And so Robert Friedland, a legendary industry maverick and co-chairman of Ivanhoe Mines Ltd. in Canada, says that after years of no investment now is the “revenge of the miners.”
As the world moves away from fossil fuels and embraces wind, solar and electric vehicles, copper is in high demand. Of all the sources of electricity, wind power is, at the moment, the most powerful copper, followed by solar panels. According to the International Energy Agency, an offshore wind turbine requires about 8 metric tons of copper per megawatt. A gas-fired power plant requires less than 2 tons per megawatt. An average car, fueled by gasoline or diesel, uses about 25 kilograms of copper; an electric car requires more than double that amount.
In the past, the price of copper often fluctuated with the business cycle, earning it the moniker “Dr. Copper,” as if it had a PhD in economics. Higher prices mean faster economic growth; Lower prices indicate that a recession is on the horizon. Not anymore. The desire to move away from carbon gives the metal a natural bullish bias. Even heading into the economy, copper prices are high.
The metal changed hands at more than $8,000 a ton, more than the 10-year average of $6,750. In the last two months, as dark economic clouds gathered in the US, Europe and China, the price of copper actually increased by almost 10%. If not for the slowdown, copper prices would be higher. That also means that when economic growth picks up, perhaps in the second half of 2023 or early 2024, copper prices could jump, and by a lot. How much? Copper prices set a record high of $10,845 a tonne earlier this year, as the market feared a loss of Russian supply after Moscow invaded Ukraine. Bulls believe prices could rise to $15,000 per ton by 2025; or triple the 25-year average price of about $5,000 per ton. It may sound strange, but every other major copper bull market has shown that the top of the market is higher than most people believe. The next copper bull market is likely to be similar. Unlike battery metals such as lithium, nickel and cobalt, which are at the mercy of advances in battery chemistry, copper faces fewer headwinds. Engineers can reduce the use of copper in wind turbines and solar panels, but the metal’s role in power cables is largely irreplaceable. More electricity use means more copper. Copper bulls — and mining executives — are talking about a hot market, but few are putting their money where their mouths are. Until now. BHP Group Ltd., the world’s largest mining company, last week began its biggest acquisition in more than a decade, offering nearly $6.5 billion for Australian copper miner OZ Minerals Ltd., or about 49% premium to the share price before the deal was first rumored.
This could be the first in a series of deals in the copper industry. There are no bargains. Freeport McMoran Inc., a giant copper miner, trades at more than 13 times its earnings, compared to seven times BHP. First Quantum Ltd., another copper miner, trades at around 12 times, and its rival Antofagasta Plc trades at 18 times. Most takeover targets present additional problems, from large family-controlled stakes to operations in difficult countries. Or both. But in a world that lacks copper, they are one of the few opportunities to take advantage of a potential long-term bull market. The opportunity may come as early as 2023: If the US follows Europe in recession, just as China’s economy is still in trouble, copper prices could fall enough to make a big M&A attractive. Spending billions in the middle of a recession takes courage, though. Before any mining executive can profit from the revenge Friedman talks about, they need veins of steel – or copper.
More From Bloomberg Opinion:
• Climate Costs Can Eat Money to Avoid It: David Fickling
• Industry CEOs Have Window for M&A Bargains: Thomas Black
• The End of Copper’s Lost Decade?: Elements by Clara F. Marques
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Javier Blas is a Bloomberg Opinion columnist covering energy and commodities. A former reporter for Bloomberg News and commodities editor of the Financial Times, he is co-author of “The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources.”
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