaked in early February at 1.5% of total shares as the share price reached a five month high, but has since halved to 0.7%. Institutional ownership of funds who lend remains healthy at 27% of the market cap’.
The London listed equivalent Antofagasta has large copper assets in addition to its other metal mining activities. Short interest has doubled to 1.5% of total shares and stands at just below the annual high despite a recent recovery in its share price.
Most Shorted
Despite heavy short covering, Quadra FNX Mining Ltd remains the most shorted stock in our screen with 6.8% of its total shares out on loan. This is despite a takeover by KGHM Polska Miedz SA which prompted short sellers to cover positions in December as the share price almost doubled in response to the approach. Short interest had peaked at 20% of total shares and over half of the lendable supply was out on loan. With days to cover at a high of more than 30 days, it has taken a while for short sellers to exit their positions. The deal has just secured regulatory clearance but the company’s shares are still trading a little above the offer price, which might account for the residual short interest.
Investor sentiment towards the polish acquirer KGHM Polska Miedz SA has been positive as the shares have rallied and short interest has hovered around 1.5% since the bid was announced in December.
Small cap Copper Mountain Mining Corp is the second most shorted stock in our screen with 2.3% of its total shares out on loan, although shorts have covered positions from 3.5% earlier this month after the shares began to fall. Institutional investors have grown increasingly negative towards the stock. Their holdings have declined by 30% on the year and currently stand at 14% of the market cap’.
Lumina Copper Corp sees the largest increase in short interest at 63% YTD but short interest is low in absolute terms at only 0.25%. The share price has increased almost 200% since September perhaps as a result of a large exploration drill program expected to be completed by April.
ETFs
Copper mining is capital intensive and long term in nature, so one wonders if investors are keen to spread the risk of investing in single companies by using ETFs. We see minimal demand to borrow either Global X Copper Miners ETF (COPX) or Copper ETF (COPA).
