Mike Fagan,
Editor
April 6, 2022
Looking for near-term gains in the base metals space… look no further than copper (“Cu”).
Rising concerns over supply disruption, historically low global stockpiles and rocketing energy costs as a result of Russia’s invasion of Ukraine are lighting a fire under base metals — particularly copper.
Not surprisingly, the red metal raced all the way to an all-time high of US$4.94 per pound just a few weeks ago before pulling back slightly to the current US$4.70 level.
A key driver of copper’s strength in the new commodities supercycle is the electrification-of-everything — a term you’ve likely heard quite a lot over the last couple of years.
In its simplest terms, it means that more and more of the energy the world will use will come from the electrical socket as opposed to having fossil fuels like natural gas, oil, or gasoline flowing directly into our homes, offices, manufacturing facilities, and vehicles.
It’s all part of global decarbonization efforts to slow the heating of our planet BEFORE it’s too late to reverse some of the catastrophic consequences of global warming.
And one of the most commonly used metals to conduct electricity in the green-energy revolution is copper. As a raw material, copper is incredibly pliable and easy to wrap and solder — making it an optimum choice where large amounts of wiring are needed.
One particular area of note is the global EV megatrend. In the US alone, automakers estimate that half of all vehicles sold by 2030 will be electric. That’s a huge jump from where we are today, which is about 4 percent.
Most people think of the battery metals, such as lithium and cobalt, as being critical to the EV megatrend… and they are.
But what about copper’s role?
While conventional cars with internal combustion engines require around 50 lbs of copper, hybrids require nearly twice that at 90 lbs. And full electric vehicles, like those offered by Tesla, require nearly 200 pounds of the red metal — or 4X that of your typical gas-powered car.
If you look at future demand for copper from just transportation alone, the additional load on copper supply adds significantly to the roughly 25 million tonnes per year that represents baseline global consumption.
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Then, add in the $1.2T in recently passed infrastructure spending — plus the fact that the average single-family home requires almost 500 pounds of copper — and it’s clear that the current bull market for copper could easily last another 10-plus years.
The base metal is also a key component of the global 5G buildout. Even though 5G is wireless, its deployment involves huge amounts of copper and fiber optic cable to connect equipment.
The same goes for renewables such as solar and wind plus energy storage — they all require copious amounts of the red metal.
All of this demand growth for copper is happening against a backdrop of constrained supply with fewer and fewer large copper mines coming online in the near-term.
A report by renowned commodities analytics firm Roskill forecasts total copper consumption to exceed 43 million tonnes (Mt) by 2035. Comparatively, total world mine production in 2020 chimed in at only 20Mt.
Not only is there a dearth of new copper discoveries… but copper mines themselves can oftentimes take a decade or more to get through the arduous process of permitting and construction before the metals actually exit the ground.
Bloomberg projects that copper miners need to DOUBLE the amount of global copper production in the next 20 years — from the current 20Mt a year to 40Mt — just to meet the increased demand resulting from the current growth rate in EVs.
But where will the next major copper discoveries come from in the new commodities supercycle?
The major miners like Freeport-McMoRan and BHP are primarily focused on expanding existing mines and acquiring prospective new deposits to replace their rapidly depleting copper reserves and resources.
In other words, they do what they do best, which is mine, with minimal focus on greenfield exploration.
And that brings us to the junior explorers… the companies that actually go out and do boots-on-the-ground exploration in pursuit of the world’s next major base metals deposits.
These are the small-cap, low-priced stocks that can explode in value during the early stages of geophysics, surface sampling, and drilling, which can be in the form of greenfield exploration in previously unexplored areas or brownfield exploration nearby to existing mines and infrastructure.
In either scenario, the risks remain high as most of the “easy” copper deposits have already been found.
And thus, it requires a highly experienced team of mining professionals, typically with a track record of discovery success, to uncover the world’s next large-scale metals deposits.
My colleague Gerardo Del Real knows these management teams personally and has written extensively about the new commodities supercycle we’re just now entering.
Gerardo reveals his Top Picks from the junior exploration sector right here.
With the broader market teetering on increasingly shaky ground as a result of slowing economic growth, rampant inflation, and geopolitical turmoil — our aim, as always, is to continue to steer our readers in the proper direction for near-term gains.
And one key bright spot we’re seeing now, and have been telling you about for months on end, is the green-energy metals space and, in particular, copper.
It’s definitely not too late to position.
Mike Fagan
Editor, Daily Profit Cycle