Part One: Copper…The New CRUDE |
Thursday, 23 March 2023 — Melbourne | By James Cooper | Editor, The Daily Reckoning Australia |
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[7 min read] Quick summary: Today, James explains why caution is needed when selecting stocks exclusively tied to the green energy transition. It boils down to technology risk…the threat that challenges future demand outlooks for certain commodities. Yet there is one critical metal immune to this threat…copper. Read on to find out why. |
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Dear Reader, Two weeks ago marked a sudden dramatic shift in sentiment for Rare Earth (REEs) metals… That was thanks to Tesla’s announcement that it would remove the commodity from its next-generation vehicles. You can read my coverage on Tesla’s new plan here. That surprise announcement caught most commodity investors off guard, with a dramatic sell-off amongst producers tied to the extraction of REEs. It just goes to show…sentiment can turn quickly in the commodity space. But was it warranted? In my mind, there’s still plenty of potential for this poorly understood critical metal. The recent sell-off doesn’t account for its broad use through different industries…defence, healthcare, manufacturing, and tech all rely on this critical resource. They’re in your oven, your TV, digital camera, and your fluorescent and LED lights. They’re the magnetic property in your computer hard drive, the glass of your computer monitor smartphone screen, and just about every other electronic display. Rare earths are also the key components in wind turbines, x-rays, and defence. In fact, former Australian Defence Minister Kim Beazley recently told The Strategist that rare earth production needs to become a priority for the military. Estimates suggest that well over 3,000 items of US military equipment require rare earths. Yet most of that supply comes from China. Not only that, but REEs are STILL the primary choice for permanent magnet technology. They offer the most efficient option for electric vehicle motors. In my mind, producers tied to rare earths still have much to offer for investors…despite Tesla announcing they intend to exclude them from its next gen vehicles. Notwithstanding, though, changes to technology remain a key threat to mining producers looking to capture a slice of the green energy transition… My colleagues Selva Freigedo and Kiryll Prakapenka over at Money Morning have covered that point in detail over recent weeks. As commodity investors, it’s a risk worth paying attention too. Green metal producers are at the mercy of engineers looking to improve efficiency, while reducing costs and finding alternative metals with stable supply chains. With each technological breakthrough, there’s a winner and loser in the commodity space. As Tesla demonstrated, the outlook for miners can literally change overnight thanks to this underappreciated risk. However, some metals are more exposed than others… Step back to 2022 and lithium stood alone as one of the few investment themes that boomed…in a year that was, overall, a terrible one for most investors. Why? Well, there were several factors…inflation, lithium royalties being hiked in Chile, and rising oil prices boosting the need to push EV uptake from a pie in the sky idea to mainstream reality. While it’s been a great ride for investors, there’s an elephant in the room facing lithium producers…its demand outlook is exclusively tied to just one source…EV batteries. That puts mining stocks tied to lithium in a precarious position. Rolling Stone magazine credits the ’80s song ‘Take on Me’ as the greatest one-hit wonder of all time. That’s why, with just a single demand driver, lithium tops the charts as the ‘one-hit wonder’ in the commodity world. A change in technology here could spell doom for lithium producers. It’s a threat worth considering… But focusing on commodities with diverse industrial uses could mitigate the risk from any changes to technology. Nickel, aluminium, copper, REEs, zinc, and cobalt have varied demand drivers that go beyond EV batteries and in many cases, outside the green energy transition more broadly. However, there’s one metal that sits uniquely among all others… Copper. As the only viable option for conducting electricity, copper holds unique physical properties that make it the critical metal for the ages. This is NOT a one hit wonder commodity. In a future ‘electrified’ world, copper cannot be replaced with an alternative metal. The laws of physics all but guarantee that. It makes copper the commodity equivalent of the Beatles, Rolling Stones, or Led Zeppelin. It sits at the heart of the green energy transition but is also crucial for traditional manufacturing and construction. Future wars won’t be fought over oil In the years ahead, future energy security won’t be about oil and gas…instead, it will be the critical metals integral to an electrified economy. But out of the many critical metals set to play a role in the energy transition, copper stands out. That’s why it could become the NEW crude oil. For all the good and bad that entails, copper is set to become a contentious commodity in the years ahead... It seems unlikely right now, but history shows nations will do all it takes to maintain their energy supplies…will future wars be fought over copper? Decades of war in oil-rich Middle East nations, demonstrate the lengths superpowers undertake to maintain control over national energy supply. Oil and gas have dictated American foreign policy for decades. Russia has used it to weaponise its trade with Europe. No doubt when it comes to energy security, governments DO NOT tread lightly. Given the tumultuous history of CRUDE OIL…copper stands next in line as the main contender for future geopolitical tensions. Declining grades, riots, nationalisation, drought, or lack of new discovery across important copper producing nations will only magnify hostilities over coming years. As I’ve explained to my subscribers, copper mines can take up to 15 years to go from discovery to production… A major copper shortage appears inevitable, but Australian EXPLORERS are uniquely positioned to take advantage of this monumental opportunity. I’ll have more to say about that next time. Until then, have a great week. Regards, James Cooper, Editor, The Daily Reckoning Australia Advertisement: ‘As a former senior exec of one of the largest energy companies listed on the NYSE, I can’t overemphasize how impressed I’ve been with James Cooper...’ That’s new Diggers and Drillers subscriber, Martin Breen, from Coorparoo, Queensland. We’ve been deluged by similar feedback. As Martin continues: ‘I was cautious and wary at first, wondering what I was getting into. ‘But now that I’ve been a customer for several months I feel very confident that James is exceptionally well qualified to find top quality resources investments in the ASX. For the modest subscription fee, if I placed a value on my time, I would make that money back in half a day. I have invested in three of his recommendations and even though it’s early days, I am already well ahead and feel safe with the profit margin buffer that has been built since the day I purchased. ‘If that’s not convincing enough for you, then I would strongly recommend you subscribe for James knowledge of both resources companies and markets. ‘Having been a senior exec myself, surrounded by global technical experts at the highest level, it is obvious to me that James knows how resources companies work, how to value their assets and assess their risks, and most importantly how to value the share price relative to the resources in the ground and risks from exploration phases through to development and production. ‘That is exactly what I’m looking for in a resources company adviser.’ If you want to know WHICH SPECIFIC stocks James currently has on his buy list, he’s just released a fresh report. You can access it here. |
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| By Bill Bonner | Editor, The Daily Reckoning Australia |
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Dear Reader, Take a look at this. We don’t usually put charts in our daily comments. If we’re going to make mistakes, we prefer to make them with words. But this chart is just more graphic evidence of how the future has been hi-jacked. The average American today can expect to be poorer than his parents. For the first time in our lives, yesterday really was better than tomorrow. The disappointment is even more remarkable when you consider the context. Never before has tomorrow had so much to work with — so many people with college degrees, so much capital — trillions of it — sloshing around Wall Street, so many inventions, innovations, and technical breakthroughs…and over all of it, a class of elite deciders, enlightened by Keynesian economics and protected from ‘misinformation’ by The New York Times and federal censors. So many forward gears…and still going backward! What does it mean? Where does it lead? To revolution? Or destitution? Born of the Wind In the meantime, a report from the Calchaqui Valley. As long-time readers know, we spend part of each year down here in Argentina. Here, we learn more about dysfunctional economies…and what happens when inflation goes over 100% per year. It began as it was supposed to. The cows — about 100 of them — were to be moved from one side of the river to the other. ‘Hoop…yaaah…aiyee.’ Two cowboys rode into the corral…got behind the cows to urge them out of the gate. Two others were waiting outside the corral to guide them down the road and across the river. Down here, in the valley, the local people don’t really know much about cattle ranching. We raise our cattle up at the ranch, an hour and a half away, by the gravel road…but eight hours for the cattle, who come over the pass. The two properties join each other. But only up at the pass, with a lot of rocky trails between one pasture and another. These cows were brought down here because here is where the rolls of alfalfa are. ‘Ya…ahi…baca…baca…’ Since the local people are farmers, not ranchers, we brought in a couple of young men from the ranch to work down here. Lazaro and Pablo are both of medium height and slight of build. Dark hair, brown skin — they could be brothers. And maybe they are. People here know their mothers. They’re sometimes less clear about their fathers. When a girl gets pregnant, often the unknown sperm donor is referred to as ‘el viento’ (the wind). We don’t ask questions. Both Lazaro and Pablo are friendly. And they are good with horses and cattle. That’s all that matters. ‘Yip…yip…yip…’ The cattle drive was short. The herd moved along nicely…entered the river and then, dripping with water, continued along the road to the stone corral on the other side. All hell breaks loose The next day they would be given their vaccinations and released into a field of fescue waiting for them. No problem. ‘But that’s when all hell broke loose.’ Our son-in-law was on the scene. As we hinted earlier this month, we had a secret agenda for our visit. We were hoping that he would take an interest in our projects down here…and take charge of them. ‘You either love the valley’, says our neighbour, a lifelong resident. ‘Or you can’t stand it. There’s no middle ground.’ So far…the affair between the valley and our son-in-law seems to be progressing. He reports: ‘I’m a city guy. I was not prepared for it. But I like it. ‘We got all the animals in the corral. And then, Pablo noticed that one of the cows was missing a horn. It had gotten knocked off in a fight. And the wound had not healed. ‘Plus, they had taken away her calf; she didn’t like that much either. ‘The idea was to separate the cow from the herd and run her through the chute. There, we’d be able to lock her neck in place and treat the infection. Lazaro had a needle and thread…as well as some disinfectant. And, of course, his knife. ‘The cow didn’t want to go into the chute. We yelled at her…and whipped her. But she only got mad and charged us. We were ducking and diving all over the place. ‘At one point, we had her in the little corral…and I was meant to cover one of the exits…and not let her out. But she came right at me. I waved my hat…and poked her with my stick. She kept coming. I had to jump out of the way or I’d be gored. ‘I felt bad about it. I was supposed to stop her. But I didn’t want to die trying. ‘We finally got her into the chute…and put the ‘sepo’ on her neck, to keep her head from moving. We could see the problem closer up. There were maggots in the wound. They had to be cut out…the wound disinfected and sewn up. But her head was still moving around too much.’ ‘We’ve got to do this the old-fashioned way’, said Pablo. The rise of Lazaro (and Pablo) ‘I was so impressed by those two guys. They really know what they are doing. ‘They let her out of the chute. But she got her leg stuck. Lazaro grabbed her tail and pulled as hard as he could to get her to back up. And Pablo grabbed her foot to pull it out of the fence. ‘Then, she ran around wildly. She was tired. We were all tired. We’d been wrestling with her for half an hour. They tried to rope her. And she kept charging. We got out of the way as fast as possible. And then, we went back into the corral to try again. ‘Finally, Victor (a big guy who doesn’t even work for us) got a rope around her back legs. And then Pablo was able to tie up her front legs. They pulled her over onto her side. And we all piled on top of her to hold her head down while Lazaro did the surgery.’ ‘We got up cautiously. We were ready to run for the gate. But when we untied her, she got up and didn’t move. I’m not sure whether she was just exhausted…or whether she was grateful that she had gotten necessary treatment.’ Regards, Bill Bonner, For The Daily Reckoning Australia Advertisement: Could Your Financial Freedom Be Impacted? Imagine a government with the ability to tell you when, where, and how you can spend your money. While we’re not suggesting this will happen, the RBA is working on a trackable, digital dollar that could make that a possibility. Concerned? Here’s what to do about it. |
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