Why miners are poised for share price gains in 2026, according to Jefferies

Jefferies expects 2026 to be a year of commodity-driven earnings growth for miners, citing widening supply deficits in copper and aluminum, resilient demand (including US power-grid investment), and potential Fed easing that could weaken the dollar and support commodity prices. The bank identifies Freeport, Glencore, Anglo American and Alcoa as top picks — noting recovery at Grasberg for Freeport, potential operational/M&A upside at Glencore, Anglo's strategic repositioning ahead of a Teck merger, and Alcoa's improving free cash flow and deleveraging prospects. Jefferies warns higher capex (notably at BHP, Lundin and possibly Glencore) could offset some upgrades, but overall expects mark-to-market earnings upgrades and sector outperformance if the global economy remains healthy.

Analysis

Winners are copper and aluminum-focused producers (Freeport FCX, Alcoa AA, large integrated smelters) as widening supply deficits and rising power costs should lift realizations into 2026; losers include high-capex developers (BHP/Lundin-style projects), marginal Chinese smelters and recyclers that suffer from weak domestic demand and higher electricity costs. Competitive dynamics favor low-decline, high-organic-growth assets — companies that can ramp production (Grasberg, brownfield expansions) will capture pricing power and trade at premium multiples, while heavily levered or capex-heavy names can see multiple compression.

Primary tail risks: a sharper-than-expected China demand shock (>5% YoY copper import decline) or renewed Fed hawkishness that keeps real rates >1% would crush commodity rallies; operational shocks (Grasberg outage, major strike) or ESG/regulatory permit reversals are medium-probability, high-impact events. Timeframes: immediate (days) react to Fed minutes and Q4 reports, short-term (3–6 months) to capex guidance and Chinese PMI, long-term (12+ months) to realized supply deficits and grid investments. Hidden dependencies include electricity fuel mix, freight/logistics bottlenecks and merger outcomes (Anglo-Teck) that reallocate assets.

Trade implications: establish overweight mining exposure focused on FCX and AA into 2026 earnings season while size-managing capex risk names. Use relative-value pair trades (long FCX, short high-capex peer) and defined-risk option structures — 9–15 month call spreads to capture upside with capped premium; rotate 2–4% portfolio weight from long-duration tech into cyclicals if macro signals confirm Fed easing. Stagger entries in 3 tranches (now, post-Q4 results, post-Jan Fed decision) and trim on +25–40% moves or if copper reverses >15%.

Contrarian view: consensus underestimates capex drag and the timing mismatch between commodity strength and project delivery — upside in 2026 could be muted if miners hike capex >15% and delay returns; conversely, the market may underprice operational turnarounds (Grasberg) and M&A optionality at Glencore. Historical parallel: 2003–07 supercycle showed multi-year lags between price signals and new supply; here ESG/permitting should shorten supply response but introduce binary regulatory tail risks. Unintended consequence: Fed cuts that weaken USD could bid commodities but also stoke inflation that forces later tightening, creating a two-step selloff risk in risk assets.

Key Decisions for Investors

• Initiate a 2–3% long position in Freeport-McMoRan (FCX) in three tranches (33% now, 33% after Q4 results, 34% after Jan 2026 Fed decision). Target +25–40% total return by Dec 2026; place a hard stop at -12% per tranche or exit if copper futures decline >15% from today.
• Establish a 1–1.5% long position in Alcoa (AA) and hedge with a 12–15 month call spread: buy 30–40% OTM calls and sell 60–70% OTM calls (defined-cost) to capture operational improvement and deleveraging; take profits if AA rises >30% or if company announces >$500M incremental buybacks.
• Execute a pair trade: long FCX (1.5%) vs short a high-capex producer (1.5%) such as a BHP/Lundin proxy — short exposure can be via futures/ETFs or individual names; close the short leg if capex guidance increases are reversed or if capex announced exceeds prior guidance by >20%.
• Use options to express asymmetric upside on the sector: buy 9–15 month call spreads on GDX (gold/silver-miners ETF) and a small long strangle on copper futures (CME LME) sized to 0.5–1% portfolio risk to capture commodity volatility; unwind if realized volatility falls below implied by >40% gap.
• Reallocate 2–4% from long-duration US tech into commodities/miners (FCX, AA, GDX) contingent on two triggers within 60 days: (1) Fed signals at least one cut in 2026; (2) Chinese PMI holds above 48 for two consecutive months. If either trigger fails, revert allocation within 30 days.