High Operating Costs And Industry Shifts Will Depress Copper Value

Key Takeaways

• Short-term earnings boosted by unique market conditions, while future revenue and margin growth face risk from softer copper demand and margin compression in both primary and recycling segments.
  
• High investment, delayed returns from new projects, and rising operational costs are likely to constrain cash flow and improve margins slower than current forecasts suggest.
  
• Sustained copper demand, technological upgrades, U.S. recycling expansion, strategic investments, and financial resilience position Aurubis for growth and strong risk mitigation.

Catalysts

Processes metal concentrates and recycling materials in Germany.

• Investors may be overestimating the long-term benefit from copper demand driven by electrification and energy transition, given Aurubis' recent earnings were significantly supported by temporarily high metal prices and a historically strong sulfuric acid market, factors unlikely to be sustained or repeated, suggesting future revenue growth might not match current expectations.
  
• Persistent low treatment and refining charges (TC/RCs) due to concentrate supply deficits, coupled with tightening availability of recycling materials and potential for weaker recycling margins, point to longer-term margin compression-especially as future supply chain volatility or increased resource efficiency globally reduces primary copper demand.
  
• The company's high investment in strategic growth projects has elevated capital employed, depressing ROCE below target levels; with much of these investments (e.g., Richmond) not expected to contribute materially for one to two years and ramp-up costs weighing on near-to-mid-term earnings, cash flow and margin expansion are likely to lag optimistic forecasts.
  
• Ongoing exposure to rising operating and compliance costs linked to European environmental regulations and energy intensity-combined with the need for continuous modernization of legacy assets-suggests structurally higher cost bases, which could further erode future net margins if copper demand or pricing underperforms bullish assumptions.
  
• There is an underappreciated risk that global moves towards higher recycling rates and circular economy models, as well as potential substitution of copper in key end-markets (such as EVs and power infrastructure), could cap or reduce long-term topline growth, with these headwinds not adequately reflected in current valuation multiples or sales expectations.

Aurubis Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Aurubis's revenue will grow by 4.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 3.4% today to 1.3% in 3 years time.
• Analysts expect earnings to reach €270.2 million (and earnings per share of €6.11) by about September 2028, down from €616.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.8x on those 2028 earnings, up from 6.9x today. This future PE is lower than the current PE for the GB Metals and Mining industry at 19.2x.
• Analysts expect the number of shares outstanding to grow by 0.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.39%, as per the Simply Wall St company report.

Aurubis Future Earnings Per Share Growth

Risks

• Continued strong global demand for copper, driven by electrification, energy transition, and grid modernization, is expected to underpin long-term copper consumption growth, supporting Aurubis's revenue and sales volumes.
  
• Ongoing substantial investments in automation, digitalization, and advanced processing technologies at key sites (e.g., Pirdop and Hamburg) are improving operational efficiency, production stability, and cost structure, which could elevate net margins and long-term earnings.
  
• Expansion into the U.S. through the commissioning of the Richmond recycling facility positions Aurubis advantageously in a market with high copper demand and supportive policy shifts favoring domestic recycling, potentially supporting higher segment earnings and diversified revenue streams.
  
• Strategic projects, including multi-metal recycling and asset upgrades, are poised to deliver significant incremental EBITDA (€170 million from Richmond alone, with an overall strategic investment target increment of €260 million), which could meaningfully boost mid-term profit and group ROCE as ramp-ups conclude.
  
• The company's diversified supplier and customer base, strong balance sheet (equity ratio >56%), long-term supply contracts, and explicit focus on working capital and cost optimization initiatives enhance Aurubis's financial resilience and ability to withstand cyclical downturns, supporting free cash flow and reducing earnings risk.

Valuation

• The analysts have a consensus price target of €79.375 for Aurubis based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €110.0, and the most bearish reporting a price target of just €60.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €20.3 billion, earnings will come to €270.2 million, and it would be trading on a PE ratio of 14.8x, assuming you use a discount rate of 5.4%.
• Given the current share price of €97.45, the analyst price target of €79.38 is 22.8% lower.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.