The FTSE 100 is a collection of the UK’s largest listed companies. So it can be a good place to look for well-established, stable, blue chip names. But that doesn’t mean that there aren’t shares in the FTSE 100 with high growth potential too. In fact, one of the FTSE 100 risers this year is a mining company that is already up 30% in the past month. That brings its total rise in the past year to 135%.
Despite that heady price increase, I think it could rise another 30% this year. Here’s why.
FTSE 100 risers don’t need exciting businesses
Understandably, a lot of people feel that exciting, futuristic businesses are worth their attention. But sometimes shares can move a lot – up or down – even when the companies involved are old and not very innovative.
Antofagasta (LSE: ANTO) is a case in point. The South American-focussed mining company has been a familiar name on the London board for decades. Indeed, it is affectionately known as ‘Fags’ by many traders. But its strong performance over the past month reflects increased demand for its products. Antofagasta is mostly known for its copper mining. While it does mine some gold too, in large part the company’s share price is seen as a play on movement in copper prices.
That means that if copper prices fall, the share price will often fall. Similarly, a rising copper price tends to be good news for the shares. Copper prices have been on a tear lately, and this week they hit a 10-year high. That is why Antofagasta has been on the list of FTSE 100 risers this year. My thesis here is about the copper price, but what goes up must come down in the end. The question is just when.
Price spike may last
In some industries, if demand drives pricing up, it is easy to produce more goods.
Mining is not like that. Mining projects like Antofagasta’s Chilean copper assets take years to develop. Even if the deposit is proven, building infrastructure and bringing production online is a very slow process. In the past few years, lower copper prices have reduced the financial incentives for miners to invest in new projects. That has led to an imbalance. Right now, demand for copper is increasing. The metal is a component in electric vehicle batteries and other industrial applications seeing growth. But supply is struggling to keep up with rising demand – which has led to the price spike.
Copper demand could fall, in which case prices will also go down. But it could also be that increased demand and finite production capacity continue to squeeze copper prices this year. That would likely be good news for Antofagasta. Its focus on Chile, the world’s biggest copper producer, links its fortunes closely to those of the red metal. Last year it pulled 733,900 tonnes of copper out of the ground, despite the pandemic.
With production expected to be higher this year and more price increases possible, it is easy to understand why Antofagasta has been among the FTSE 100 risers recently. If price rises continue, another 30% climb in the share price this year looks possible to me.