Copper: A Long-Term Opportunity in the Green Energy Transition

• Copper demand is expected to increase significantly due to infrastructure development, electrification, and decarbonization efforts globally.
• Supply issues are emerging, with aging mines and insufficient new projects in the pipeline to meet projected demand.
• The copper price has been volatile but remains at historically high levels, creating opportunities for producers and developers.
• Geopolitical and economic factors, including elections and inflation, are impacting the copper market and mining investments.
• Junior mining companies face challenges in accessing capital but see opportunities in strategic partnerships and potential discoveries.

Why Investors Should Consider Copper

Copper, sometimes referred to as "Doctor Copper" for its ability to indicate economic health, is poised to play a crucial role in the global transition to green energy and electrification. In a recent panel session with Hayden Locke, President & CEO of Marimaca Copper, and Derrick Weyrauch, President & CEO of GT Resources, we examine the current state of the copper market, its future prospects, and why investors should consider exposure to this essential metal. We explore the factors driving copper demand, supply challenges, and investment opportunities in the sector.

Copper Gaining Traction: Investors Positioning for the Upswing - Discussion with Hayden Clarke, Marimaca Copper & Derrick Weyrauch, GT Resources

The Demand Outlook: Infrastructure & Electrification

One of the primary drivers of copper demand in the coming years is expected to be infrastructure development, particularly in the context of electrification and decarbonization efforts. Hayden Locke emphasizes this point, stating,

"Original demand drivers of copper are very important. I think infrastructure over the next five to 10 years, as countries invest in electrifying and decarbonizing - and the only way to do that is to electrify - the amount of money that needs to be spent on the grids and the amount of natural resources that will be demanded to build out those grids is pretty astounding."

This perspective is supported by Derrick Weyrauch, who adds,

"Even if you look at, modest forecast talk about EV penetration rates just hitting about 30% of the market, it's going to require a doubling of global copper output."

This underscores the significant role that electric vehicles (EVs) are expected to play in driving copper demand, even with conservative estimates of market penetration.

Beyond EVs, the broader electrification of various sectors and the expansion of renewable energy infrastructure will require substantial amounts of copper. As Weyrauch points out,

"You also need to have the infrastructure, the power lines, the charging stations, et cetera, et cetera. So very constructive for the copper space."

An often-overlooked factor in copper demand is the rapid growth of artificial intelligence (AI) and data centers. Weyrauch highlights this emerging trend: "And we haven't even mentioned the build out right now for AI in these data centers and the huge amount of power and copper that's required for those." This additional layer of demand further strengthens the case for long-term copper consumption growth.

Supply Challenges: Aging Mines & Project Development Hurdles

While demand projections paint a bullish picture for copper, the supply side of the equation presents significant challenges. Both Locke and Weyrauch point to issues that could constrain copper supply in the coming years.

Locke emphasizes the inelasticity of copper supply, noting,

"The timeline to go from standing start or even a developed project and into production is many years in most cases. And so the supply response of the industry is extremely inelastic."

This lag between demand increases and new supply coming online could create periods of tight supply and potentially higher prices.

The development of new copper projects faces numerous hurdles, including high capital costs, environmental concerns, and geopolitical risks. Locke points out that many large-scale copper projects require higher copper prices to justify investment: "They want to see the copper price higher before they make a decision to green light the expenditure to build these projects that are in the pipeline."

Weyrauch cites research from CRU (Commodities Research Unit) that paints a concerning picture for future copper supply:

"CRU recently talked about production decreasing to about 12 million tons by 2034 relative to the 22 million tons that is being produced today on a global basis." He adds, "Now they're saying over 200 copper mines are expected to run out of ore before 2035, with not enough mines or new mines in the pipeline."

These supply constraints are compounded by challenges in traditional copper-producing regions. Weyrauch notes the "NIMBY" (Not In My Back Yard) mentality in some jurisdictions: "The US is just like Canada very much in NIMBY mentality. We want the commodity, we want our cell phones and all these toys, but we don't necessarily want the mine in our jurisdiction."

Market Dynamics & Price Considerations

The copper price has experienced volatility in recent years but remains at historically high levels. As of the discussion, copper was trading around $4.44 per pound, down from a recent high of $5. Locke puts this in perspective: "We'll all be disappointed when copper comes back to $4.25 but it's a completely different world to where we were two years ago, three years ago."

While some industry observers have suggested that much higher copper prices (e.g., $10 per pound) might be necessary to stimulate sufficient supply, Locke offers a more measured view:

"I think the incentive price to get things moving is well below $10. I think a sustained period in the fives will get a lot of people active from an exploration standpoint, but also from a development standpoint."

This perspective suggests that while higher copper prices may be needed to incentivize new project development, the threshold for increased activity in the sector may be lower than some extreme projections indicate.

Challenges & Opportunities for Mining Companies

1. Access to Capital: Derrick Weyrauch emphasizes that "access to capital is the number one issue facing the junior segment, and even the developer stage." This has been exacerbated by macroeconomic uncertainties and a shift in investor focus to other sectors.
2. Geopolitical Risks: Companies must navigate varying levels of resource nationalism and regulatory environments across different jurisdictions. Hayden Locke discusses how Marimaca dealt with political uncertainty in Chile, noting that "the perception didn't necessarily affect or reflect the reality."
3. Project Development Costs: Inflation and supply chain issues have impacted project economics. Companies must carefully manage costs and timing to ensure project viability.
4. Environmental and Social Considerations: Mining companies face increasing scrutiny regarding their environmental and social impacts, necessitating careful project planning and stakeholder engagement.

Despite these challenges, both Weyrauch and Locke see significant opportunities in the copper sector. Weyrauch's company, GT Resources, has focused on assembling a portfolio of projects attractive to strategic partners, successfully bringing in Glencore as an investor. Locke highlights Marimaca's ability to develop its project independently, positioning it to potentially benefit from the favorable copper market outlook.

Investment Considerations

For investors considering exposure to the copper sector, several factors emerge as important considerations:

1. Long-term Demand Outlook: The structural demand drivers for copper, including electrification and decarbonization, provide a strong foundation for long-term investment theses.
2. Supply Constraints: The challenges in bringing new copper supply online may create opportunities for well-positioned companies with advanced projects or operating mines.
3. Jurisdiction: The importance of operating in stable, mining-friendly jurisdictions is emphasized by both executives. Investors should carefully consider the geopolitical risks associated with different copper projects.
4. Project Stage and Time to Production: Given the long lead times for new copper projects, investors may want to consider a mix of near-term producers and earlier-stage projects with significant upside potential.
5. Management and Technical Expertise: The ability of companies to navigate complex regulatory environments, manage costs, and execute on project development plans is crucial.
6. Financial Position: Access to capital remains a key consideration, particularly for junior companies. Strategic partnerships, like GT Resources' relationship with Glencore, can provide important financial and technical support.

Conclusion

The copper market presents a compelling long-term investment opportunity, driven by strong demand fundamentals and potential supply constraints. While challenges exist, particularly in terms of project development and geopolitical risks, well-positioned companies in the sector may offer significant upside potential.

Investors should approach the copper sector with a long-term perspective, carefully considering factors such as project quality, jurisdiction, management expertise, and financial strength when evaluating investment opportunities. As the global economy continues its transition towards electrification and renewable energy, copper is likely to play an increasingly crucial role, potentially rewarding well-timed investments in the sector.

The Investment Thesis for GT Resources & Marimaca Copper

GT Resources:

• Early-stage explorer with projects in Canada, a stable mining jurisdiction
• Strategic partnership with Glencore provides financial and technical support
• Upcoming drilling program at Canalask project offers near-term catalyst potential
• Exposure to both nickel and copper, key metals for the energy transition
• Management focused on de-risking projects and creating shareholder value
• The company has over $12M in cash and an exploration budget of $1.8M
• Two of the largest shareholders are Eric Sprott and Glencore – follow the smart money.

Marimaca Copper:

• Advanced-stage copper project in Chile nearing production decision
• One of few new copper projects potentially entering production in the next 5 years
• Independent development strategy reduces reliance on major mining partners
• Positioned to benefit from expected strong copper market in coming years
• Management team experienced in navigating Chilean regulatory environment

The copper market is poised for significant growth driven by global electrification and decarbonization efforts. Supply constraints, including aging mines and development challenges, may create a favorable pricing environment for producers. While geopolitical and economic risks persist, well-positioned companies in stable jurisdictions offer attractive investment opportunities. Investors should consider a mix of early-stage explorers like GT Resources and advanced developers like Marimaca Copper to gain exposure to different stages of the copper value chain. As the energy transition accelerates, copper's critical role in enabling this shift underscores its potential as a long-term investment theme.