Blog: Driving Ahead with Copper

For thousands of years, copper has contributed to the development of human civilization. Used in everything from tools to plumbing to electronics, the red metal is often nicknamed “Doctor Copper” for its ability to predict the overall health of the economy.

Moving forward, 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. In May 2021, Goldman Sachs published a report calling copper the “new oil” and forecasted its demand to grow by 600% through 2030.

Currently, 3% of global vehicle sales are electric. By 2025, that figure will reach 10%, then 28% in 2030, and 58% by 2040.

Reducing our carbon output by adopting alternative energies has become a top priority for governments and businesses alike. The United Kingdom has announced plans to stop selling diesel and gasoline vehicles by 2030; China has similar aspirations by 2035; and Norway hopes to remove traditional gas-powered vehicles from their roads by 2025. General Motors wants to end the production of all diesel and gas-powered cars, trucks, and SUVs by 2035; Ford Motors expects to double its electric vehicle production capacity over the next 2 years; and Chrysler plans to become an all-electric auto maker by 2028.

Copper investments are not free from risk. Two primary concerns that are ever-present when investing in commodities, which contribute to their notorious share price volatility, are a supply surplus and geopolitical uncertainty.

New production is expected to come online in the near term. Additional supply would bring down the price of copper. While only two copper mines have entered production in the last four years, five new mines (situated in the Democratic Republic of Congo, Peru, Chile [two mines], and Russia) are entering production now. However, there are geopolitical risks that could impact the production plans at these properties.

Chile and Peru collectively account for 40% of the world’s copper production. Both regions became less business-friendly in 2021 than before. In Chile, legislation that calls for higher taxes and new royalties on miners is under consideration. In Peru, a new president was recently elected with a razor thin majority to pursue an ambitious agenda, which includes raising mining taxes. If either jurisdiction proceeds with their plans, producers will likely curtail production. While that would send the price of copper higher, it would also reduce the valuation multiple that investors pay to own a copper stock situated in either of these regions.

There are several stocks with copper exposure, including Freeport-McMoRan, First Quantum, Hudbay Minerals, Teck Resources, Capstone Mining, and Copper Mountain. Our clients own two of these names, as well as a special situation located in Canada.