SMALL CAP IDEA: Copper producers sure to benefit from energy transition

Copper is the metal of the future. Almost everyone agrees on that.

Yes, we also need lithium, nickel, tin and many more.

But at the heart of any application that these base metals go into, copper will also go.

Electric cars need lithium batteries, and nickel to go into them, and most likely cobalt or vanadium.

But the wiring that sends all that beautiful green energy around to the machines and motors that ultimately produce something useful, that’s all copper.

Copper wiring in cars, copper wiring in appliances, in new homes, in wind turbines, in submarine cables. The red metal will be everywhere.

So why is it that hardly any large new copper mines are being developed?

Herein lies a conundrum that continues to plague academic students of capitalism – even though you anticipate demand, prices usually don’t move until demand actually arises.

And in the case of mining, if prices haven’t changed, it means there’s no point in going out and finding something.

That’s one of the reasons why mining works in such obvious boom-and-bust cycles.

For the savvy investor, however, this dynamic creates enormous opportunities.

Copper may not be quite there yet, but it’s coming.

A well-positioned player in the market can therefore do very well.

Not only that, but as the world revolves around green energy these days, and copper plays and will continue to play a key role in that greening, it can now also come with all sorts of environmental and social credentials attached.

But what’s the best way to get in?

For starters, there are a few great pure-play copper miners: Antofagasta (1,529p), First Quantum and Southern Copper.

Or, for those who don’t like putting all their eggs in one basket, some of the super-majors are also very big on copper, particularly Glencore And Rio Tintobalance their copper production with large output energy and the other base metals.

But focusing on the larger producers brings its own problems.

Of course, in the super majors, exposure to copper is mitigated by other commodities. And what you gain from the pure-play producers, you can lose with jurisdictional risk.

Of the twenty largest copper mines in the world, fourteen are in Central or South America, three in Africa, one in Russia and one in Indonesia.

That leaves the Morenci Mine, located in the US and owned by Freeport McMoRan, as the only major copper-producing asset in what is traditionally referred to as the Western world.

That in itself is another factor favoring copper bulls.

The world is slowly starting to wake up to supply chain issues and sooner or later more mines will be developed closer to their end markets.

And in case anyone argues that in today’s global village – overrun with social conscience and ESG – political risk is overstated, it’s worth noting that the Chilean government announced this week that it will take control of all strategic lithium assets within its borders. .

And eight of the twenty largest copper mines in the world also happen to be in Chile.

So it is an unstable world in which we live, a world in which environmental pressures are always present, and yet one in which Ukraine or Taiwan could turn into open and large-scale war at any moment.

In this context, certain smaller copper companies and projects are starting to become more attractive. The Australian Securities Exchange, in particular, offers a large number of locally based and run companies that work copper assets in the relatively healthy ‘happy country’.

There are also one or two UK listed companies with Australian copper assets Thor energy (0.28p) and budding explorer First Development Resources.

And there are UK listed companies with copper assets in other jurisdictions that are generally considered safe such as atalaya (350p), which is in Spain, and Ariana Resources (2.75 pence), which has investments in Cyprus and the Balkans in addition to its gold holdings.

Central Asian metals (223p), which probably has the most consistent track record of any copper producer listed in London, also has assets in the Balkans.

Still, you can’t get around the inconvenient fact that the best copper is placed in some pretty tough jurisdictions.

Could there be huge undiscovered fields of copper porphyry in Nevada and Arizona?

Perhaps, but what is currently seen brightest on the radars of mining industry explorers remains in established areas such as South America and sub-Saharan Africa.

That’s where the high risk, high reward action is and where last week Arc minerals (3.73p) entered into a joint venture with Anglo American in Zambia.

But for those wanting a smoother ride to a greener future, the best places to be are still North America, Australia and Europe.