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Why we took profits in BHP
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A few weekends ago, I found myself standing in a hardware shop, holding a coil of ordinary copper wire, getting offended by a price sticker. My doorbell was broken, and I’d been told that the wiring was the problem. The bloke behind the counter caught my face and just shrugged: "Copper, mate. Everyone wants it, nobody's digging enough of it."
He had no idea he'd just summarised a quarter-trillion-dollar market better than most sell-side notes.
Copper isn't a glamorous metal. It doesn't glisten as a ring or sit in a vault in Zurich. It hides in your walls, your car, your phone charger, in my doorbell that finally packed in. It's the plumbing of the modern economy, quite literally. And yet, in September that unglamorous red metal punched through its highest price in history, with the London price for copper delivered in three months’ time surpassing $14,700 a tonne, or in my case £21.50 for enough to fix a broken doorbell.
While I’ve personally been rinsed, it’s nice to know that our fund has benefited from owning BHP for a long time.
The base metal with precious signals
The copper market has a nickname ‘Dr Copper’, because it’s the metal with a PhD in economics: its price tends to diagnose global economic symptoms. The copper price is up ~17% this year and ~50% over the past year, as the good doctor is being pulled in three directions at once.
First, rapidly increasing demand: data centres, the electrification of everything, grid rebuilds, defence spending, and eventually, the reconstruction of places like Ukraine and Iran. All of it is astonishingly copper-hungry, and the world's ageing fleet of big mines simply can't keep pace.
Second, supply is more muted. For example, Chile, the world's biggest producer, has seen output has fall in 2026 because many of its biggest mines have been battling a combination of lower ore grades, operational disruptions, project delays and water constraints, Furthermore, El Niño conditions can disrupt rainfall patterns and water availability across key mining regions in South America creating another potential headache for copper supply at a time when the market is already tight.
Third, and most topically, higher tariffs. Traders have been shipping hundreds of thousands of tonnes into the US ahead of a possible hike in refined copper tariffs. Announced last year along with other tariffs, it's awaiting the result of a Commerce Department investigation that is expected to be delivered soon. These expedited American purchases are hoovering up metal from global warehouses and leaving everyone else fighting over what's left.
What is BHP doing in our portfolio?
While copper is hot now, we’ve held miner BHP for many years, even before Russia invaded Ukraine, which sparked a tumultuous period for global trade and inflation that’s arguably still affecting commodities today.
Most large miners are diversified across several minerals, yet BHP is one of the largest copper producers and derives about 55% of its earnings from the metal (the rest is largely iron ore). Just a few years ago, when we bought BHP, copper accounted for less than 20% of earnings and coal was a significant driver. Its mines sit largely in OECD-friendly jurisdictions, so there’s less political and regulatory risk. It's enormous, deeply liquid, and listed in the US, UK and South Africa, as well as its home Australian listing.
These characteristics have made BHP an easy and liquid way for investors around the world to invest in copper. The trouble with everyone arriving at that conclusion is what it does to the price tag. BHP’s price is up strongly this year, and now trades near 20x next year’s profits, a hefty premium to its long-run multiple of ~12x. This isn’t normal. For a cyclical business like BHP, you're supposed to pay a low multiple when things look great (because that’s when the cycle is typically about to turn downwards) and a high multiple when things look grim. Paying ~20x for a miner at peak copper is the market telling you it has decided copper is no longer a cycle but a story.
To be fair to the bulls, it's a good story. Mining commodities becomes less commercially viable over time as the easy, high-quality deposits deplete, and the next wave of projects is more difficult, more operationally complex, in regions of greater political risk, with more regulatory and environmental hurdles. Meanwhile, the long-term uptick in demand is real.
Then there's the theme everyone suddenly can't stop talking about: debasement. With governments piling on debt like it's a competitive sport, investors are quietly bolting for the exits marked ‘hard assets’, the stuff you can actually dig out of the ground, as a hedge against the inflation that tends to follow. When the money looks shakier, the metals look safer.
Loving the story, respecting the risk
We think these dynamics will drive copper profits higher for some time. Yet we can’t know the future; it’s folly to think you can. Nothing supersedes valuation as our north star. Every one of those bull points can be true and we could still lose money if the price slumps and we overpay by adding at the top of the cycle.
We're weighing both sides of the market. On supply, we're mindful that an eventual wave of new production is typically how these cycles turn, even if there's no tsunami of supply ready to come online any time soon. And on demand, we're alert to the risk that it could potentially soften from here rather than simply marching upward.
And I'd gently poke at the shiniest pillar of the bull case: the data centre build-out. It might well be more long-term than your typical source of demand in an economic upturn, but it's hardly a one-way bet. We're already seeing data centre moratoria pushing back on the power and water they guzzle. And there's a technology wrinkle few copper bulls are pricing in: the rise of small language models that rival the big LLMs but run locally, on your device, rather than in copper-hungry data centres. If more of the AI workload migrates onto the phone in your pocket instead of a warehouse in the desert, then sentiment could turn. It doesn't break the thesis, but it does show how sometimes it’s better to be humble about how varied the future can be, rather than adamant that today’s wind will continue to blow the same way.
So we’ve trimmed our holding. Not because we've fallen out of love with copper, and not because we think the story is wrong. We trimmed because the job of an active manager isn't to fall in love with a narrative, it's to keep asking what you're paying for it. When a rising price has pressed the dividend yield down to 3.1% (over the past 10 years it’s averaged 5.9%), when a cyclical business the market has decided is a ‘safe’ way to own a red-hot commodity is trading at ~20x versus a ~12x history, the sensible move is to take some risk off the table. Especially when everyone else is queuing at the same door I was queuing at in that hardware shop.
For the record, the doorbell still isn't fixed. Turns out the copper wasn’t the problem. Now I’m wondering when a good time would be to flip it.
For more info on the Rathbone Income Fund, click here.
