Marin Katusa has been building up all week to a big new teaser pitch about electric vehicles, and it’s essentially a “lithium and cobalt have already had their run, but copper will be the big winner” argument… so now he’s hinting at some copper miners he thinks you should buy, in hopes that you’ll subscribe to Katusa’s Resource Opportunities ($2,500/year) to learn more.
And there’s some sense to the “more EVs means more copper demand,” I suppose, though we should note that copper is called “Dr. Copper” for a reason — traders have always talked about copper having a PhD in economics because its price is such a predictor for global economic activity, and that, in turn, is because copper is used by thousands of industries, all around the world.
Which means that although electric vehicles might make a marginal difference over the coming decade, it will probably always be somewhat of a cyclical commodity. Predicting growth in copper demand is an imprecise undertaking… you have to be able to predict the growth and industrialization trends of major economies around the world, which ain’t easy.
So that’s our caveat up front, before we get into the tantalizing stuff and the dreams of 1,000% gains and massive wealth… and to spare you some of the tediousness, I’ll skip over the long lead-in that makes the case for electric vehicles becoming every more prevalent. I think we all know that — and, likely, we also all know that Elon Musk is the catalyst and poster child but probably won’t be selling more electric cars than Ford and GM and Volkswagen and the others in 20 years. Everyone’s working on electric cars, and China and India are pushing forward to favoring electric cars aggressively… which, thanks to the huge size of those potential markets, will probably drive mass adoption if the trends (and regulations) now in place stay in place.
So we start with that assumption: That yes, electric cars will become a much larger part of the automotive landscape.
Katusa’s argument then relies, at least in part, on how much more copper-intensive electric cars are than conventional gasoline vehicles. Here’s a bit from the ad:
“EV sales are projected to increase 620% by 2025 and 9,128% by 2040.
“Each and every one of those EVs will consume more than 100 pounds of copper.
“Reuters reports copper demand for electric cars will increase nine-fold by 2027.
“The International Copper Association reports copper demand from electric cars will jump from 185,000 tonnes to over 1,740,000 tonnes!Are you getting our free Daily Update
"reveal" emails? If not,
just click here...
“It’s no wonder Goldman Sachs is bullish on a copper surge. I agree.
“Historically, copper demand growth has averaged 3.34% per year.
“However, I expect EVs will consume so much copper that annual copper demand growth will get ‘turbocharged’ to reach 4.5% per year for the next 25 years.”
That doesn’t jump out as that ludicrous, right? 3.34% to 4.5%? Here’s what Katusa says about that:
“While this might not seem like much, it’s actually enormous demand growth for a mature market.
“It translates into a nearly threefold increase in global demand over the next 25 years.”
OK, so that’s part of the “demand” increase — and he throws in big infrastructure projects as reasons why copper demand should rise, too, including upgrading electrical infrastructure in the US and China, and extending electrification around the world to places that don’t currently have reliable electricity… in addition to the smaller stuff, like networks of charging stations that themselves will require large amounts of copper.
And yes, going from 185,000 tonnes to 1,740,000 tonnes of copper is a big jump for the electric vehicle market (that International Copper Association number comes from this report)… though unlike lithium or cobalt, it’s not necessarily enough to shock throw the market completely out of wack. Total annual production of copper is over 20 million tonnes, so that’s a meaningful new market driver but might not cause a panic, particularly because that represents steady growth over ten years… though that steady increase in demand, if other demand increases as well, could certainly help to push prices higher.
Katusa puts out a $5/pound forecast for copper prices, and cites other folks like Robert Friedland as looking for $8/pound (Friedland’s Ivanhoe Mines (IVN.TO, IVPAF) has incredible copper reserves… though not recommended by Katusa here, presumably because he makes a point of not taking much political risk and Ivanhoe’s copper is in the DRC)… either of those prices would make a lot of copper projects more compelling than they are with $2 copper and help to substantially speed up the development of new mines.
The copper price has already recovered nicely over the past 18 months or so, it’s back to about $3/lb after dipping to $2. The highest it’s ever been, in nominal terms, was about $4.50 back in 2011, and that 2011 peak and the 2005-2007 surge were both caused by Chinese demand and industrialization… before 2005 or so, copper had rarely ever gotten to even $1.50 and spent most of its time below a dollar. Of course, a dollar was worth a lot more back in 1985 than it is today — if you adjusted for inflation using the CPI (per the National Inflation Association), it looks like copper has averaged roughly $3.50/lb for the past 50 years… but did still spend a decade or two below $2).
That has been the challenge with pretty much all the base metals and similar commodities — iron, nickel, copper… they were all pretty moribund for most of the past 50 years, but took off and got lots of investor attention in the mid-2000s, when China started building dozens of new mega-cities and other massive new infrastructure projects. The China surge has so impacted the demand over the past decade or so that it’s hard to get your head around what the “real” basis should be going forward… is it that steady decline in real prices from the 1960s to the mid-2000s that’s the trend to watch, or is it the big surge caused by China that will set the tone for the future pricing? Personally, I tend to err on the side of expecting a lot more industrialization, and I think we’ll see a steady rise in commodity prices… but I don’t know if we’ll ever see that rapid surge again like we saw from China ten or twelve years ago.
But anyway, if you want to read Katusa’s big spiel you can see that whole thing here — or his prior “free” articles that make the case for copper on his website. We’re going to jump right into the “what to do with that copper forecast” bit… in Katusa’s words…
“… copper prices will have no choice but to increase – sending copper stocks shooting up 1,000%+.
“This is why you need to buy copper stocks now… and I’ll show you the sub-$3 play to make.”
And that’s when the Thinkolator gets involved, naturally. So what does Katusa toss out to us as clues?
“OPPORTUNITY: Buying a World-Class Copper Asset at a Discount Price
“The company I’ve been hinting at owns one of the world’s largest undeveloped copper projects, located in one of the world’s most prolific copper-producing regions.
“First of all, you should know this project is extremely high grade. This means its rock is rich in copper….
very close to high-quality infrastructure,
located in a very mining-friendly country
And we’re told that this asset has something to do with one of Katusa’s past business partners, “Miles.” Here’s that bit:
This extraordinary copper asset first came to my attention while I was working with a business partner named Miles. I helped finance one of his companies.
His company had a prospective asset that was once valued at a negotiation table for less than $1 million.
I advised Miles not to sell. That asset, once valued at around $800,000 in 2009, exploded to a valuation of $792.1 million in 2016!
A 99,900% return! I’d never seen anything like it.
The copper company I am recommending you buy today acquired the asset Miles’ company once owned in 2016.
And this company also, we’re told, has a “producing, cash-flowing mine” in Africa to go along with the copper deposit that Katusa’s excited about. Other clues?
“The company has $0 in debt and is trading 40% below my estimate of intrinsic value. As copper makes its way to $5 per pound, I believe this stock could rise 10-fold from its current levels”
And, to wrap it all up, he also thinks it’s a “prime acquisition target.”
So what’s the stock? Thinkolator sez that Katusa is almost certainly talking up Nevsun Resources (NSU), which has graced the pages of Gumshoe before as the focus of a long-running teaser ad from Retirement Revival (see “Is This Junior Mining Company Your Next 10-Bagger?” from last Fall ).
Why is that the match? Well Nevsun did indeed acquire Reservoir Minerals, which was founded by Miles Thompson… so there’s your “Miles” (and Katusa has referred to Miles Thompson as a friend several times over the years, and recommended and owned shares of Reservoir Capital and Reservoir Minerals… I don’t know if he was still holding them when Reservoir was acquired by Nevsun last year).
And Nevsun does have an operating mine in Africa, in Eritrea — that’s the Bisha mine, which produces zinc and copper and has some exploration potential. The big potential Katusa’s referring to, though, is in the Timok project in Serbia that they acquired in the Reservoir deal. Timok is a major copper/gold project, with high grades and a preliminary economic assessment valuation of $1.5 billion (that was just updated last month, with assumed $3 copper and $1,300 gold)… though it’s still pretty early, they’re doing more aggressive underground exploration next year, and say they will have a prefeasibility study (PFS) in the first quarter of 2018 and a feasibility study in the first half of 2019, which means they’ll probably be looking for mine financing in about two years.
They do have a good balance sheet right now, with something like $150 million in cash and no debt, so they are in good shape for exploration and continuing production in Africa — presumably they won’t need any money until it’s time to really build the Timok mine (assuming they get there, the expectation now is that the mine will require $630 million in pre-production capital investment, though that will likely change with the PFS).
I don’t know what Katusa’s estimate of “intrinsic value” is for Nevsun, but you can easily see why someone who is bullish on copper and expects that the Timok mine will eventually be built would consider it to be significantly undervalued — the current market cap is just over $700 million, and they were reliably profitable for many years before the Reservoir acquisition… they have not been profitable year-to-date, though that appears to largely be related to changes in fair value for Bisha that led to a non-cash write-down — they are still mostly generating positive cash flow from their operations, and they continue to pay a small dividend, though the dividend payment was slashed by 75% this year (presumably because they now have a more important future use for that cash in Timok exploration).
Nevsun had previously been a happy little gold stock with an unusually high dividend, so there was a pretty strong investor exodus when that dividend was cut early this year — and the stock still hasn’t really recovered. So if you’re looking for a big copper project, this one is fairly well-understood and not terribly expensive or risky right now. Unless, of course, copper falls back to $2 when they’re trying to get financing for Timok in a couple years, then it will be a disaster — that’s the game you play when you invest in mine developers.
And, as your reward for making it this far, I’ll also see if I can quickly ID Katusa’s “bonus picks” that are mentioned at the end of his ad. Here are the clues for the first one:
“A Giant That Will Ignite a Bidding War
(And Hand You Huge Capital Gains)
“My second strong buy in the copper sector is another company with an enormous undeveloped copper asset… which also contains tens of millions of ounces of gold, to boot….
“This project holds over 50 billion pounds of copper, more than 50 million ounces of gold, and over 300 million ounces of silver.
“These giant figures place this project in the world’s top 10 largest undeveloped mines. It’s the kind of deposit large mining companies drool over… a true “company maker.”
“I’ve spent over 500 hours analyzing this project and its potential. I’ve visited the site with the greatest geologist on the planet….
“This stock currently trades for less than $3.”
That one, dear friends, is almost certainly Northern Dynasty Minerals (NAK, NDM.TO), which owns the controversial Pebble Project in Alaska — that was perhaps the biggest single beneficiary of Trump’s election victory, since it helped them win their dispute with the EPA and will let them move into the permitting process… but it’s still far from a sure thing. It is a potentially massive mine, though the mine plans have been scaled back to help assuage environmental objections (mostly over the Bristol Bay salmon fishery), but it will also require a massive investment and many years yet of permitting and planning (and debate) before (if) a mine gets built.
I sold most of my warrant and option positions on Northern Dynasty after that December/January windfall, but do still hold some long-term warrants in my Real Money Portfolio — I expect the next meaningful driver of the stock will be a partnership deal, if things continue to go well, so I’ve held on to a stub of my original position to see if we get another catalyst to pop the shares up a bit higher still. I don’t have any particular plan to be a long-term shareholder, and I still think there’s a good chance the mine never gets built, but I wouldn’t be surprised if there’s another big run in the shares… particularly if gold and copper have another surge.
“Investing with the Dream Team
“The third opportunity I want to tell you about – currently trading for less than $2 – might just be the most undervalued mining stock on Earth.
“This company has one of the most impressive shareholder lists I’ve ever seen.
“For example, legendary billionaire resource investor Lukas Lundin is an investor in this company.
“So is another superstar billionaire resource investor, Ross Beaty.
“David Lowell, a man known as the world’s greatest mining explorer, is also a shareholder.
“Rick Rule, one of the world’s most respected resource financiers, is in the deal.
“So is Nolan Watson, one of the smartest and most powerful gold investors in the world.
“And legendary investor Doug Casey owns shares as well.”
What does this “dream team” own? Here are a few other hints:
“The Flores Project is one of the biggest and best “trophy” projects in all of Ecuador. The project has a copper resource of nearly two billion pounds of copper… and has the potential to be much larger. There is also huge gold potential in the project.
“Further drilling will determine its full size, but it’s already a world-class copper asset.
“This small company also owns one of the world’s richest gold deposits, located in South America.
“This project, which I’m calling “Masa,” contains over three million ounces of gold.
“One of the world’s most successful geologists believes the deposit holds over 10 million ounces of gold, which would make it a truly world-class deposit. It’s why this brilliant guy has invested millions into this deal.”
And he thinks this one is way, way undervalued:
“I estimate this company’s value to be $960 million. Right now, it’s trading in the market for less than $160 million. As I said, I believe it’s the cheapest high-quality mining company in the world.
“That’s why I’ve made it my single largest mining investment… with an upside target of 620%+ over the next 3-5 years.”
Well, again I get to mention a stock I own — though unlike Northern Dynasty, my position is way in the red on this one… here Katusa’s hinting about Trek Mining (TREK.V, LWLCF), which is in the process of combining with Anfield and NewCastle to become Equinox Gold, and that’s a stock he’s been pitching for a year or so as well (since it was Lowell Copper, before merging with Luna Gold and others to become Trek Mining). All that merging and acquiring has diluted my favorite asset in this company, the Aurizona Mine in Brazil (that’s the gold mine Katusa refers to as “Masa,” which they plan to restart in a year or so), but they have also brought on a lot more cash and a line of credit to get mining underway at both Aurizona and NewCastle, and, perhaps more importantly, they brought Ross Beaty on board with the Anfield acquisition (and Beaty seems to be all they wanted from Anfield for the foreseeable future, since they’ve already agreed to sell Anfield’s prime asset, the Coringa mine).
I added to my TREK holding last month when the deal was announced, though that was only after quite a bit of internal debate about “how much Ross Beaty is worth” to this company, and this is one of my larger “in the red” positions right now. When you look at this one, it’s no longer just “buying an undervalued Aurizona mine that’s about to start producing again”, which was an easier bit of analysis, to like it at this valuation, assuming the merger goes through, the analysis has to be much more about the other assets that are much further from production… possibly including that copper project in Ecuador that Katusa calls the “Flores Project” but which Trek calls Warintza (that’s a high potential copper discovery that is very lightly explored, part of what J. David Lowell brought to the table as Lowell Copper’s major asset… along with the Ricardo project in Chile that’s even earlier in the exploration process).
So yes, I still like Trek enough to have added more to my position a couple weeks ago… but it’s also one of my largest losing positions at this point, so I wouldn’t blame you for making your own call on that one (as, of course, you should do with every investment). And while Trek does have a copper exploration project (extremely lightly explored, with less than two billion pounds of inferred resources), and will be doing more drilling this year at Warintza to try to find and define more copper, my expectation is that copper prices won’t have a meaningful impact on Trek shares for at least the next couple years. This one’s all about gold for the foreseeable future.
And that, dear friends, is where I must leave you. If you’ve got an opinion on copper, or other favorite stocks in the copper world to share, please feel free to make your case with a comment below… and, of course, opinions about Northern Dynasty and Trek/Equinox are more than welcome as well, more so if they’re different than mine. Fill up that friendly little comment box with your words.
P.S. We’re collecting investor opinions about the newsletters they’ve subscribed to — so if you’ve ever subscribed to Katusa’s Resource Opportunities, please click here to share your experience with your fellow readers. Thanks!