“The world just doesn’t get it. It doesn’t understand that there’s a massive copper deficit coming.” These were the comments from Glencore CEO Gary Nagle only a few months ago. He went on to add “The world will stop without the additional copper supply. But the price of copper is not expecting it.” Since then, Glencore has offered $22.5 billion for copper and coal giant Teck Resources. It’s one of several transactions recently proposed in the copper space, as everyone that makes a living in copper seems to be urgently accumulating as much of it as possible.
Beyond the lack of new supply, a core part of the thesis is the fact that copper demand forecasts appear slow to respond to the ever-accelerating energy transition promises and predictions. An electric vehicle (“EV”) requires more than 3 times as much copper as an internal combustion engine vehicle, according to estimates from Wood Mackenzie. Buses require at least 10 times as much. Larger and heavier modes of transport require even more, which creates confusion around Energy Secretary Jennifer Granholm lending her support to the US military running an all-electric fleet. The amount of copper required is probably one of the smaller impediments to that specific goal, but either way, every single one of these suggestions or proposals is another wedge of demand that will exist if people even want to embark on these goals.
The extra copper required in vehicles is prior to the electrification inputs necessary to make charging ubiquitous, especially as China and India built out their grids. China’s grid development was already able to drive significant copper demand, helping make up for its housing sector pullback. “Taking this a step further … China’s grid spending has offset weakness in the wider economy: indeed, building out the electricity infrastructure has completely offset weakness in the housing market,” Commodity Strategist Michael Widmer said in Bank of America’s
2022 showed a reversal of a four-year trend, as mining buyers spent more on base metal deals than on gold, led by copper-focused deals. Most of these deals were for producing assets, instead of exploratory ones. The fact buyers were willing to spend more on existing operations shows another reason people are confident in copper, specifically the lack of new development as projects critical to the green energy transition are ironically, or sadly, not getting approved for ESG reasons. A decade of permitting is not going to help reduce the supply gap that these companies can see and it appears they want to control as many producing assets as possible when the rest of the world realizes the same thing.
2023 copper deals have already accelerated beyond 2022, led by the $22.5 billion unsolicited bid by Glencore for Teck Resources. Additional deals just in the past few months included proposed acquisitions by Lundin Mining, BHP, First Quantum, and Hudbay Minerals for other copper producers and assets. One of Glencore’s potential plans post a successful deal would be to spin out the combined coal business and continue forward with a focus as one of the world’s largest copper producers. This makes great strategic sense if you think copper producers will eventually receive full value as everyone recognizes the deficit that you’ve been studying and warning everyone about.