How to Play the Coming Copper Boom
It’s hard to think about investing when so many negative factors are distracting the markets.
The war in Ukraine, supply chain issues, the chip shortage, inflation and rising interest rates all come to mind.
But periods like this are exactly when you should invest.
I’ve been through a number of market corrections in my nearly five decades of investing. So I know that, like all of the previous ones, this market correction will end. And when it does, stocks will soar higher than they did before the correction began.
Remember, the long-term trend has always been that the market goes up.
I can’t tell you when the correction will be over. But I can tell you that now is the time to look for bargains.
And today I’ll share what I believe is going to drive the market higher.
The Coming Surge in Investment Capital
Over the next five years, we are going to see a once-in-a-lifetime wave of spending on physical assets. Estimates for this surge of investment capital put the number at about $130 trillion.
It’s all going to pour into projects to renew critical infrastructure and decarbonize every sector. Companies that have figured a way around supply chain issues, chip shortages and other business challenges are the ones to invest in.
Decarbonizing a company requires long-term thinking and long-term investment.
A good example is Tesla (Nasdaq: TSLA). Elon Musk is one of today’s most well-known CEOs.
He’s also one of the smartest. History will recognize him for starting the electric vehicle revolution, among other things.
And even with Tesla’s stock currently 34% off its year-to-date high, Musk isn’t worried. With gas prices heading north of $5 per gallon, he can sell every EV that Tesla can produce.
He’s spending capital too. The company just announced an expansion of its gigafactory in Germany.
So is buying shares of Tesla a good way to play the $130 trillion spending wave I referred to above?
It’s one way to do it, especially after Tesla’s recent drops.
But I also like pick-and-shovel plays. There are a number of raw materials that are now or will soon be in short supply.
And many of these materials are critical to repairing our infrastructure and decarbonizing our way of life.
The Big Copper Boom
Almost every country is pursuing clean energy policies. And copper is a critical element in nearly every clean energy sector.
The copper boom is likely to last decades. In the first half of last year, copper demand rallied off of sharp economic activity. Prices rose to 10-year highs of $10,476 per ton.
The surge in orders dropped copper inventories at the London Metals Exchange by 89% to a 49-year low. Goldman Sachs even refers to copper as the “new oil.”
It’s one of the clear winners in the clean energy transition. For example, EVs use four times the amount of copper found in today’s internal combustion engine vehicles.
And current predictions are that EVs will easily grab a 30% market share of all new vehicles sold by 2040, though I think they’ll get there much sooner than that.
Wind turbines also use a lot of copper. The average onshore wind turbine uses 5.4 tons per megawatt, while offshore wind turbines use 15.3 tons per megawatt.
The new General Electric Haliade-X offshore turbine runs at 14 megawatts. That’s over 200 tons of copper for one turbine! And China’s building a 16-megawatt turbine.
The coming copper supply crunch could boost prices 60% over the next three years. To meet the growing demand, miners need to double copper production from today’s 20 million tons per year to 40 million tons per year by 2040.
Making this even more challenging, a number of existing mines are nearly tapped out. Their production is expected to drop 23% by 2030.
New mines will need to be built and brought online.
Mining One of the World’s Largest Copper Deposits
In the far western reaches of Mongolia, Turquoise Hill Resources (NYSE: TRQ) is mining one of the largest copper deposits ever found. It’s in the middle of the great Gobi Desert.
The first mine is a conventional open pit mine. But a large part of the copper deposit is located about a mile beneath the surface.
The development of the underground mine consists of more than 200 kilometers of tunnels. To put the scale of the deposit into perspective, it’s about the size of Manhattan.
Experts believe it could produce copper, gold, silver and molybdenum for 100 years. And I believe it’s one of the best long-term stocks to play the exploding demand for copper.
Remember, copper is a critical element for the clean energy sector. And it will be a major target of the massive capital investment happening over the next five years.
Right now, Turquoise Hill shares are trading about 16% below their 52-week high. Savvy investors may want to nibble on shares at these bargain prices.
Disclaimer: David Fessler owns shares of Tesla.