The Copper Run is Just Getting Started
Dear Retail Investor,
Forget for a moment that copper has run over 200% since COVID hit.
And forget that most copper producers have already seen a big stock spike.
After all, many sectors have surged since the March 2020 lows. Heck, even the S&P500 is closing in on a double.
And don’t get too hung up on the recent news that China dumped a bunch of its copper stockpile onto the market. They are trying a strategy best used to tame hot speculative commodites, which misses the point entirely.
Because, the truth is, copper has never been so bullish.
The answer is playing out right before our eyes.
Copper is essential for the future
Simply put, copper is an ideal metal for nearly everything that has to do with electricity — and especially green energy.
This is because it holds unique properties.
You probably already know that copper has amazing conductivity, second only to silver.
But did you also know it’s 100% recylcable?
This is why people steal copper pipes and wires from houses, vehicles and even street lamps. It’s also why copper is called a premier green metal, as it’s endlessly reusable.
Copper is incredibly efficient, meaning it can remove heat rapidly, which makes it essential in heating rods and wires, hot water tanks and heat exchangers.
It’s very resistant to corrosion, and it’s extremely malleable, making it easy to shape into wiring, sheets, piping and much more.
And, as almost an added bonus, it’s even antimicrobrial—proving highly effective at killing bacteria when placed on high-touch surfaces.
These factors make copper an essential material in not just the electronics and infrastructure we already use, but also the technologies of the future.
For instance, EVs contain up to four times more copper than the standard internal combustion vehicle, according to the Copper Development Association. And it goes into the most critical parts, as copper coil for the engine and as a key component connecting batteries.
Have you seen more EVs on the road lately? There are so many Teslas that the novelty has worn off. And that’s just one company.
Volkswagon Golf, Chevy Bolt, Nissan Leaf, Audi e-tron—the list goes on. Even the F-150 is going all-electric with the upcoming release of the Lightning model.
That’s just EVs. Copper is also an essential component in solar panels, wind turbines, the 5G mobile network, grid storage and more.
You get the point.
But there’s not enough to go around
While recycled copper currently meets more than a third of global demand, rising consumption requires continued development of new mines.
You mave have heard this already, from the likes of Elon Musk, who expects global shortages of nickel, copper and other EV metals due to a lack of mining investment.
In fact, the CRU estimates that the copper industry needs to invest more than $100 billion to avoid an annual supply deficit of 4.7 million tonnes by 2030.
That’s more than three times the annual production of BHP’s Escondida, the world’s largest copper mine.
And this gap is expected to widen well beyond 2030. Wood Mackenzie thinks we could see a potential shortfall of 16 million tonnes by 2040.
So, naturally, the solution is to build more mines.
The problem is, it’s getting harder to find good grades and capital underfunding over the last several decades is now taking its toll.
A high price is spurring activity
As the old saying goes, the cure for high prices is high prices.
The industry is moving to catch up. Russia’s Udokan deposit, which sat idle for decades due to the high costs associated with its remote location, is expected to become operational next year.
Chile has addressed a decade-plus issue of falling ore grades with a surge of investment into projects, including a $1.4 billion expansion of Codelco’s El Salvador mine.
And Ivanhoe recently got its large, high-grade Kamoa-Kakula Project in the DRC up and running.
But these projects are all baked into current supply projections. The gap remains.
And the other problems still persist. Peru and Chile account for approximately 40% of the world’s copper supply, but face real challenges including falling grades and, as we have seen recently, a rise of nationalism.
The opportunity: small cap movers in stable jurisdictions
Copper’s high price and strong demand outlook present a great opportunity for companies looking to find the next big deposit and investors who are looking for a way to make it big on what many call “the next oil.”
The majors have already made some big moves. Giants like Freeport-McMoRan (NYSE: FCX), whose copper sales account for the majority of its business, is up over 200% from pre-pandemic highs.
BHP, Glencore, Vale and Rio Tinto have also benefited from the copper surge, but hold a more mixed portfolio that tampers any direct gains from the copper market.
Pure-play mid caps have also largely ridden the wave. Copper Mountain (TSX: CMMC), a well-known miner with operations in B.C., has seen its stock surge over 200% in the last year.
However, these miners have more room to go. Earlier this year, Goldman Sachs turned heads with a copper price prediction of $15,000 by 2025 (60%+ its current price). And while that’s the most bullish of the bunch, it reflects where the investment community sees things going.
Take that into consideration with CMMC—and the fact they are touting their “development-ready” Eva Copper Project in Australia. With EVA, they are set to add another 100 million pounds equivalent per year over a 15-year mine life.
Which brings us to Australia
The biggest gains will likely be made from small caps, in the right place at the right time, who hit the big target.
That place could very well be Australia, which has seen a spike in interest in copper exploration over the last couple years, due to the country’s excellent reputation as a safe and productive mining jurisdiction and its abundant copper resources.
Australia holds about 13% of the world’s copper, coming in just behind the world’s largest suppliers, Chile and Peru. And a recent slump in copper prices and miners, due to the Chinese copper dumping and the Evergrande fiasco, have pulled some miners down to very attractive valuations.
Pure copper plays can be challenging to find as investors generally get gold-copper exposure together. But the high copper prices of today are funding the projects needed to start addressing a supply gap that will only propel prices further.
That’s good news for copper miners. And it’s even better news for investors looking to get in on a significant shift now underway.
Because, to put it bluntly—copper demand is not going away.
If it involves electricity, it needs copper. If it turns a switch on and off—copper. The decarbonization movement, renewable energy infrastrucuture, EVs, electrical grids, 5G networks and much more.
They all demand copper.
– Dear Retail Investor Editorial Team
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