Goehring & Rozencwajg is \u2018incredibly bullish\u2019 on copper over short term, but new tech could supress prices longer term
\nIntroduction of heap leaching & SX-EW in the 1990s depressed the copper market for most of the decade
\nG&R say two new technologies being developed could crush the dreams of copper bulls<\/p>\n
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While the short-term outlook for copper is strong, tech breakthroughs could hobble the long-term outlook, say noted contrarian investors Leigh Goehring and Adam\u00a0Rozencwajg.<\/p>\n
In 2023, copper has disappointed\u00a0 pundits and punters waiting impatiently for an \u2018all-but-locked-in\u2019 multi-decade bull market to begin.<\/p>\n
It\u2019s still coming though, they say.<\/p>\n
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#Copper<\/a> \u2013 There isn\u2019t enough copper in the world \u2014 and the shortage could last till 2030 https:\/\/t.co\/60KjO6DNiP<\/a><\/p>\n \u2014 Dr. Copper (@CopperBullish) February 8, 2023<\/a><\/p>\n\n \u00a0<\/p>\n Copper supply shortages will be so \u201cunprecedented and untenable\u201d in coming years that it could derail the global shift away from fossil fuels, S&P Global says (via @climate<\/a>) https:\/\/t.co\/sE4TuEGdva<\/a><\/p>\n \u2014 Bloomberg Markets (@markets) July 14, 2022<\/a><\/p>\n\n \u00a0<\/p>\n The world\u2019s biggest copper mines are getting old and tired, and new tier 1 deposits aren\u2019t being found fast enough<\/strong><\/a> to fill the gap.<\/p>\n Meanwhile, copper\u2019s role as an industrial lynchpin is being supercharged by the green energy thematic.<\/p>\n EVs, for example, need up to five times more copper than an internal combustion passenger car and, like lithium to a lithium-ion battery, there are no viable substitutes.<\/p>\n pic.twitter.com\/N7fyJY2sYX<\/a><\/p>\n \u2014 Robert Friedland (@robert_ivanhoe) October 1, 2023<\/a><\/p>\n\n Expansion of electricity grids to handle renewable energy will also see copper demand for power lines alone double by 2040, according to the International Energy Agency.<\/p>\n Less copper + parabolic demand = an extended period of higher prices. Or so the story goes.<\/p>\n But there is a seldom-mentioned bear case for copper.<\/p>\n Earlier this year Stockhead <\/em>spoke with Goehring and Rozencwajg, who say they have been correctly predicting commodity trends for decades.<\/p>\n Contrarian investors purposefully go against prevailing market trends by selling when others are buying, and buying when other are selling.<\/p>\n The theory is that markets are subject to \u201cherding behaviour\u201d amplified by fear and greed, making markets regularly over-and under-priced.<\/p>\n \u201cBy looking for undervalued assets in areas other people think are uninvestable, we\u2019ve been able to generate very strong returns over time,\u201d Rozencwajg said.<\/p>\n \u201cYou don\u2019t want to be a contrarian for contrarian\u2019s sake; sometimes things are cheap for a reason.<\/p>\n \u201cBut we often find that at very market \u2018tops\u2019 and \u2018bottoms\u2019 people have a funny tendency to extrapolate the trends that are in place.<\/p>\n \u201cThey don\u2019t see that second derivative \u2013 the change that is taking place.\u201d<\/p>\n \u00a0<\/p>\n In its Q1 2023 commentary G&R mentioned it was \u201cuneasy\u201d with the copper bull market consensus.<\/p>\n \u201cAs contrarians, should we maintain our bullish outlook despite most of the industry now agreeing with us? On a short-term basis, we are maintaining our stance,\u201d it says.<\/p>\n But it contemplated that, longer term, the copper market may hit roadblocks due to a disappointing renewables buildout and booming production growth via a handful of technological breakthroughs.<\/p>\n G&R doubled down on this view in its Q3 commentary.<\/p>\n \u201cMany investors remain bullish in the long-term but are pessimistic about copper\u2019s prospects over the next several months, owing to fears about a recession and a Chinese slowdown,\u201d it says.<\/p>\n \u201cWe disagree. We are incredibly bullish over the short term but are becoming more concerned over the long term as new technologies risk bringing on additional supplies.\u201d<\/p>\n \u00a0<\/p>\n In the near term, G&R say copper fundamentals remain incredibly favourable.<\/p>\n \u201cDespite worries about a slowdown, Chinese demand is up 12% year-on-year for the first nine months of 2023. Indian demand has accelerated sharply and is now up 36% over the same period,\u201d they say.<\/p>\n \u201cMine supply, meanwhile, remains challenged. Disruptions in Chile have been complicated by Panama\u2019s recent decision to revoke First Quantum\u2019s operational contract for its massive Cobre Panama mine, representing 350,000 tonnes per annum or nearly 2% of world supply.<\/p>\n \u201cEven with Kamoa-Kakula phase II and Olu Tolgoi underground set to come online, we expect global mine supply will be muted.<\/p>\n \u201cEasily mobilized inventories are dangerously low. On a days-of-cover basis, inventories are now at 3 days \u2013 a level historically associated with sizeable near-term price spikes.\u201d<\/p>\n This prediction is already beginning to come true, with copper inking a solid gain in November<\/a> amid the threat of these supply disruptions from South and Central America.<\/p>\n \u00a0<\/p>\n The solution for high prices is high prices, as the saying goes.<\/p>\n This is starkly apparent in metals markets, which has a history of finding solutions to unsustainably high prices.<\/p>\n Technology can be a huge disruptor. When the copper industry introduced heap leaching & SX-EW in the 1990s, it allowed producers to mine and extract copper from low-grade oxide deposits for the first time.<\/p>\n It grew to represent well over 20% of all copper production within 10 years, G&R says, and severely depressed copper for most of the decade.<\/p>\n This could happen again, G&R says.<\/p>\n \u201cIn recent weeks, we have spent time visiting and speaking with several new technology companies that could usher in vast new, unexpected sources of mine supply over the next several years,\u201d it says.<\/p>\n \u201cGiven how little mining technologies have advanced in recent decades, such advancements would be most overdue.\u201d<\/p>\n G&R focuses on a couple of technologies \u2013 Typhoon and Jetti \u2013 poised to crush the dreams of copper bulls.<\/p>\n Typhoon is the brainchild of Robert Friedland, the mining magnate behind three of the most important copper discoveries in the last century.<\/p>\n Developed over 25 years, Typhoon emits a massive \u2018pulse\u2019 which penetrates thousands of metres below the surface with extremely high resolution.<\/p>\n For the first time in history, exploration geologists can see to depths never before imagined, G&R says.<\/p>\n \u201cTyphoon helped discover Arizona\u2019s billion-tonne Santa Cruz deposit \u2013 an area that has been extensively prospected and mined for over a century,\u201d it says.<\/p>\n \u201cTyphoon also helped discover Tintic in Utah and expand Hog Heaven in Montana \u2013 two other historic mining areas long thought to have been thoroughly picked over.<\/p>\n \u201cHow many other porphyry deposits lay hidden just beyond the reach of conventional IP [induced polarisation]?\u201d<\/p>\n There are new technologies that could change processing as well, just like SX-EW did in the 1990s.<\/p>\n US company Jetti Resources claims to have unlocked the \u201choly grail\u201d of mineral processing \u2014 a cheap technique to leach copper from low-grade, currently subeconomic sulphide stockpiles.<\/p>\n \u201cAlthough estimates vary, Jetti expects to produce 1 million tonnes annually by the decade\u2019s end,\u201d G&R says.<\/p>\n \u201cBHP is testing Jetti at Escondida \u2013 the world\u2019s largest copper mine in Chile.\u201d<\/p>\n They aren\u2019t the only ones.<\/p>\n Teck is the latest major miner to invest in a startup to extract copper from waste rock https:\/\/t.co\/Z6lQ7qhHCn<\/a><\/p>\n \u2014 Bloomberg Canada (@BloombergCA) January 25, 2022<\/a><\/p>\n\n No analyst has any of these disruptive technologies in their projections, G&R says.<\/p>\n \u201cWe think they would be wise to start paying attention,\u201d they say.<\/p>\n \u201cThese technologies will likely not change copper balances soon, so we remain bullish. However, over the medium term, their potential must not be overlooked.\u201d<\/p>\n \u00a0<\/p>\n <\/span><\/p>\n The post 30 years ago, a disruptive tech devastated copper prices. It could be about to happen again<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"What do G&R think about copper?<\/h2>\n
First, the good news<\/strong><\/h2>\n
But the long-term outlook could be dire for red metal heads<\/strong><\/h2>\n