I have been banging the drum for copper for some time, but it is becoming increasingly difficult to ignore.
Gold has the glamour, but many, including veteran investor Rick Rule, now see the greater opportunity in copper.
In summer 2024, I highlighted three copper companies Amerigo Resources (ARG.TO) at around C$1.75 and Arizona Sonoran Copper (ASCU.TO) at C$1.36 and QCCU (QCCU.V) at 12c . Amerigo and Arizona Sonora both hit C$8 on Monday meaning gains of ~350% and ~500%. QCCU, on the other hand, is still at 12c. You can’t win them all.
Back in May we noted that things were getting a little hot. The metal had just hit fresh highs; there was a plethora of investment bank supercycle notes and social media was full of predictions about imminent shortages.
The long-term story is intact but don’t chase it, we suggested. Copper tends to be weaker over the summer and some consolidation could give you a better buying opportunity.
We got a good opportunity in June but it did not last long, and here we are three months on with copper at ~$6.50/lb a couple of per cent below where we were in May.
It doesn’t take a genius to work out which way the trend is going in that particular chart.
The summer lull has been more of a pause than anything else.
Meanwhile, beneath the surface, the fundamental copper story is getting stronger.
Copper’s problem is not demand. It is supply.
We covered the demand side extensively in May. AI needs copper. Data centres need it. Power grids need it. Electric vehicles, rearmament, reindustrialistation, India - they all need copper.
This is not the usual China story by the way. If anythign China demand is lacklustre. Its imports of unwrought copper fell 11.5% year-on-year in July and industrial production there has been slowing.
But, as RBC notes, the LME copper market had moved into its steepest backwardation since the 2021 squeeze. In other words, buyers are paying substantially more for copper now than for delivery later. That is a classic physical tightness indicator.
Antofagasta has cut its 2026 production guidance after problems at Los Pelambres. Codelco has abandoned its 1.34 million tonne production target and now expects to produce less than it did last year.
Meanwhile we have BHP’s latest results. Copper now accounts for 54% of its earnings (EBITDA). Its copper mines are extraordinarily profitable (70% EBITDA margin). Yet despite the obvious incentive to produce more, BHP’s copper production actually fell 3% last year.
This is the largest mining company in the world, with some of the best copper assets, engineers and access to capital on the planet. If anyone can turn on the copper taps, so to speak, it should be BHP. Yet it is talking about a “persistent structural deficit” of as much as 10 million tonnes a year next decade. Demand from electrification, digitalisation, data centres and other newer uses, meanwhile, is expected to grow at around 6.5% a year.
So it now aims to grow its copper production at ~5% a year, faster than the rest of its business. The requires an extraordinary amount of capital.
In a recent video, Merlin Marr-Johnson, CEO of Fitzroy Minerals (FTZ.V) analyses BHP’s spending plans using Escondida, the world’s largest copper mine, as an example and concludes, “They’re spending $5 billion to stand still. And that is the copper industry in a nutshell.”
Billions of dollars of investment don’t necessarily mean billions of dollars of new production. Mines get older. Grades decline. Pits get deeper. More rock has to be shifted to produce the same amount of metal. Processing plants wear out and have to be replaced. Sometimes you have to spend billions just to stop production falling.
Which brings us to Rick Rule.
Is copper now a better bet than gold?
It could be.
Rule argues that “The biggest copper mining companies in the world need to spend $250 billion to maintain current levels of copper production.” Note - to maintain, not increase. Not every one has $250 billion sitting around waiting to be spent. “The copper development boom that we absolutely have to see in the next 10 years will require vast amounts of capital.”
“There’s nothing that we can do, nothing at all that we can do, to avert a shortage in copper,” he says. As a result, five years from now the copper price will be, “dramatically higher than it is today.”
As you know, copper is an important strategic mineral. Citi recently looked at what might happen if countries start building national inventories. Global refined copper inventories, it estimates, currently sit around at around 3 million tonnes, equivalent to just 1.3 months of global consumption. If governments decided they wanted three months instead, they would need need to find another 4 million tonnes of copper.
Where does it come from?
To be accumulated over two years, Citi calculates, would require the copper price price to rise to over $10/lb to bring enough scrap into the market and destroy enough demand to balance things.
That is not a forecast, by the way, it is a scenario. But governments are increasingly treating critical minerals as a matter of national security. The US has proposed a US$12 billion strategic commodities programme, the EU has allocated billions to critical-mineral security and there have been calls in China for increased copper stockpiling.
