The Asian Copper Rush


If any metal in the world deserves the title of a little sibling, it has to be copper by a country mile. Currently trading for just $2.74 a pound, any given quantity of gold or platinum will be worth 5,000 times more than copper. Yet copper represents an integral component of the global economy, especially for a number of South American nations who rely on metal exports for most or even all of their finances. The nation of Chile for instance, relies on copper for about 50% of their exports. While copper production in Central and South America isn't fading away, the focus for copper has drastically shifted away from the southern hemisphere. Just as gold mining projects have began to eschew traditional markets in favor of new mining regions, so too are copper developers interested in untapped geologies across eastern Asia come 2015 -- in particular, Mongolia and Indonesia.

Copper For All

It's a certainty that you have used copper devices at least once today, even if for no other reason than you're reading this newsletter. Copper represents a fantastic tool for modern construction since it enjoys very strong electrical attraction while maintaining solid strength in the face of heat. With a melting point of 2000 degrees compared with a conductivity threshold of 6 million Siemens per meter (40,000 Siemens will kill any life form on the planet), copper's an excellent way to move electricity about without causing circuits to melt. That also makes it fantastic for batteries in everything from Tesla cars to F-35 Lightning fighter jets. Yet high demand doesn't always translate to high value; in copper's case the sheer quantity of the metal negates its potential of growing in price to the point where it becomes a truly precious metal. We mine about 18 million tons of copper each year on this globe, compared with just 2,500 tons of gold each year. As such, copper mining conglomerates constantly seek out new deposits even if their finds receive far less fanfare than rich gold or palladium nodes. Prior to about five years ago, however, exploration seemed a moot point: South America provided more than the world needed. Today, the output and global consumption has shifted.

Copper's Great Rebound

2014 proved to be less than optimal for a number of commodities, most famously oil and gold. Copper followed the path of its bigger-sister metals for the most part, losing approximately 5% of its total value in the calendar year. With the advent of 2015, however, copper's fortunes (and value) has risen considerably. Copper gained 10% between January and March of 2015, surging from $2.44 to today's price of $2.74. That price doesn't reflect the real average price of Chilean copper, however, which dropped steeply thanks to the increasing price of both labor and water. Chilean copper has come dangerously close to reaching the point of unprofitability, meaning that the Chilean copper boom, which provided good economic times for about a decade, has closed. The big production remains in South America, but focus and value has shifted squarely to Asia.

Mongolia and Mining

Copper has soared through the early days of April thanks to news out of Mongolia that Turquoise Hill Resources agreed to a five-billion dollar investment to mine for the red-gold metal in the southern Oyu Tolgoi region. That's a huge influx of cash for a relatively poor nation of just 3 million people and the mine project expects to contribute to as much as 33% of Mongolia's GDP by itself. A feasability study revealed there's an estimated 25 billion pounds of copper sitting below this region of the Mongolian steppe with a mine that could enjoy a lifespan of up to 42 years. With the discovery of quantities of gold and silver in addition to copper, the conservative total value of Mongolian metal lies at just under $100 billion on today's markets. That's a figure that could rise dramatically within our lifetimes, since other reports from competing claims estimate the total Oyu Tolgoi fertility to provide twice as much copper over 95 years. What's good news for Mongolia is also good news for investors, so long as they hold either copper futures or shares in Turquoise Hill stocks (currently trading at $3.74 per share on the NYSE).

Indonesia: Developmental Difficulties, Dodged

The history of mining encompasses the history of labor relationships rather neatly, whether ranging back thousands of years to the initial slave economy of mining or describing today's thorny relationship with unions and negotiating rights. The picture becomes more clouded in nations attempting to leverage commercial gain like Indonesia, the world's second-largest producer of metal but the 16th largest economy. Indonesia copper has become a subject of profit and woe alike to mining companies, since the construction of the Grasberg mine promised fantastic wealth but also a variety of concerns over worker pay, hours, and work stoppages. Such concerns aren't exactly in the rear-view mirror, but a negotiation between the Freeport ownership and mine workers resulted in a March opening of the mine for what appears to be an unrestricted period in the future. The news of the Indonesian labor agreement pushed copper to two-month highs since the mine produces around a quarter-million tons of ore daily. With a new labor agreement, Indonesian copper appears far more compelling than it did just months ago, when work stopped after a tunnel collapse.

Copper And You: Strategies

Those looking to make massive gains will have to look elsewhere since copper lacks the boom-bust volatility of metals like silver. Instead, look for steady growth in copper for the foreseeable future as new markets open up supply to alleviate demand that's not being met by congested South American producers. Copper mining stocks represent a solid choice as well: the aforementioned Turquoise Hill stock has gained 25% in value in the past month alone and about 50% in value since the start of 2015. Likewise, Southern Copper Corp (SCCO on the NYSE) has enjoyed about 10% growth in 2015 thanks to their announcement to increase production by at least six percent on the year.

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