Copper Gaining Traction: Investors Positioning for the Upswing

Company Interviews

Interview with Derrick Weyrauch, President & CEO of GT Resources Inc. and Hayden Locke, President & CEO of Marimaca Copper Corp.

Recording date: 24th June 2024

Copper, for its ability to gauge economic health, is poised to play a crucial role in the global push towards electrification and decarbonization. With prices around $4.50 per pound, down from recent highs but significantly above levels seen a few years ago, the metal presents an intriguing opportunity for investors.

The demand outlook for copper appears robust, driven by several key factors. Infrastructure development, particularly in electrification, is expected to be a major driver. Hayden Locke, President & CEO of Marimaca Copper, emphasizes that the buildout of electrical grids to support decarbonization will require substantial copper resources. The electric vehicle (EV) revolution, despite some growing pains, remains a significant demand factor. And according to Derek Weyrauch, President & CEO of GT Resources, even modest EV adoption rates could necessitate a doubling of global copper output.

However, the supply side faces significant challenges. Many existing copper mines are experiencing declining ore grades, leading to increased production costs and potentially reduced output. The Commodities Research Unit (CRU) projects that production could decrease to about 12 million tons by 2034, compared to the current 22 million tons produced annually. Moreover, over 200 copper mines are expected to exhaust their ore reserves before 2035, with insufficient new mines in the pipeline to replace them.

Developing new copper projects is time-consuming and capital-intensive, with lead times often exceeding a decade. This long development cycle suggests that even if investment in new projects increases today, it could be years before significant new supply comes online.

For investors, the copper sector offers various opportunities. Established producers with existing operations benefit from current production and cash flows but may face challenges in replacing depleting reserves. Junior mining companies offer potentially higher upside through exploration success but come with increased risk and often struggle with access to capital.

Financing remains a significant hurdle, particularly for junior companies. Some, like GT Resources, have addressed this challenge by bringing in strategic partners such as Glencore. This approach of securing strategic partnerships or investment from larger mining companies or end-users of copper is becoming increasingly common in the sector.

Environmental, Social, and Governance (ESG) considerations are playing an increasingly important role in the mining sector. Companies that can demonstrate strong ESG practices may find it easier to secure permits, financing, and community support for their projects.

While many industry participants believe higher copper prices will be necessary to incentivize new supply, companies with robust projects can still be successful at current price levels. However, investors should be aware of risks such as economic slowdowns, technological advancements leading to increased recycling or material substitution, regulatory changes, and currency fluctuations.

In conclusion, the copper market presents both opportunities and challenges for investors. The long-term demand drivers appear robust, but supply constraints suggest a potential supply gap could emerge in the coming years. Thorough due diligence, consideration of factors such as project quality, jurisdictional risks, and management track record, and a long-term perspective are essential for potential investors in this sector.

Learn more: https://cruxinvestor.com/categories/commodities/copper

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https://cruxinvestor.com/companies/marimaca-copper

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