One of the greatest resource squeezes in history is unfolding as we speak. And no, it’s not oil or gas. But if you play this massive squeeze the right way, you could walk away with some serious money.
Because the world is about to run smack dab into a massive shortage of the most critical metals for our civilization.
It’s an irreplaceable part of everything from computer chips and toasters, to telephone lines, motors, and even the generators that run our power grid.Without this metal, the world as we know it would literally grind to a halt.
What am I talking about?
I’m talking about copper.
There are more than 50 pounds of copper in an average car. And 439 pounds of copper in an average house. Global demand for copper is around 28 million tonnes/year. And total global reserves are 870 million tonnes.
So, in the best case scenario, we only have about 30 years left of copper extraction.
But not so fast.
Because you know what else copper is really, really good at? Conducting electricity. And can you guess why that might be important nowadays?
If you guess “electric vehicles”…BINGO. You’re right.
Everyone focuses on lithium when it comes to EVs. But without copper, your Tesla would just be an expensive paperweight. According to the Copper Alliance, electric vehicles use twice as much copper as gas vehicles.
And that’s just EVs. Copper is essential for solar farms, wind farms, and every other type of renewable energy tech. Which is why S&P Global predicts that demand for cooper will double by 2035.
So, instead of 30 years until depletion, now we’re at 15. But let’s trim that timelines a little more, shall we?
Right now, there are 250 active copper mines in the world. Together, they produce 20 million tonnes/year. Yes, demand is at 28 million tonnes/year. Which means we’re already operating at a deficit, even with all these mines operational.
But that output is about to drop. A lot. In Chile and Peru, the world’s two biggest copper exporting countries, ore quality is deteriorating. New deposits are getting more difficult and expensive to locate. Not
only that, but politicians are demanding ever increasing shares of profits from the mining countries to smooth over income inequality.
Not only that, but inflation is raising the cost of mine operation.
(How this pencil could turn $500 into $130k)
To round it all out, copper may be necessary for the “green revolution”, but it’s an exceptionally dirty metal to extract. And new mining projects are hampered by environmental regulations. All of this is combining to dry up copper supply at a time when it desperately needs to expand.
Global Copper Deficit Set to Grow Exponentially
S&P Global estimates that by 2035, there could be a global deficit of 10 million tons. While Bloomberg estimates that by 2040, the the deficit could reach 14 million tons. What will this do to the price of copper?
Well, let’s take a look back at 2021. Last year, there was a copper deficit of 441,000 tons. Less than 2% of the total demand. The result?
Prices jumped 25%.
A deficit of 10-14 million tons would represent 20% of total copper demand. Think about that. 2% caused prices to soar by 25%. What would a 20% deficit do?
The problem is, this deficit is going to be very sticky. It takes over 10 years after breaking ground to get a copper mine operational. But to even start the process, you need one very important thing: Investors.
And right now, those are extremely hard to come by. Why? Well, surprisingly, even though copper supply is running at a deficit, procuring funding for new mines has been difficult.
One of the biggest problems has been incentive misalignment. In the early 2010s, the mining industry went on a tear. Companies were pouring money into increasingly risky exploration projects. When the
market entered a half-decade bear market in 2012, explorers were trapped with a ton of debt caused by these exploration projects.
So, for the past decade, executives at the miners have been opting to expand existing mines that can offer more short-term, stable revenue to appease shareholders. Combined with using cash to fund stock buybacks, there’s been little left over to fund new exploration.
Another factor is the price of copper itself.
The economic chaos over the last two years, especially the global manufacturing shutdowns, particularly in China, have injected uncertainty into the copper industry. And the price is down 29% right now. Freeport-McMoRan Inc, the world’s biggest copper supplier, has said that the price of copper is now “insufficient” to support new investments.
So, you have a perfect storm. Decreased investments, rising demand, and a complete lack of supply locked in for at least the next decade. All of this combined is about to make the price of copper reverse direction, and go to the moon.
(The next EV gold rush is here. Don’t miss it)
Right now, the price of copper on the London Metal Exchange is at $7,690 a ton. Goldman Sachs predicts that by 2025, the price will double to $15,000 a ton.So, now to the good part. How can regular investors play this?
Two Stocks That Could Profit From Copper Supply Crunch
There’s two stocks that are positioned to deliver some hefty returns as copper climbs.
1. Rio Tinto Group ($RIO) 2. Teck Resources ($TECK)
$RIO is a diversified miner that produces copper, along with lithium and other rare metals. Their profit margin this year was a crazy 33%. And they’ve been able to maintain an 11% dividend, which is huge.
$RIO operates mines in Utah, Mongolia, and Australia. So, the political stability of its operating regions is for the most part high. In 2021, $RIO produced 493,500 metric tons of copper. But so far, this year, production up 9%.
Wall St. has a high price target of $90 for this $RIO. With a median of $74. So, this could potentially be near a double, or at least a potential 34% winner. On top of the fat 11% dividend, I expect shareholders to be very happy with $RIO over the coming years
$TECK operates copper mines in Canada, Chile, and Peru. Copper was 34% of $TECK‘s revenue in 2021, and they produced a total of 287,300 tons.
They expect to double that copper production by 2023. Mainly driven by their Quebrada Blanca project in Chile.
Additionally, $TECK is one of the few miners who actually has a good number of new projects coming online in the next few years.
They expect these new projects to allow them to increase copper output by five-fold over the next decade.
Right now, $TECK is trading at $31/share. But Wall St. price targets climb as high as $51.
Not only that, but they provide a annual dividend of 1.21%.
That’s a wrap. Copper is going to become much more expensive, and these are two ways to ride its price surge all the way to the bank.
About the Author
Alex Reid is an independent investment analyst, real estate investor, and trader. Alex built a 7-figure investment portfolio by the age of 29, following common sense investing principles and smart money management. Now, he teaches others how to navigate the markets.
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