Forget Albemarle: Buy this magnificent mining stock instead

In many ways, lithium miner Albemarle (WHITE -6.79%) and copper miner Freeport-McMoRan (FCX -6.59%) they have a lot in common. Both are beneficiaries of the rise of electric vehicles, and both are mining metals that could increase in price due to an imbalance between supply and demand. That said, Freeport McMoRan is a better stock to buy. Here’s why.

Albemarle and Freeport-McMoRan

There is no debate as to why the market has gotten excited about lithium in recent years. Its use in electric vehicle (EV) batteries is the main driver of marginal demand for the metal and ultimately Albemarle’s earnings. An example of Albemarle’s level of sensitivity to EV demand comes from a quick look at its sharp decline in revenue in 2024.

This is because the price of lithium has fallen from over $80 per kilogram in early 2023 to around $15 per kilogram in early 2024 and to just over $10 per kilogram at the time of writing. The decline is due to reduced expectations for electric vehicle (EV) production in 2024. For example, S&P Global cut its 2024 EV production forecast by 10% from January to June.

ALB Revenue (TTM) data by YCharts

Freeport-McMoRan is more diversified

In comparison, there is much less risk to copper end demand and ultimately Freeport-McMoRan because end demand is more diversified. While it’s true that electric vehicles make up a significant portion of copper demand (the average EV has three to four times more copper than an internal combustion engine vehicle), there’s much more to the copper demand story on long term.

For example, copper is an integral part of the “electrification of everything” megatrend. This includes electric vehicles and electric vehicle charging networks, renewable energy (especially solar energy), smart buildings/infrastructure/grids, industrial automation and the electricity transmission and distribution infrastructure needed to support these technologies.

In addition, traditional sources of copper demand such as construction, industrial products, consumer products and electrical infrastructure must be considered.

As such, copper and Freeport-McMoRan are far less exposed to single industry demand than lithium and Albemarle.

Supply is also a factor

It’s time to get back to the supply side after discussing the demand side. While both lithium and copper bulls can point to industry research that supports the idea of ​​insufficient supply relative to demand, there are some differences.

There is plenty of lithium in the world, and more than a few governments are actively trying to encourage investment in the industry. Moreover, the geopolitical environment differs greatly from when the last US administration took over. Rising geopolitical tensions could encourage lithium mining to ensure the supply of a key resource for electric vehicle production.

For example, the European Union, Rio Tintoand the Serbian government continues to plan a major mine in the non-EU country. Meanwhile, Chile is encouraging investment in lithium, and the new regime in Argentina is aggressively trying to increase capacity. In addition, Australia, the US and Canada are expanding their production.

Image source: Getty Images.

The point is that supply growth may not be dampened by low prices as much as many investors think. There is a strategic need to secure the supply of lithium to local markets, such as lithium production in China for electric vehicle production in China or the US trying to reduce its dependence on lithium from China.

Freeport-McMoRan is well placed in copper

We have discussed Freeport-McMoRan in more detail elsewhere. The miner is in a strong position regarding copper. Its leaching initiative provides an inexpensive way to recover a mine’s copper value from existing stockpiles. For example, management believes it can achieve an annual run rate of 800 million pounds of copper over time, compared to an estimated sales volume of 4.1 billion pounds in 2024.

It also has expansion projects underway (especially in the US) with which it can increase production to meet higher demand and prices. Meanwhile, its low-cost operations in Indonesia continue to bear fruit, with management hoping to extend mining rights beyond 2041.

Image source: Getty Images.

In addition, it is attractively priced and very profitable based on current copper prices, while Albemarle lost money in the first half of 2024. Investing in Albemarle is good if you want to go “all-in” on lithium demand and EVs, but Freeport -McMoRan has exposure to a wider range of exciting megatrends, including electric vehicles.

Putting all these factors together, Freeport-McMoRan is the more attractive stock.