December 11, 2024 | Are We Running Out Of Copper? This Image Says Yes Ah, the good old days…

Lots of people envy some aspects of their grandparents’ lives, with good reason: Houses used to cost $40,000, college tuition used to be a few thousand dollars a year, and the air used to be free of plastic nanoparticles. Those really were the good old days.

But you know who would really like to go back in time? Mining geologists who keep hearing how easy it once was to find monster deposits.

Humanity has been searching for gold, silver, and copper for thousands of years, and most of the rich, accessible deposits have been exploited, leaving today’s explorers with the hard-to-find and harder-to-mine.

Here’s a graphic from Visual Capitalist showing the source of modern copper miners’ grandpa-envy:

Look at those early-20th-century monster deposits sitting right there on the surface. You could strip mine the top 50 to so meters of rock, ship it to a smelter, and kick back while the money rolled in. No muss, no fuss.

Now follow the timeline to the right and watch the deposits get scrawnier and deeper until, in the 21st century, miners have to descend for hundreds of meters just to find modest amounts of metal.

Therein lies the copper investment thesis. Electric cars and AI data centers need copper in amounts exceeding all that has been mined since the beginning of human history. And it’s not clear where it will come from.

Obviously, much higher prices will be needed to make tomorrow’s marginal deposits worth mining.

Who benefits from this demand shock? Obviously, existing copper miners with reserves that are profitable at today’s prices. They’ll just keep on doing their thing while prices rise, widening their margins and expanding their free cash flow.

Also big potential winners are the lucky/skillful explorers and juniors that discover and exploit new/cheap deposits in the coming decade. It’s hard to know which among today’s explorers will be the big winners, but the payoff is worth the effort to find out.

So that’s how you make a copper portfolio: Mostly current big names, with some promising smaller producers and — hot sauce on the taco — some explorer lottery tickets with great drill results. See here for some of them.

But the Recession…

This cycle has lasted waaaayyy longer than it should have. The pandemic money printing bought an extra few years of “growth”. Then the AI bubble produced a classic blow-off top. There’s nothing else on the horizon to keep the party going, so:

Crash Alert: Priced for Perfection in an Imperfect World

Recession Watch: Bad News From Around the World

These Two Things Don’t Go Together

Assuming that what happened at the end of every previous expansion happens at the end of this one, we should expect a recession and equities bear market in 2025 or thereabouts. That means lower prices for even the best copper stocks — and much lower prices for the smaller players. So the copper story, while remaining great long-term, may be tumultuous in the year ahead.

Does that mean stay away until the dust clears? Not necessarily. But it does mean approach with caution until the current imbalances work themselves out. Use low-ball bids, dollar cost averaging, and put writing to gradually build positions over the next few years. The goal is to be ready for the epic bull market when it begins. Slow and steady definitely wins this race.

John Rubino December 11th, 2024

Posted In: John Rubino Substack

Next: