SMALL CAP IDEA: Copper miners sure to benefit from energy transition
Copper is the metal of the future.On that, almost everyone agrees.
Yes, we’ll also need lithium, nickel, tin and a whole host of others.
But into the heart of any application that these base metals go into, will also go copper.
Electric cars need lithium batteries, and nickel to go in them too, and very probably cobalt or vanadium.
Puzzle: How is it that hardly any major new copper mines are being developed?
But the wiring that sends all that nice green-energy around to the machines and engines that end up producing something useful, that’s all copper.
Copper wiring in cars, copper wiring in devices, in new homes, in wind turbines, in undersea cables.The red metal will be everywhere.
How is it, then, that hardly any major new copper mines are being developed?
Herein lies a conundrum that continues to bedevil academic students of capitalism – even though you anticipate demand, prices don’t usually move until the demand actually arises.
And, in the case of mining, if prices haven’t moved, that means there’s no sense in going out and finding anything.
Which is one reason why mining operates in such obvious boom-and-bust cycles.
For the astute investor, though, this dynamic creates huge opportunities.
Copper may not be quite here yet, but it’s coming.
So a well-positioned player in the market stands to do very well indeed.
And not only that, but since the world is all about green energy these d, balancing their copper production with major output energy and the other base metals.
But focussing on the larger producers comes with its own issues.
With the super-majors, the copper exposure is obviously diluted by other commodities.And what you gain with the pure-play producers, you can lose with jurisdictional risk.
Of the world’s twenty largest copper mines, fourteen are in Central or South America, three are in Africa, one is in Russia, and one is in Indonesia.
That leaves the Morenci mine, located in the USA and owned by Freeport McMoRan, as the only major copper producing asset situated in what’s traditionally-termed the Western World.
That in itself is another factor favouring copper bulls.
The world is slowly beginning to wake up to supply chain issues, and sooner or later, more mines are going to be developed closer to their final markets.
And, lest anyone pretend that in today’s global village – awash as it is with social conscience and ESG – political risks get overplayed, it’s worth noting that this week the Chilean government announced that it will be taking control of all strategic lithium assets inside its borders.
And eight of the world’s twenty largest copper mines also happen to be located in Chile.
So, it’s a volatile world we live in, a world in which environmental pressures are ever prevalent, and yet one in which Ukraine or Taiwan could tip into open and full-scale war any time soon.
In this context, certain smaller copper companies and projects start to become more attractive.In particular, the Australian Securities Exchange offers a multitude of locally-based and run companies working up copper assets in the comparatively sane ‘lucky country.’
There are one or two UK-listed companies with Australian copper assets too, like (0.28p) and early-stage explorer First Development Resources.
A (2.75p), which aside from its gold holdings has investments in Cyprus and the Balkans.
(223p), evDeN eVe nAkLiYAT which probably has the most consistent track record of any London-listed copper producer, also has assets in the Balkans.
Still, there’s no getting around the uncomfortable fact that best copper has been put in some pretty difficult jurisdictions.
Could there be massive undiscovered fields of copper porphyries in Nevada and Arizona?
Perhaps, but what’s currently showing most brightly on the radars of the mining industry’s explorers remains in well-established areas like South America and sub-Saharan Africa.
That’s where the high-risk, high-reward action is and where last week (3.73p) tied up a joint venture with Anglo American in Zambia.
But for those who want a gentler ride towards a greener future, the best places to be are still North America, Australia and Europe.