Today’s topic is copper demand… It is going way up.
A related topic is copper supply… It is failing to keep up with demand.
Today’s conclusion: Buy the dip in copper prices.
According to research firm Fitch Solutions, annual global copper use will soar from 24 million tonnes to nearly 32 million tonnes over the coming decade, thanks mostly to surging demand from renewable energy technologies.
It’s true; most green technologies are “copper hogs.” The average solar power project, for example, requires about five times as much copper per megawatt of capacity as a conventional fossil fuel plant. Offshore wind farms demand about 10 times as much.
By 2030, copper demand from green technologies will more than triple to five million tonnes per year. For perspective, five tonnes of yearly copper demand would be greater than the combined yearly output from the world’s three largest copper mines!
“We see strong upside risks to our green copper demand forecasts,” says Fitch, “as grid-scale energy storage for renewables, a nascent industry at present, is set to experience robust growth in the medium term.”
The Other Side of the Ledger
On the production side of the copper market, however, most industry experts doubt the global copper supply can keep pace with demand. Fitch, for example, expects the copper supply deficit to widen over the next three years until reaching a shortfall of nearly half a million tonnes in 2024.
A deficit of that size should put a solid floor under the copper price. But copper companies can’t simply flip a switch to boost production when copper prices are high; they are hobbled by declining ore grades, rising production costs, and lengthier development timelines.
As a result, Bloomberg Intelligence estimates that the average copper project requires 14 years to progress from initial discovery to initial production.
Not even large-scale copper companies can ramp up production quickly from their existing operations. Richard Adkerson, CEO of copper-mining giant Freeport-McMoRan Inc. (NYSE:FCX), recently told an industry gathering that even if copper soared to $10 a pound immediately, his company would need seven or eight years to bring new production to the market.
Because of the considerable impediments to launching new, large-scale copper production, annual supplies of the metal will likely struggle to keep pace with demand growth.
Fortunately for Freeport, the company is on track to boost production over the next few years, thanks to plans it implemented seven or eight years ago.
The Next Copper Venture
Ivanhoe Mines Ltd. (OTCMKTS:IVPAF), a company that just started delivering copper concentrate from its massive new mining project in the Democratic Republic of Congo (DRC), finds itself in a similarly delightful circumstance.
Thanks to many years of extraordinary effort and investment, the company is on track to ramp up its copper production into the teeth of a global supply deficit. Ivanhoe owes its “good luck” to decades of hard work and foresight.
Ivanhoe CEO Robert Friedland recently quipped, “If we came from Mars and we were sent in our flying saucer to orbit the Earth to find copper, we would definitely go to Katanga in the southern part of the Democratic Republic of the Congo as the richest place on the planet for copper.”
But wayfaring Martian prospectors are not the only creatures in the universe who could recognize the DRC’s vast copper abundance. A few enterprising earthlings like Friedland, also took note of the region’s potential.
The billionaire mining entrepreneur scoured 59 countries over a span of three decades, before deciding to commit his time, energy, and capital to Ivanhoe’s massive Kamoa Kakula copper project in the DRC.
Although production from the mine is just getting underway, this project has the potential to become the world’s largest copper mine — and it’s already one of the world’s richest.
The project’s average ore grade is four to time five times greater than at the world’s largest copper mines.
The fact that both Freeport and Ivanhoe are expanding copper production at such an opportune time is not a complete accident or stroke of luck.
Over the last few years, Ivanhoe’s Friedland has repeatedly predicted a multi-decade boom in copper demand that would be driven by renewable energy technologies.
During an investment conference in Vancouver I attended four years ago, I heard Friedland state matter-of-factly, “Based on world ecological and environmental problems, every single solution drives you to copper.”
He then boldly predicted, “By 2021, you’re going to need a telescope to see the copper price!”
He was right… and his company is perfectly positioned to ride a multi-year copper boom.
Up and Up… and Up
Like Friedland, Freeport’s Adkerson has been anticipating a long-term bull market in copper, driven partly by renewables. As he reiterated recently:
“The majority of copper goes into generating and transmitting electricity and copper is critical in every aspect of achieving low-carbon goals for the global economy. This ranges from electric vehicles and supported infrastructure, to clean energy from wind and solar, copper is just simply essential to a green economy. This transition is now just beginning to unfold. It will add significantly to future demand for copper; and as the global leading copper producer, Freeport is solidly positioned to benefit from this higher future demand…”
Because of Adkerson’s bullish outlook, the company committed billions of dollars over the last few years to boosting production from its largest mine.
That gutsy decision is now paying off, as Freeport’s production is on the upswing. The company’s earnings and growth prospects are also ramping higher.
The company’s earnings per share totaled nearly $2 during the last 12 months, compared to a loss during the previous 12 months. Next year’s result should soar to more than $3 a share.
Thanks to this robust cashflow, the company has slashed it net debt from $8.5 billion to $3.4 billion.
What to Do Now
The boom times at both Freeport and Ivanhoe are likely to continue for most of the coming decade, as the world grapples with uncertain copper supplies.
That’s why I recommended both stocks to the subscribers of my Speculator investment service more than a year ago… and why I expect both of them to continue building on their gains, once the current correction runs its course.
“Increasing technical complexity and approval delays could lead to a dearth of shovel-ready [copper] projects in 2025-30,” Bloomberg Intelligence predicts.
Therefore, according to research firm CRU Group, the copper industry needs to invest more than $100 billion to have any chance of preventing major supply deficits during the upcoming decade.
If the industry fails to make this investment, the world may face a significant shortfall of the “active ingredient” in most renewable energy technologies.
“The average person just doesn’t understand the scale of the implication for raw materials,” Friedland winds. “If you’re not just green washing, and you really mean it, then it is the revenge of the miners.”
Translation: The clean energy revolution could rain down riches on companies like Ivanhoe and Freeport-McMoRan.
Bottom line: Buy the dip.
P.S. It crushed Blockbuster Video and Sears… but created fortunes in Netflix and Amazon. See my new video on the next industry poised to soar.
NOTE: On the date of publication, Eric Fry did not own either directly or indirectly any positions in the securities mentioned in this article.
Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends… before they take off. In fact, Eric has recommended 41 different 1,000%+ stock market winners in his career. Plus, he beat 650 of the world’s most famous investors (including Bill Ackman and David Einhorn) in a contest. And today he’s revealing his next potential 1,000% winner for free, right here.