Is Now a Good Time to Invest in Copper? Panelists Tout Long-term Fundamentals

Copper available now, but shortfall brewing

VRIC's copper outlook panel consisted of moderator Jay Martin, president and CEO of Cambridge House International; resource industry veteran Ross Beaty, whose current focus is Equinox Gold (TSX:EQX,NYSEAMERICAN:EQX); Ivan Bebek, chairman of Torq Resources (TSXV:TORQ,OTCQX:TRBMF); and Rick Rule, proprietor at Rule Investment Media.

When asked by Martin to describe the current state of the copper market, Beaty said there is a lot of copper in the world and noted that the base metal has thousands of uses in everyday life.

“Copper is a great metal. It’s at a reasonable price, and I think copper exploration companies should do great," he said.

Bebek drew attention to the challenges faced by copper operations today and spoke about the differences between now and 20 years ago. “20 years ago, copper was well below US$1 (per pound) and grades were a lot higher. Right now, grades have come down considerably from where they were, but it’s even harder to find a high-quality copper mine in the world than it ever has been before because a lot of the easy ones have been found,” he explained.

Bebek agreed with Beaty that there is currently no shortage of copper, but suggested that this is likely to change. He noted that three of the top 10 copper mines in the world will be depleted in 15 to 20 years; meanwhile, environmental, social and governance initiatives are slowing down exploration efforts and the construction of new mines.

In his view, there's a dearth of quality copper assets in the world. “I’m a copper bull, it’s a long-term performing asset, but 'quality' is what you have to add to the phrase, and I think copper is essential. As we all see the population growth, modernization, electrification, it’s going to be a key metal going forward,” said Bebek.

New copper supply won't come online quickly

Martin brought the conversation around to copper supply in the next couple of years, saying the market is expected to be in balance for 2024 before moving into deficit by 2026. The shortfall is expected to grow over the next 10 years.

Bebek suggested that this growing imbalance is a point of concern.

“If we’re looking for a big copper mine, one that would meet the threshold of some of the larger mines in the world, it’ll probably be 20 or 30 years, if we’re successful, before that mine comes to market,” he said.

These decades-long timeframes are feeding the developing supply shortfall, especially as aging mines begin to run out of metal. On that note, Bebek pointed out that existing large mining operations are having to go deeper, which is making operations more expensive and ultimately impacting the profitability of mining companies. “It’s just not going to be managed in a timely manner. I don’t think the world is ready for the (coming) copper demand” he said.

Understanding the long-term nature of developing a copper mine and the deep costs associated are key factors for investors looking to add copper companies to their portfolios. Beaty emphasized that point, indicating that large porphyry systems are generational, with staggering costs and potentially outsized returns.

Using major miner Teck Resources' (TSX:TECK.A,TECK.B,NYSE:TECK) Highland Valley mine north of Merritt, BC, as an example, he said, “These are giant orebodies that may create giant wealth for decades and decades. Highland Valley has been going since the '60s. To build a copper mine these days costs billions of dollars."

The time and investment capital needed to develop these large mines makes it nearly impossible for junior companies to handle them on their own. Instead, they generally have to rely on a strategy that sees them exploring the resource with the intention of being taken over by a company with the capital to fund development costs.

Investor takeaway

While the copper market may be quiet in the near term, the panelists at VRIC emphasized that the longer term looks bright. As the red metal's role in the energy transition grows and as supply runs short, a deficit is seen emerging.

This could present significant opportunities for investors who are patient and understand the pressures faced by explorers and developers. Highlighting the sector's potential, Rule recalled a conversation with James Robert "Jim Bob" Moffett, former chairman and CEO of Freeport-McMoRan (NYSE:FCX), who said, “If you look around the world at great big mines, mines that make $1 million a day or $2 million a day, most of them are copper mines, and for that reason I like copper, because I like to make a lot of money as opposed to a bit of money.”