1 Stock To Buy for the Renewable Energy Revolution

TradingKey - When we talk about renewable energy and the boom in demand for cleaner sources of fuel, many investors may think the biggest winners are companies involved in electric vehicles (EVs) or solar panel production.

But the truth is much more nuanced. In fact, many of the stock market winners of the clean energy revolution may be found in a more unloved part of the stock market; mining and metals companies.

That’s mainly down to the fact that a lot of valuable minerals and metals will be needed to power the huge stock of batteries required. Specific metals are also critical in the production of things like solar panels and wind turbines.

That gives mining companies an advantage in the decades ahead and, of course, investors will want to focus on miners that have scale. One of the biggest mining companies in the world is BHP Group Limited (NYSE: BHP) (ASX: BHP). 

Here’s what investors should know about this mining behemoth and why it could play a big role in the clean energy revolution. 

Betting on the role of copper

BHP Group used to be named BHP Billiton and the company is the world’s largest mining company in the world, by market capitalisation. It was founded in 1851 and currently employs around 90,000 people globally, both as employees and contractors.

BHP used to be dual-listed in both London and Sydney but the company moved its main listing from the London Stock Exchange (LSE) to the Australian Securities Exchange (ASX) in January 2022. However, it also has a New York listing through its American Depositary Receipts (ADRs).

BHP produces essential commodities such as iron ore, metallurgical coal, and copper. However, it’s the last one (copper) where the company is really focusing its future on. That’s because copper is a critical metal in renewable energy as it happens to be highly efficient at conducting electricity and heat.

As a result, copper is used in an array of renewable energy systems, from solar and wind to hydro and thermal. Its main uses are in cables, wiring, transformers, and turbines – all of which the world is expected to produce more of in the decades ahead.

Indeed, in 2024 BHP tried to buy another big mining player – Anglo American plc (LSE: AAL) – mainly for its copper output. However, that deal fell through and, instead, BHP announced a deal to acquire Filo Corp through a 50/50 partnership with Lundin Mining for US$3 billion. Filo is an exploration firm with copper assets.

Long-term demand for copper benefits BHP

Total copper demand, globally, has grown at a compound annual growth rate (CAGR) of 3.1% over the past 75 years but, more recently, this growth has been slowing. In the past 15 years (up to 2021), it’s actually grown at a 1.9% CAGR.

However, BHP forecasts that over the next decade (to 2035), this CAGR will jump back up to 2.6% and copper demand will grow by 70% by 2050. Indeed, one of the most basic ways that demand for copper will increase is through a rise in electrification. 

Where copper demand will come from

Source: BHP Insights: How Copper Will Shape Our Future as of 30 September 2024

Undoubtedly, this increase in demand for copper will benefit BHP given the company is among the top three highest-producing companies of the metal in the world. The company has four copper mines in South America and one in Australia.

In BHP’s latest earnings, the company revealed that its copper production rose 4% year-on-year. The company has consistently reiterated its view that copper supply globally will struggle to meet the looming wave of demand given the growth in renewable energy, data centres, and a massive expansion of power grids.

Strong tailwinds but tied to global growth

For long-term investors, BHP Group offers an interesting long-term growth story to watch in the renewable energy and electrification sector. While the price of copper has fallen around 20% from its 12-month high set in May 2024, copper longer term still has strong structural tailwinds.

It’s also important to remember that ramping up supply of copper is difficult as copper mines as it takes – on average – around 24 years to get a copper mine up and running. Therefore, existing copper-producing mining assets are highly-valued as long – as the demand for copper is there.

Over the past year, BHP’s New York-listed ADRs have declined around 28% but the company does pay shareholders a generous dividend, with its stock currently yielding around 6%. Its growing copper business should support further dividends (and occasional special dividends) as well as share buybacks.

On the risks side, though, investors should be aware that a global economic slowdown or even continued weakness in China, could negatively impact overall demand for metals.