Driving Ahead with Copper

So far this year, capital markets activity has been abysmal. Corporate activity for deals over $25 million fell almost 50% compared to the year before in the first three months of this year.

However, copper transaction volumes are up about 30%. Just last week, word that copper producer First Quantum was informally approached by Barrick Gold made the press. Mark Bristow, Barrick Gold’s CEO, has been quoted saying that owning copper output is critical “if you want to be relevant.”

Most recently, Hudbay Minerals acquired Copper Mountain for US$439 million while Lundin Mining bought a controlling stake in the Caserones copper mine in Chile for US$950 million in March.

Copper will be in high demand for decades. Vehicle electrification will require significantly more copper than traditional combustible vehicles have used in the past. Today, the average gasoline-powered car uses 20kg of copper. Conversely, a hybrid requires 40kg of copper while a full electric car uses roughly 80kg.

Currently, 3% of global vehicle sales are electric. By 2025, that figure will reach 10%, then 28% in 2030, and 58% by 2040. Because of this growth, McKinsey & Co. estimates that there will be 36.6 million tonnes of copper demanded by 2031 yet only 30.1 million tonnes of supply, leaving a significant shortage that will push prices higher.

Global miners are scouring the globe for copper. The two big mining companies, BHP Billiton and Rio Tinto, have both been active scooping up copper companies. BHP recently bought Oz Minerals for a 49% premium while Rio Tinto acquired the rest of Turquoise Hill it did not already own for a 67% premium to the last closing price before the bid was unveiled.

Our clients own several copper stocks. Many say that commodity stocks are ideal short-term trades rather than long-term investments. However, we expect the larger companies to continue their spending spree to acquire additional copper supply. For that reason, we will be long-term holders of our positions.