Is The Copper Bull Dead?

Written by Gerardo Del Real
Posted September 17, 2018 at 4:28PM

Just a few months ago, the spot price for copper soared near the $3.30/lb. level and speculators in the space all agreed that copper was the best way to play the mega-trend that is what Outsider Club founder Nick Hodge likes to call “the electrification of everything.”

Trade wars, a perceived slowdown in the Chinese economy, and big funds taking out short positions have led to a pullback in the spot price that I believe should be taken advantage of aggressively. Some of the smartest money in the resource space agrees.

Take China’s Zijin Mining, which recently agreed to buy Nevsun Resources for $1.41 billion. The deal came together after a failed attempt by Lundin Mining to take control of the Timok copper-gold project in Serbia via a hostile takeover.

Lundin has been very vocal about its willingness to spend in order to secure assets in low-risk jurisdictions.

Incoming CEO Marie Inkster recently said, “We want to get more copper. We want to get more mines. We want good prospects.”

The company was also clear that it is willing to invest up to $150 million for exploration companies with projects that meet its criteria.

Lundin’s chairman said earlier this year that the company is willing to spend as much as $3 billion on base metal assets.

The Nevsun investment is in line with Zijin’s aggressive plan to increase its copper exposure.

The company recently won a bid to become a partner in Serbia’s only copper complex, RTB Bor.

Zijin agreed to invest $1.26 billion in exchange for a 63% stake.

China has already invested more than $1 billion in Serbia financing highway and energy projects and these investments were likely a deciding factor in its successful bid for RTB Bor.

BHP recently stepped up and took a 6% interest in SolGold’s Cascabel project in Ecuador for approximately $35 million.

The BHP investment was preceded by an investment from Australia-based Newcrest.

Baikal Mining, which is the operator of Russia’s biggest undeveloped copper deposit, is planning on raising $1.25 billion in 2019.

The most recent pullback in the copper price is directly tied to the lingering trade wars and the fear that President Trump’s tariff bark will turn into a bite.

Nickel — used in stainless steel — has fallen 22% since early June. Copper has dropped 15%.

The world’s most populous country is the major driver of base metal prices, accounting for nearly half of global copper demand.

Much of the infrastructure demand in China is not optional.

Electronic and power installations in China are a direct response to environmental mandates.

China’s energy sector accounts for nearly 25% of the world’s primary energy consumption, including nearly 60% of global coal.

Power Engineering International recently published that China’s power sector supplies 5900 TWh from over 1600 GW of power capacity, or equivalent to eight Germanys.

It went on to highlight that the 13th Five-Year Plan, published in 2016, targets 2000 GW of capacity installed by 2020, corresponding to an increase of 20%.

A large driver of that demand will come from China’s goal to manufacture 2 million “new energy vehicles" for domestic and international markets.

The mandate is an effort to cut down on city smog.

In the near term, additional tariffs could send base metal prices lower but the bottom line is there are not enough quality deposits with scale — in good jurisdictions — to satisfy the mid-long-term demand.

Trade wars are not sustainable and thus far Trump has proven to be more bark than bite. A deal with China will send copper back to previous levels and the supply-demand fundamentals will send copper to new highs.

One of Rick Rule’s favorite throwaway lines is, "you’re either a contrarian or a victim."

Use this pullback to buy the better base metal names in the junior space because these prices will not last.

I’ll be at the Beaver Creek Precious Metals Summit later this week catching up with several Junior Mining Monthly picks, and we're not too far away from the New Orleans Investment Conference at the beginning of November as well.

The New Orleans Investment Conference is always one of the biggest events of the year, and registration is still open. If you're interested, click here to get more information:

To your wealth,

gerardo-sig

Gerardo Del Real
Editor, Junior Mining Monthly and Junior Mining Trader.

For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.

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