Crisis Investing
Issue 4 / May 2024
Dear Reader,
"Humanity needs to mine about as much copper in the next 20-25 years as we've mined in last 10,000 years.”
These are the words of Robert Friedland, an American-Canadian billionaire and friend of Doug. Friedland is also the founder and executive co-chairman of Ivanhoe Mines (IVN.TO), incidentally a company whose mine was discovered by someone closely involved with today’s recommendation.
I’ll get to our pick in a second, but let’s first answer the main question here: Why so much copper so soon?
In one word: electrification.
Now, we're used to hearing about electrification in terms of electric vehicles (EVs), wind turbines, solar panels, and all the other things that come bundled with the Western governments' push to “electrify the world by 2050.” They call it the green energy transition or net zero.
No matter how unrealistic those net-zero goals might seem, and how flawed the green ideology driving this push, we can't deny it's happening. And since copper is crucial for all three pillars of electrification - generating, distributing, and storing electricity - the West will undoubtedly need tons of it for everything from infrastructure to grids and EVs.
But that's just one side of the coin.
The bigger story is the electrification of the developing world. And it’s one that pundits fixated on climate hysteria often ignore. It doesn't fit their narrative to admit that there are still one billion people on Earth without access to primary electricity, and another 2 billion without reliable or affordable electricity. All these people want to live like you and me. But “experts” don't want to talk about it because it doesn't align with their decarbonization narrative.
But it's inevitable.
Just as capitalism and urbanization lifted millions of people out of poverty in China, the electrification of emerging markets will extend this progress to the rest of the developing world, improving the material standard of living for billions. We're talking India, Indonesia, various African countries, and many others.
And just as that era marked the hallmark of the natural resources bull market from 2000 to 2010, the electrification of the developing world will usher in a new surge in demand for the metal with some of the most electrification technology use cases: copper.
Now, let me break it down with a helpful visual from a recent study by the International Energy Forum.
The chart above shows how much copper we’d need by 2050 under different scenarios: baseline, hybrid, EV, EV+grid, and Net zero.
Now, if we just look at the baseline scenario and ignore the other “green energy transition” stuff for now, we can see that copper mine output needs to climb from 20.4 million metric tons per year in 2018 to 37.1 million metric tons per year by 2050. That's a staggering 82% increase.
Cumulatively, this also means that over this 32-year period, the world will need 905 million metric tons. That's 15% more copper than has been mined in all of human history up to 2018, totaling 757 million metric tons.
This is the context for the words of Robert Friedland that I mentioned earlier.
But remember, this is just the baseline. In other words, we’re talking about more than double the amount of copper that has been mined in all of the history of mankind just to meet "business as usual."
That means meeting our current copper needs and electrifying the developing world without even factoring in the green energy transition.
And here's the crazy part that makes me really bullish. To meet this baseline global copper demand, we'd need one large mine (producing about 500,000 metric tons per year) to come online every single year by 2050. That's a lot of mines, but it’ll be even more because we can't expect all the existing mines to keep running and produce at the same rates until 2050.
And it gets even wilder once we start entertaining the green energy transition scenarios. In the “EV+grid” scenario, we're talking about needing roughly 2 new mines per year by 2050. In the "Net zero" scenario, we're looking at needing 6 mines.
But regardless of the scenario, here's the problem: We're not having anywhere near the number of 1 to 6 large mines come online every year.
The big reason behind this is that the copper market is currently in a low capital cycle, with mining companies having cut their capital expenditures (CapEx) by 55-60% around US$120 billion in 2012.
And since it takes about 15-20 years between discovering a new copper mineral deposit and building a mine, this situation won’t change anytime soon… even if these CapEx numbers improved.
Doug Casey: For years, the world has been using more copper every year than has been discovered. Most of the copper mines in the world are old and running down. When the ore is gone in a deposit, you’d better have another one.
And as the world uses more copper every year, copper usage has been growing two or three percent per year forever. You’ve got to mine that much more copper every year. But who wants to make the huge investment that’s necessary to do that, to take it from discovery to production? Nobody with any sense.
Where does this end up? At some point, there’s going to be a real supply/demand squeeze and the price of copper is going to explode. That makes now a very good time to get interested. The fundamentals are all pointing in the same direction.
This isn't hypothetical. Mines are already struggling to meet the wave of copper demand. For example, Goldman Sachs predicts that supply will fall short of demand by over 500,000 metric tons this year alone.
And, instead of new copper mines coming online, some are actually shutting down.
Case in point: First Quantum's Cobre Panama mine, whose closure has taken about 300,000 metric tons of copper, or 1% of global copper output, offline. As of today, the mine remains closed following a Supreme Court ruling in Panama in late 2023.
I could go on about the problems in Peru and Chile, which together produce 40% of the world's copper output, major copper miners like Anglo American (AAL) cutting production guidance, and more. But the bottom line is, we're seeing a significant supply and demand imbalance, which is already leading to shortages, and this bodes very well for the price of copper.
And it's happening as we speak because of the electrification of the developing world, which is ethically a noble thing, continuing the capitalist tradition of raising the material living standards of the poorest of the poor over the last 40 years. And we don't even need to bank on the West's net zero goals pushed by the greenies for this thesis to pan out.
This brings us to this month’s pick.