Mining giants turn back from iron to copper

The copper vs iron race for profit supremacy in the world's two biggest mining companies is all about the electrification of everything which has sparked a rush for copper, nickel, lithium and a handful of other metals deemed to be critical in the move away from fossil fuels.More copper is also a trip back in time for Rio Tinto which started as a copper producer in Spain, the country which gave the company its name (Red River being an English translation of Rio Tinto).But the rise of copper in both companies also means a shift in their risk profiles which could have an effect on their investment appeal.In Rio Tinto's case it means greater exposure to jurisdictions such as Mongolia for copper. A move which is occurring at the same time the company pushes ahead with plans to mine iron ore in Guinea which has an even higher risk rating than Mongolia.Despite showing a friendly face to the western world today, Mongolia is dominated by its neighbours, China to the South and Russia to the north. Rio Tinto's copper from the Oyu Tolgoi mine is sandwiched between two countries which are the west's adversaries, joined in a partnership which is said to be "without limits".Iron ore from the Simandou project means Rio Tinto will be exposed to a notoriously corrupt country which ranks 147th on the 180-country corruption perception index of Transparency International, 10 places below Russia which is at 137, and equal with Iran.The reason Simandou is making a return to a risk assessment of Rio Tinto is that the project took a big step forward last week when a deal was announced for construction of long-delayed rail and port infrastructure.As was reported on Friday, the transport agreement is a key move in clearing away the logjams which have delayed the world's largest known undeveloped high grade, low-impurity iron ore deposit.The reason BHP's mix of iron ore and copper will make a return to the headlines is that next week BHP will release its annual profit statement with most investment banks forecasting a hefty decline thanks to lower commodity prices in the year which ended on June 30.The consensus profit forecast of investment banks is for BHP to report an underlying profit for the 2023 financial year of around US$13.9 billion, down 41.5% on the previous year's profit of $23.8 billion.But it's in the detail of BHP's profit statement where fresh light might be cast on the iron ore v copper situation because the prices for two of BHP's major commodities, iron ore and metallurgical coal, have been falling because they are fully exposed to China's slowing steel industry, whereas as copper, with its exposure to electrification has largely held its ground and is expected to rise strongly in future years.The difference between old economy commodities (iron ore and met coal) and copper which is in transition to a mix of the old and new demand can be seen in a detailed analysis of BHP's earnings last month by Goldman Sachs.What the investment bank forecast in a report based on the July 20 BHP production report for the 2023 year is dominance by iron ore, contributing an estimated $16.6 billion in earnings before interest and other charges (Ebitda) to the company's overall forecast Ebitda of $27.9 billion. Copper is tipped to play second fiddle with Ebitda last year of $6.7 billion.Roll forward and the BHP picture changes as earnings from iron ore and copper move in different directions. The Goldman Sachs forecast for this year is iron ore Ebitda to fall to $13.6 billion while copper rises to $10.1 billion.The gap narrows further to a point in 2026 when iron ore will only be fractionally ahead of copper ($12 billion v $11.6 billion) with the following year tipped to see the flip as copper claims top dog status at BHP.The difference, if Goldman Sachs is right, will be ultra-fine at first with copper in 2027 contributing $11.8 billion and iron ore $11.6 billion.In future years the rush to electrify should see copper dominate BHP's earnings, possibly joined by increased nickel production if a way can be found to expand output or acquire existing operations.Iron ore, however, has probably had its best days at BHP and Rio Tinto as copper rises to the top.

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