Copper prices were relatively flat in 2023, a trend that is expected to continue into 2024.
With that outlook in mind, how should investors be approaching the market? Experts at this year’s Vancouver Resource Investment Conference (VRIC), held from January 21 to 22, took the stage to share their thoughts.
The consensus was that copper supply will becoming increasingly challenged in the coming years as demand increases, with consumption from industries related to the energy transition building on the metal’s traditional industrial uses.
This growing imbalance is expect to support copper prices, and is also seen creating opportunities for investors. Read on for more details on what the VRIC’s copper outlook panelists see coming for the red metal.
Copper available now, but shortfall brewing
VRIC’s copper outlook panel consisted of moderator Jay Martin, president and CEO of Cambridge House International; resource industry veteran Ross Beaty, whose current focus is Equinox Gold (TSX:EQX,NYSEAMERICAN:EQX); Ivan Bebek, chairman of Torq Resources (TSXV:TORQ,OTCQX:TRBMF); and Rick Rule, proprietor at Rule Investment Media.
When asked by Martin to describe the current state of the copper market, Beaty said there is a lot of copper in the world and noted that the base metal has thousands of uses in everyday life.
“Copper is a great metal. It’s at a reasonable price, and I think copper exploration companies should do great,” he said.
Bebek drew attention to the challenges faced by copper operations today and spoke about the differences between now and 20 years ago. “20 years ago, copper was well below US$1 (per pound) and grades were a lot higher. Right now, grades have come down considerably from where they were, but it’s even harder to find a high-quality copper mine in the world than it ever has been before because a lot of the easy ones have been found,” he explained.
Bebek agreed with Beaty that there is currently no shortage of copper, but suggested that this is likely to change. He noted that three of the top 10 copper mines in the world will be depelted in 15 to 20 years; meanwhile, environmental, social and governance initiatives are slowing down exploration efforts and the construction of new mines.
In his view, there’s a dearth of quality copper assets in the world. “I’m a copper bull, it’s a long-term performing asset, but ‘quality’ is what you have to add to the phrase, and I think copper is essential. As we all see the population growth, modernization, electrification, it’s going to be a key metal going forward,” said Bebek.
New copper supply won’t come online quickly
Martin brought the conversation around to copper supply in the next couple of years, saying the market is expected to be in balance for 2024 before moving into deficit by 2026. The shortfall is expected to grow over the next 10 years.
Bebek suggested that the growing imbalance is a point of concern.
“If we’re looking for a big copper mine, one that would meet the threshold of some of the larger mines in the world, it’ll probably be 20 or 30 years, if we’re successful, before that mine comes to market,” he said.
These decades-long timeframes are feeding the developing supply shortfall, especially as aging mines begin to run out of metal. On that note, Bebek pointed out that existing large mining operations are having to go deeper, which is making these operations more expensive and ultimately impacting the profitability of mining companies. “It’s just not going to be managed in a timely manner. I don’t think the world is ready for the (coming) copper demand” he said.
Understanding the long-term nature of developing a copper mine and the deep costs associated are key factors for investors looking to add copper companies to their portfolios. Beaty emphasized that point, indicating that large porphyry systems are generational, with staggering costs and potentially outsized returns.
Using major miner Teck Resources’ (TSX:TECK.A,TECK.B,NYSE:TECK) Highland Valley mine north of Merritt, BC, as an example he said, “These are giant orebodies that may create giant wealth for decades and decades. Highland Valley has been going since the ’60s. To build a copper mine these days costs billions of dollars.”
The time and investment capital needed to develop these large mines makes it nearly impossible for junior companies to handle them on their own. Instead, they generally have to rely on a strategy that sees them exploring the resource with the intention of being taken over by a company with the capital to fund development costs.
Is now a good time to invest in copper?
When asked how to approach copper stocks, Beaty said when it comes to juniors he looks for companies that have the potential to be bought out; however, he said investors should be cautious, commenting, “Smaller companies with small deposits will probably never really mature into anything significant in the copper game.”
For his part, Rule emphasized the importance of exercising patience in the copper sector.
He pointed to BHP’s (ASX:BHP,NYSE:BHP,LSE:BHP) Resolution copper development in Arizona, US. “It’s been 25 years in permitting, and BHP figures another five to seven years of permitting — so think 30 years. But it’s a big copper mine in the US, and you need to adjust your timelines accordingly,” Rule commented.
He told the audience that success takes time, noting that many of his investments didn’t bring immediate returns. Some even saw significant declines before paying off — including investments he made with Beaty’s companies.
“Maybe the best of my experiences, the median holding period has been six years, and every single company has delivered me a 50 percent decline in share price before I got my 10 bagger (10 times return on investment),” Rule said.
While copper looks set for a supply crunch that could bring major investment opportunities, his key point was that investors need to assess their timeline and understand that successes in the mining industry don’t happen overnight. On the contrary — investments often need to be held for at least half a decade.
Investor takeaway
While the copper market may be quiet in the near term, the panelists at VRIC emphasized that the long term looks bright. As the red metal’s role in the energy transition grows and as supply runs short, a deficit is seen emerging.
This could present significant opportunities for investors who are patient and understand the pressures faced by the mining industry for exploration and development. Highlighting the industry’s potential, Rule recalled a conversation with James Robert “Jim Bob” Moffett, former chairman and CEO of Freeport-McMoRan (NYSE:FCX), who said, “If you look around the world at great big mines, mines that make $1 million dollars a day or $2 million a day, most of them are copper mines, and for that reason I like copper, because I like to make a lot of money as opposed to a bit of money.”
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Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.
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