22 November 2023
Copper may have been the first metal used by humans, but it’s by no means gone out of fashion. In fact, today copper is used in more products than ever before, which drove its price to a five-year high point in June. A recent slowdown in Chinese manufacturing has seen copper prices dip, but the long-term outlook for the metal remains strong, and the price decline might offer investors the perfect springboard to extract serious returns.
The overall growth in demand, and correspondingly the price over a five-year period, is largely due to copper’s application as electrical wiring in virtually all the technology that we use on a daily basis, as well as its more traditional applications in construction and transport. Copper is the second most efficient conductor of electricity after silver, and it’s pricing in comparison to silver makes it the much more economical choice for consumer products. As a result, nearly all wiring, barring overhead power lines which for weight reasons are made from aluminium, is formed using copper.
Research from Teck Resources and energy consultancy Wood McKenzie projects that global demand for copper will steadily grow from its current level of around 22 million tonnes a year, to around 28 million tonnes by 2025. Production however, and in particular copper production from mining, is estimated to stagnate or shrink from 2020 onwards. True Vine Investments meanwhile, is predicting an even starker long-term difference; a demand for 36.5 million tonnes against only a small increase in the level of supply by 2030.
While the short-term price of copper may have taken a beating on the commodities markets this year, its long-term projections remain extremely positive. Copper hasn’t been alone in suffering since the midway point of 2018 either; all the major base metals have seen their value tumble in the past three months. Even nickel, which was up over 20% for the year, is now in negative territory for 2018, having seen those gains wiped away.
The 2018 price decline isn’t indicative of the overall trend for copper, however. In early 2016 the price of copper sat below the US$4500/tonne mark; today, even accounting for the 20% drop in copper prices since the turn of the year, it is still trading at around $6000/tonne. Indeed, looking at the 3 year trend it becomes apparent that copper has only been heading in one direction, even accounting for this year’s drop.
What does this mean for Australian investors looking to gain exposure to a growth market, with limited availability and forecasts of a significant increase in demand? Well, at present, there are around 75 copper mining companies listed on the ASX. Some, like BHP and Rio Tinto, are established players in the market, are trading around their 52 week highs, and are diversified into other commodity sectors as well.
Others however are, smaller and own significant untapped copper resources. Redstone Resources (ASX: RDS) is a microcap company, trading at around 2c per share, who’s Tollu project has identified more than 38,000 tonnes of copper (JORC 2012), as well as a cobalt resource.
At $6,000 per tonne, those 38,000 tonnes once mined would equate to a value of $228 million so its remarkable that the Redstone’s market capital sits at under $10 million.
Given the overall trend in the price of copper, and the projected demand only increasing in the next decade, it appears as if the time might be ripe to buy the dip, and carve out a little copper value of your own.
*Reachmarkets are paid a retainer to assist RDS with Private Investor Management