Thursday, 4 April 2024

By James Cooper Editor, Mining: Phase One and Diggers and Drillers

Twitter (X): @JCooperGeo

[6 min read]

Dear Reader,

I have some unique connections with copper, let me share some of those experiences…

Back in 2010, I was working for the Australian-owned copper producer, Equinox minerals. That was when I met my wife, a US Peace Corps Volunteer.

She was stationed at a rural village a few kilometres away from our exploration camp in northern Zambia. Zambia has a long history of copper mining dating back to the colonial years when it was part of Rhodesia.

While we arrived from opposite ends of the Earth, we both came from areas with important copper roots.

My wife is from Michigan, a US state that borders Canada to the north.

It holds some of the richest and most ancient copper deposits anywhere in the world.

Typically, copper is locked-up within minerals like chalcopyrite, chalcocite or bornite.

But uniquely, Michigan copper exists in a pure form.

Known as native copper, pure copper boulders the size of cars, once littered Michigan’s northern peninsula. Deep copper veins also strike below the surface. 

Miners from all walks of life have tapped this bounty. Some mines date well over a thousand years, presumably extracted by Indigenous Americans.

More recently though, European pioneers used the copper wealth to establish settlements across the state.  

Michigan was a major source for America’s copper demand as it grew into the world’s largest economy. It also fed surging demand from the US Civil War.

Let’s flip to the other side of the planet to South Australia, another state with important copper roots.

As a SA local, I’m well aware of the state’s history with this metal and its role in establishing the state’s economy. 

Most of us know about Barossa Valley Shiraz and McLaren Vale Cabernet. But that didn’t build the state’s economy. Copper was the economic mainstay in those early days.

According to Geoscience Australia, the first major discovery occurred at Kapunda in 1842.

A bloke by the name Francis Dutton stumbled on a copper bearing rock while searching for lost sheep.

Less than twenty years later, South Australia became known as the 'Copper Kingdom' holding the world’s largest copper mines.

If only it was that easy to find deposits now!

One mine in Burra accounted for around 5% of global supply.

Like Michigan, miners from Cornwell, Great Britain, helped establish these early copper mines.

The metal has always fascinated me, from its history to its future role in electrification.

Copper Defies the Odds

At times, though, I’ve questioned whether my role as a geologist dealing with copper mining and exploration has made me a little overzealous in pushing its potential as an investment.

Copper has been a major theme for me ever since I started with Fat Tail back in mid-2022.

But after taking the reins as editor of Fat Tails’ resource publication, Diggers & Drillers, copper has been smacked with strong macro headwinds.

First was the banking crisis in the US.

Silicon Valley Bank, First Republic and Credit Suisse were early casualties as central bankers amped up the war on inflation.

A couple of months later and China was bracing for its ‘Lehman Brothers moment’ following the collapse of its second largest property developer, Evergrande Group.

The house of cards was falling in the global economy. This was no time to be bullish on the world’s most growth-dependent commodity.

Consensus remained strongly in favour of a significant US recession in 2023.

ACTUAL recession began to take place across the UK, Japan, Finland and Ireland.

The reasons to be bearish on copper were diverse and far reaching. Copper SHOULD have collapsed.

Yet, despite all the threats, this resilient metal has held firm.

Today, it trades back around the elevated levels from early 2023, above US$4 per pound:

Now, don't get me wrong, copper is still far from being a roaring investment theme.

Many stocks tied to this metal are just starting to recover from major lows.

And that’s why you should be taking notice.

A Golden Future for Copper

If you're a long-term reader, you’d be aware of the reasons why copper has held up…

A lack of global supply kept the price from plunging like other metals such as lithium and nickel.

Like every cycle before it, a lack of capital expenditure on exploration and mine development constricted output.

Concentrate from the world’s largest miners, including Codelco, continues to decline. Late last year, the company reported the lowest output in over a quarter of a century.

It’s a recurring theme.

Government bureaucrats have flattered themselves as those who provide answers to society’s problems. To this end they have flirted with tax subsidies, generous grants and debt instruments to kick-off investment in this important sector.

Ultimately though, addressing supply problems can only come with higher prices.

And that’s your opportunity as an investor… Tapping into the lucrative ‘investment phase.’

Copper prices have begun to emerge from a 12-month slumber, having broken the first major resistance level of $4 per pound.

So, what’s next?

If copper holds here, small-cap equities should rise quickly from multi-year lows.

But the next key zone to watch will be around the top from January 2023, $4.38 per pound, see below:

As you might recall, copper surged (briefly) early last year as China reopened from its two-year Covid-lockdown. However, that spike was short lived.

A break here and prices could move quickly… Perhaps testing all-time highs around $4.90 per pound.

With momentum building and stocks starting to stir, right now is an excellent time to start to consider building a position. 

You can find some opportunities here in my resources investment newsletter.

Enjoy!

Regards,

James Cooper,
Editor, Mining: Phase One and Diggers and Drillers

James Cooper has been a working geologist in mines across Australia, Canada, and Africa since the early 2000s. He’s led the operations of tiny explorers through to huge producer outfits. He’s seen booms and busts firsthand and he also understands the cyclical nature of individual commodities. For example, James was right there when Barrick Gold launched an enormous $7.5 billion takeover bid for Equinox. That was the peak of the last cycle.

With his background as a geo and finance professional, he brings a unique insight and experience to Fat Tail Investment Research. He writes the broader resource-focused investing letter Diggers and Drillers and the ultra-speculative explorer-focused trading service Mining: Phase One.

By Bill Bonner Editor, Fat Tail Daily

[3 min read]

‘Five years from now, the interest on the national debt will take up 50 cents on every dollar of revenues. Ten years from now it will be 100 cents. ’

RFK, Jr.

Democrats say we are protecting democracy in the Levant. Republicans say we are protecting democracy in Eurasia. Both say we are protecting democracy by spending trillions of dollars we don’t have. Hillary Clinton says a vote for Biden is a vote to ‘protect democracy;’ she claims Donald Trump is a ‘threat to democracy.’ RFK, Jr. says Biden is an even bigger threat to democracy than Trump. 

What to make of it? 

Yesterday, we looked at Donald Trump’s new media company. As we saw, the numbers make no sense. The company has few sales and many losses. It merits a market value of about... zero. And yet, investors see in it a company worth $10 billion. And Donald Trump is suing his partners to get more of it for himself. 

The nation’s GDP growth rate, meanwhile, is entirely dependent on the inflation computation...which is as inconstant as a doughy moon. The feds knead it, and roll it, and bake it in the oven...until they get the flavour and consistency they want. 

If they measured inflation as they did during the Reagan years, however, it would show real GDP not growing at all...but falling like a badly made cake. 

A badly made cake

The stock market, too, bobs up and down on the waves like a kitten in a coffee can. But measured in gold, stocks are still down 13.6% from their 2021 highs. 

Is there anything real…indisputable…worth worrying about?  

Alas, yes: debt.  It’s not going away. It’s growing. And it’s headed for disaster. Bloomberg: 

‘The Congressional Budget Office warned in its latest projections that US federal government debt is on a path from 97% of GDP last year to 116% by 2034 — higher even than in World War II. The actual outlook is likely worse.  From tax revenue to defense spending and interest rates, the CBO forecasts released earlier this year are underpinned by rosy assumptions. Plug in the market’s current view on interest rates, and the debt-to-GDP ratio rises to 123% in 2034. Then assume — as most in Washington do — that ex-President Donald Trump’s tax cuts mainly stay in place, and the burden gets even higher.’ 

There are a lot of known unknowns in the debt figures, but they almost all lead to the same place.

Bloomberg economists ran a million simulations to see what might happen. In 88% of them, the “debt to GDP ratio” proved to be an “unsustainable path.” 

What happens when the unsustainable path comes to an end? Fortune: 

‘America will be left with ‘severe, irreversible scars’ if national debt goes unchecked. Now, a blockbuster report warns the bill is higher than believed, hitting $141tn by 2054 

‘... a March report from the Congressional Budget Office (CBO)... estimates that by 2054 public debt will represent 166% of GDP, reaching $141.1 trillion. 

‘Currently the nation's $34 trillion debt is approximately 99% of GDP and, according to the CBO, will steadily increase over the next 30 years. In the near term, the CBO expects debt as a percentage of GDP to exceed the record peak of the Second World War by 2029. 

‘This mounting debt, the CBO writes, "would slow economic growth, push up interest payments to foreign holders of U.S. debt, and pose significant risks to the fiscal and economic outlook; it could also cause lawmakers to feel more constrained in their policy choices."’

Yes, dear reader, America’s debt is something we can depend on. 

But as it gets bigger and bigger (relative to the economy that supports it) it becomes ‘unsustainable.’ Then, something else must happen. What? 

The real question is whether the change occurs intentionally or unintentionally.  

The ‘intentional’ solution is obvious...but unattainable. It would require a political clarity and will that does not exist. Spending would have to be cut by more than one trillion dollars per year. But since the deciders are also the spenders...and since their cronies and supporters are the ones who get the money...there is very little likelihood of a voluntary solution.  

It’s the ‘unintentional’ resolution that will do the real damage. And yesterday, we had a hint of how it might come about. Stay tuned. 

Regards,

Bill Bonner,
For Fat Tail Daily