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Way back on August 17 I finished off a bullish story on the copper sector with the promise of some stock picks. My apologies: I left that string dangling. But today I’m using the third of my 12 Stock Picks of Christmas to add Southern Copper (SCCO) to my long-term 50 Stocks Portfolio. (Tomorrow I’ll be adding another copper pick–but not a 12 Stock Picks of Christmas selection–to my Volatility Portfolio on my subscription sites and

Back in August I wrote about the likelihood that growth in sales of electric vehicles would usher in another major up cycle for the price of copper and the prices of shares of copper miners. Copper is up from a low of $2.498 a pound on May 9 to $3.1485 a pound at the close today.

Part of that increase in the price of copper is due to faster growth from China, a big copper consumer, and from inventory fluctuations in China as everyone from speculators to the CEOs of state-owned enterprises trades copper to get around government currency controls.

But part of the increase–and the part with staying power–is the increasing adoption of electric cars.

You see electric cars–and their charging infrastructure–use more copper than do current internal combustion vehicles.

Estimates for how much more copper depend on assumptions about the size of the batteries in the cars and the power of charging stations. The estimates of copper demand per electric vehicle range from 183 pounds from technology-watcher IDTechEx to 304 pounds per vehicle plus 44 pounds per charging station from Glencore, one of the world’s biggest copper producers.

The other important variable for investors and traders is the rate at which consumers buy electric vehicles. The faster the growth rate of those sales, the more likely it is that the copper market is going to find itself short of supply. That would send copper prices skyrocketing.

Some commodity analysts see the market for electric cars growing so quickly that the global mined copper supply will need to double over the next 20 years from the current 20 million metric tons. That’s an aggressive view. The consensus seems to be that somewhere between 1.7 million metric tons and 5 million metric tons of extra supply will be needed to meet demand by 2025. That’s not going to be easy considering that many of the world’s largest copper mines are mature and are coping with falling ore grades and that new discoveries seem to show up in politically unstable countries with dismaying regularity.

Getting that level of extra production is going to require a big increase in copper prices. Paul Gait of Bernstein Research told the Financial Times that he sees prices and supply working the way: “It took $10,000 a metric ton copper and super-normal margins to lift production from 15 million to 20 million metric tons during the commodities super cycle [between 2003 and 2013]. At the very least, that is going to be required again,” he said.

Right now, we’re also seeing one of those episodes of labor unrest where strikes rock the industry from Chile to Peru. Those strikes will also limit the expansion of copper supplies and cut into current production.

I think it’s pretty easy to describe the kind of copper stock you’d like to own under these conditions, especially if you’d like to capture the upside of this trend in copper and avoid as much as possible of the uncertainty that always comes with commodity shares.

You’d like a big low-cost producer with lots of room to expand production–at a low cost–and that does its mining in relatively stable countries that aren’t about to seize mine assets or radically renegotiate royalties.

Used to be that Freeport McMoRan Copper & Gold (FCX) was the stock in the sector that best fit that description. No more thanks to some very self-interested moves by management and the continued uncertainty about mining law in Indonesia, the home of Freeport’s most valuable mine, and the uncertainty about the future ownership structure of that asset. I’ll be selling Freeport out of my long-term 50 Stocks Portfolio on that increase in uncertainty in the next few days.

Instead I’d recommend Southern Copper (SCCO) as the best stock for profiting from this trend in copper (and as my third of 12 Stock Picks of Christmas.)

Tomorrow I’ll be adding Southern Copper to my long-term 50 Stocks Portfolio. Shares of Southern Copper are up 40.92% in 2017, as of the close on December 19, against a gain of 31.39% for Freeport McMoRan Copper and Gold. Southern Copper pays a 1.32% dividend.

Southern Copper gets its cost advantage from operating four huge open-pit mines in Mexico and Peru that have given the company operating costs consistently among the lowest in the industry. In the decade from 2006 to 2015 cash costs averaged just $1.62 a pound. Revenue from byproduct metals such as molybdenum reduced the cost of copper to 52 cents a pound. With weak by-product metal prices forecast for the next few years, Morningstar forecasts average cost per pound after by-product metal revenue of 97 cents a pound for copper from its mines from 2016 to 2019.

The history of the mining industry in Mexico and Peru (especially) is full of examples of strikes and government actions that include price controls, investment controls, and asset expropriation so I’d give Southern Copper only a relative rating on uncertainty over Freeport. At the moment, though, relations between mining companies and the national governments of Mexico and Peru look to be better–for investors–than relations with the Indonesian government. (On the uncertainty scale, Souther Copper largely avoided the big debt-funded acquisitions that have loaded up the balance sheet at Freeport McMoRan. In fact Southern Copper bought back shares while competitors were first adding debt to pay for acquisitions and then selling assets to pay down debt.)

Partly as a consequence of that relatively conservative attitude toward debt, Southern Copper didn’t invest very much during the period from 2005 to 2011 to expand production. That attitude has changed in recent years and management has said that it plans to boost copper output to 1.5 million metric tons by 2023 from 900,000 in 2016. That increase in production shouldn’t significantly drive up the cost per pound of copper produced because much of the company’s undeveloped reserves look to be continuations of current operations. And because Southern Copper has a massive reserve base with roughly a century of output at the 2016 production level.

All of which is why Southern Copper is worth three French hens, two turtle doves and a partridge in a pear tree.

My first 12 days of Christmas Pick for 2018 was Amazon (AMZN). My second was Nektar Therapeutics. (And just for the record the actual 12 days of Christmas start on Christmas day.)