Today we’re looking for yet another “magic metal” stock, this time it’s teased by Matt Badiali for his Real Wealth Strategist newsletter over at Banyan Hill… and it’s all about this magical “green rock” that has some kind of virus-killing power, so the marketers are really highlighting the COVID-19 angle. Here’s a little of the lead-in from an email that I got pointing to the ad:
“So every time a person coughs, sneezes or uses the bathroom and doesn’t wash their hands — every single object that person touches becomes contaminated with their germs.
“But all that could change very soon because the surfaces made of this material stop the spread of these viruses, and it could provide you with the chance to turn a small stake into $4,000 or more….
“And right now, new coatings made from this miraculous material are starting to cover the most germ-coated surfaces we come into contact with each day.
“It’s starting to show up in our hospitals, doctors’ offices, schools and gyms, daycare centers, restaurants, airports and subways and even in our own homes.
“And it could make you rich as well, because the company sitting on the ‘mother lode’ of this green rock could provide early investors with the fortune of a lifetime.”
On it’s face that’s clearly just a “buy copper” idea, though the word copper doesn’t actually come up in the presentation — and yes, copper is a pretty powerful killer of bacteria and viruses, which has been known for centuries — ancient cultures used it in part to fight rot and infection, and we see stories about the power of copper every time there’s a scary infection going around. The novel coronavirus we’re all worried about right now only lives for a couple hours on copper, while it can survive for a day or more on lots of other hard surfaces, and there have been long-running studies that urge hospitals to use more copper in their facilities to help reduce the rate of spread of all kinds of infections.
And no, it doesn’t have to be pure copper — alloys work, too. There are different experiments to add nanoparticles of copper to hospital gowns or masks, and plenty of companies trying to sell brass (mostly copper and zinc) or bronze (copper and tin) fixtures as “virus killers.” The impact isn’t so powerful that hospitals have made the huge financial commitment to rip out their stainless steel and plastic fixtures or coat everything with copper, but some new hospital construction in recent years has started to include functionally meaningful amounts of copper.
In many ways, in fact, it seems that our culture has adopted the clean look of stainless steel over the actual sanitizing power of copper (which looks much less clean, thanks to easy oxidization to get that green sheen, but remains strongly antibacterial and antimicrobial even if it’s tarnished). I’m sure there’s a metaphor in there somewhere, and it probably involves the Kardashians.
But anyway, that spiel leads us into Matt Badiali’s ad about these critical “antimicrobial alloys” that “stop viruses”… here’s a little taste of the spiel:
“And while most people would likely overlook this material on the periodic table of elements…
Make no mistake…
“The powerful ANTI-viral, ANTI-bacterial, ANTI-fungal, ANTI-parasitic, ANTI-cancer, ANTI-seizure, ANTI-ulcer and ANTI-inflammatory properties of this powerful mineral make it what I call the perfect ‘ANTI-ELEMENT.’
“And mark my words when I tell you:
“This anti-element will transform the face of modern medicine and life as we know it, in the months to come…
“As it sets off a massive bull market that could hand fast-acting folks the FORTUNE of a lifetime.”
And he does, to be fair, also talk about the big areas of current consumption of copper — of which health-related consumption is almost a rounding error. Something like 80-90% of copper is used for building construction, transportation and electrical goods, and that’s almost entirely because of the need for copper pipes and wiring — so big infrastructure demand and construction projects have been a primary driver of copper demand for decades, and the massive growth in China over the past 15-20 years has been a major driver of copper prices. A typical car has 50-100 pounds of copper in it, mostly wire, and an electric car, with large electric motors, might have 200 lbs or more (and a battery-powered bus could use more than 800 lbs of copper)… which means cars are starting to catch up to homes (a typical single-family home in the US consumes more than 400 lbs of copper).
That direct connection to building and economic activity, by the way, and the notion that copper prices could therefore predict global GDP trends, is why traders started referring to the commodity as “Dr. Copper” (the PhD being in economics, though I imagine we’ll start to see some medical “Dr. Copper” references as well before too long).
But anyway, is there something magical about this “green rock” that’s new today?
No, not really. We’ll see more coverage about it now that we’re afraid of viruses, and it’s certainly possible that the studies of copper’s impact on infection spread will lead to hospitals and other construction projects incorporating more copper in touch points… but it’s still just regular old copper, there’s not a magical new alloy or technology being discovered, this is the same commodity that humans have been mining for longer than any other metal.
So yes, what we’ve got here is just a teaser pitch for a mining company — or, actually, for four of them, though the focus is mostly on one. Here’s how Badiali’s tease gets into it:
“You see, there is a giant mine located on a remote island in Indonesia. And it holds a massive amount of this green rock. This one mine holds 1.8 billion metric tons of material full of it.Are you getting our free Daily Update
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“And that’s just one of this company’s mines. In total, this company owns an enormous amount this anti-element….
“Right now, you have the chance to grab a stake in one company that is sitting on top of this massive deposit….
“A small stake that could turn into a massive fortune in the months and years ahead.”
And we get some past examples that showed mining stocks soaring when the value of the commodity they produce went up, or when big discoveries were made, which helps to fuel his promise that there could be massive gains ahead for this one…
“If the price of this green rock moves like I think it will, we could make hundreds of percent on this one stock.
“For instance, when demand soared for this material in from 2002 to 2007, the price jumped 420% sending the stock for this company soaring by 926%.”
He also implies that COVID-19 will be the cause of this next surge…
“And with increased demand from the recent pandemic … it could send the market soaring higher and faster than any time in history.
“That’s why I’ve pinpointed the ONE company that you’ll want to own shares in right now…
“Just a small stake could make you a ton of money in the coming months….
“The demand from the medical and public health industries alone could send shares of this company through the roof.
“That’s because the contents of this green rock could single-handedly stop the spread of almost every transmittable disease known to man.”
I think most experts would say “slow,” not “stop”… but sure perhaps some more demand will emerge. I’ll be surprised if demand shifts rapidly enough to make “virus fighting” a more important factor than global “construction” or “vehicle electrification” in driving demand for copper higher.
He does cite some numbers…
“Bloomberg Markets reports that the public health applications alone could see the demand for this material grow by as much as 1 million tons — per year — over the next 20 years.
“With over 4.5 billion tons of reserves at its mine, this company can quite literally meet the market demand for decades to come.”
That would be a measurable impact, to be sure, but global copper production from mines (not counting recycling) is already about 21 million tonnes a year. And demand in general is rising, the copper.org folks think electric vehicles will increase copper demand by about 1.7 million tonnes a year over the next several years. Whether other sources of demand will fall or rise to offset or leverage that demand growth probably depends more on just general industrialization and economic growth around the world, particularly continuing urbanization and growth in China.
So what’s Badiali’s particular pick in this area? One more tantalizing bit to share…
“… it reminds me of an investment I made in a Canadian gold mining company called Kaminak.
“It delivered 4,400% in peak gains in less than two years.
“That’s enough to turn a $10,000 account into $450,000.”
So that’s clearly Freeport-McMoran (FCX), which is indeed the first ticker that would jump out of any Wall Street trader’s mouth if someone asks them “how do I buy copper?”
They own the goliath Grasberg mining complex in Indonesia, which I think is still the largest mine in the world, and lots of other large gold and copper mines. The stock has been a big depressed for years, both because of faltering copper prices with slackening Chinese demand and because of their near-constant disputes with the Indonesian government, but among large companies it’s hard to argue that anyone is more directly exposed to copper prices than Freeport-McMoran… except perhaps for Southern Copper (SCCO), which is even larger, is less beaten-down in recent years, and has its operations primarily in Peru and Mexico (every global mining company deals with localized operating risks to some degree, but SCCO hasn’t faced anything on the scale of Freeport’s political/labor issues in Indonesia).
And just to be clear, that “reminds me of Kaminak” bit is a ridiculous comparison — he’s comparing Kaminak Gold, which was a junior exploration company in the Yukon and soared from a few pennies to three dollars on the strength of their massive discovery of the Coffee Project (and was later sold at a nice premium to Goldcorp), to an established global mining firm. Freeport-McMoran is definitely not going to have a 1,000% run on a big discovery like Kaminak did, though I imagine it will continue to be nicely levered to copper… and if this Grasberg dispute is finally behind them, maybe they’ll be more levered than others thanks to their generally lower current valuation.
The company does indicate, in their recent COVID update presentation, that they expect to be very levered to copper pices next year — if gold remains at $1,600 an ounce or more, their EBITDA should double from 2020 from $2.1 billion to $4 billion… and if copper rises from their current $2.30/lb estimate to $2.85/lb, that might jump to $6 billion (copper has already bounced back some, it was at $2.85 before COVID hit China, bottomed at about $2.05, and is back to $2.55 or so now). Freeport has a market cap of $16 billion and an enterprise value (including debt) of $32 billion, so if copper really surges we could see that EV/EBITDA valuation drop to 5-6X, or perhaps lower if copper soars back to the China-driven 2011 highs of over $4/lb (keeping in mind, of course, that copper traded between 50 cents-$1.50/lb for 30-40 years before the explosion in Chinese demand in the 2000s).
They are the first company most people would bring to mind when it comes to copper, and that kind of investor branding can be important, they have more than 30 years of copper reserves and very meaningful gold production, and they’ve got an improved diversification these days with only about a third of those reserves in Indonesia. They carry a lot of debt and they are focused on liquidity during the crisis, so a few things are likely to be delayed (including the new smelter that Indonesia has required them to build to move more “value add” to the country, instead of just exporting most of their ore). I agree that copper is likely to rise in price over the next decade, if only because low prices for the past few years have discouraged new mine building and the global transportation fleet is becoming more electrified, but it’s also important to note that even global leaders in core commodities have a hard time escaping the general tendency of mining to be an awful long term investment. This is the total return chart for Freeport-McMoran going back about 25 years…
There are some signs of hope in there, with jumps during the China-driven commodity boom from 2007-2012 or so (and some gold runs in there as well), but that’s a pretty ugly return over that long a time period — this is what just “owning the market” in the S&P 500 would have given you, by comparison:
And, as promised, Badiali also hints at a few other ideas… I’ll run through those a little more quickly… clues, please!
“The first company is headquartered in Toronto, Canada. It could help you maximize the profit potential during this green rock’s surge phase.
“The company’s six mines are located on three continents. While it mines other metals, over 64% of its metal sales are from the green rock. And it plans to increase production by over 10% per year through 2022.”
This one, sez the Thinkolator, must be Lundin Mining (LUN.TO, LUNMF OTC in the US), which has at times owned six mines but actually has just five operating mines right now, from giant copper/gold mines Candelaria and Chapada in South America to somewhat smaller ones like Eagle (US), Neves-Corvo (Portugal) and Zinkgruvan (Sweden) that also produce meaningful copper but add zinc and nickel to the mix (they’ve bought and sold a bunch of properties as they’ve grown over the past 15 years, a dozen years ago they were primarily operating smaller European mines but most of those were either closed or sold over the past decade and the copper focus is really on South America now, thanks to the purchase of Candelaria from Freeport in 2014 and Chapada from Yamana in 2019).
That’s a pretty close to a match for HudBay (HBM) as well, a stock Badiali has teased in the past. HudBay is trying to pivot more to gold, partly by transitioning their large Lalor mine to focus more on the gold protential, but even with that it will still be getting more than half of its revenue from copper in 2022.
Lundin gave a virtual presentation to a J.P. Morgan conference just today, so you can see their updated investor slide deck here. The Lundin family has long been involved in building up and acquiring mining properties, and also controls Lundin Gold (LUG.TO), which is a completely separate company whose primary asset is the Fruta Del Norte gold mine in Ecuador.
“The second company makes its home in Vancouver, Canada.
“However, its mines are located far away, in Africa … with three “trophy” deposits. Volumes of this green rock are so rich, one trophy mine could produce well over 20 million tons of this coveted material.
“Its second holds another 27 million tons … and the exploration of the area is still ongoing.
“As a trained geologist, I’d bet money that the company finds even more of this miraculous substance here.
“These two trophy mines alone will position this company as a major player for meeting the demand for this green rock for years to come.”
That must be Ivanhoe Mines (IVN.TO, IVPAF OTC in the US), which is run by brilliant billionaire Robert Friedland but faces the constant political risk of the fact that most of their assets are in the Democratic Republic of the Congo… which is why the stock is and has ever been very cheap compared to other large mining projects. Their big copper project is Kamoa-Kakula in the DRC, which is being built quickly, though their more advanced project is Platreef in South Africa, which is primarily focused on platinum group metals. If you want to get some “old time religion” feeling about copper and the green economy and the huge potential of Ivanhoe, just check out the “Revenge of the Miners” presentation Friedland prepared for PDAC in March.
I’ll just reiterate what I’ve said many times about Ivanhoe: if you can handle the DRC risk, this is a relatively cheap way to get a piece of one of the world’s biggest and highest-grade copper mines, with a big low-cost platinum/palladium mine thrown in as a bonus.
And one more…
“And the third company that could hand you triple-digit gains is a diversified mining company also headquartered in Vancouver.
“And what I especially like about this powerhouse company is that it has its hands in EVERYTHING. It’s Canada’s largest diversified mining company.
“It mines metals and other resources that include everything from crude oil and coal, to natural gas and precious metals.
“As the price of this green rock shoots to the moon over the next year or two, this company’s shares could go even higher — giving fast-acting investors the chance for massive triple-digit gains.”
That must be Teck Resources (TECK), which is depressed not primarily because of copper (though they do have several operating copper mines in the Americas), but because coal (mostly metallurgical coal) has been their most important product, and because they’ve also got some exposure to production from the oil sands in Alberta. They have a new investor presentation up this week for a conference as well — and that points to copper being the driver of their growth strategy, so that’s interesting, and is led by the development of their QB2 mine in Chile (they’ve been touted in the past, along with HudBay, as a zinc play, too… though zinc has faltered with dropping steel demand).
Teck has had essentially the same ride as Freeport-McMoran over the past 20 years, with a bit more leverage built in because they started out a lot smaller. It’s been all about that emergence of the China commodity boom, then the volatility brought by the 2008 crash and the 2015 near-recession…
But if you want to look at it more positively, here’s the return for this whole list of four (TECK in blue, FCX in orange, Ivanhoe in red, Lundin in green, S&P 500 in purple) starting from January 1, 2016, when almost every commodity stock bottomed out:
Those are all reasonable large mining companies that any investor in the space might consider, with pretty solid assets and strong potential in a world (should it come) of rising copper prices. Personally, I tend to prefer to invest in mining mostly through royalties — so although royalty investments in gold and silver are far more common I do get some exposure to these kinds of projects through Sandstorm Gold (SAND) and Altius Minerals (ALS.TO, ATUSF), both of which have exposure to Lundin’s Chapada mine thanks to deals that were made to finance Chapada’s growth about five years ago, when it was still owned by Yamana (Sandstorm also owns 30% of Hod Maden, a very high grade gold and copper project in Turkey that is still in “feasibility study” stage and won’t contribute for at least a few years). Franco-Nevada (FNV) also has a big royalty on Candelaria, for whatever that’s worth, though I shouldn’t overstate the impact of copper on these companies — in the case of Sandstorm and Franco-Nevada, their gold portfolios dominate and copper is not a big driver… copper royalties do bring in roughly a third of revenue for Altius, and about 10% for Royal Gold (RGLD).
That hasn’t protected me all that much from the weak performance of miners, mostly because Altius, which is building a base metals royalty company, has struggled to attract a valuation worthy of a royalty business (largely because of a writedown of their poorly-timed coal royalty acquisitions in Alberta), but since good royalty companies manage their assets much better than the average miner, and they have much less downside risk, it does mean I can leave the “cycle surfing” to others and not try (and probably fail) to pick tops and bottoms in commodity prices (Altius has disappointed for many years, but not fallen nearly as much as Ivanhoe, Freeport et al when copper prices collapsed). Picking the best miners at the best times, should you have the skill to do that, would be far more lucrative than just holding and adding to royalty positions.
This group should all do well if copper prices surge, my guess is that Freeport would probably be the first to get big institutional investor attention, and it has been (arguably) the worst-performing large cap stock in the copper mining space for a while so FCX could have some leverage if sentiment improves about their operations… but Ivanhoe likely has the most obviously dramatic upside potential (and that comes from the easing of their “DRC political risk discount” if sentiment changes about that country, not really from commodity price shifts). There’s also a pretty easy generic bet you can make on this trend if you don’t like stock picking, Global X offers the Copper Miners ETF (COPX) — it’s very small with only $60 million in assets, so might not be around forever if copper turns down for much longer, but at the moment the top four holdings of which are Ivanhoe, Teck, Freeport and Southern Copper (Lundin’s in there, too, as are Glencore (GLNCY), Vedanta (VEDL), First Quantum (FM.TO), Ero Copper (ERO.TO), Turquoise Hill (TRQ) in Mongolia, Hudbay and a few others that might sound familiar, including a couple juniors).
That’s just my take on mining, though, and a quick look at the four “green rock” stocks Badiali is teasing as plays on copper… it’s your money, so you get to choose how to invest. Would you like more exposure to “Dr. Copper?” See great gains ahead as renewable energy and electrification boost demand, or some shocking new demand from COVID fighting? Or are you worried about being in a recession or down cycle and the possibility that copper could fall again? Prefer these particular miners, or some different ones? Please let us know with a comment below.
P.S. I should note that, as Banyan Hill has typically done in recent years, they’re a little sneaky with the “autorenew” and “bonus subscription” stuff that they add to the loooong order form — so although they do claim to offer the standard subscription for the “on sale” price of $47, they say in much smaller print that they’ll include a “free trial” of Alpha Investor Report, the unrelated newsletter by Charles Mizrahi, and that both of those newsletters will autorenew at whatever their then-current price might be (on a staggered schedule, since Alpha Investor Report is free for three months). So as of today with the pricing they publicize, what you think of as a $47 commitment would add on a autorenew in three months for $97 and then autorenew both letters for $194/year thereafter.