The future of the world depends on copper — which makes it a great commodity to invest in. Mark Denning, who has managed multibillion-dollar hedge funds throughout a career spanning more than three decades, has recently set up a copper mining fund.
“Mining is a cyclical business,” said Denning in a recent interview.
This means that the mining industry works in business cycles. Any enterprise that’s cyclical reports higher profits during periods of economic growth, and these profits shrink considerably during periods of economic contraction. The good times are marked by increased hiring and generous bonuses for employees. Periods of economic contraction, on the other hand, entail layoffs and budget cuts to compensate for the lower profits and demand.
Most investors would thus recommend investing in the mining industry during periods of economic growth and selling the shares during periods of economic contraction.
Denning’s new mining fund for copper comes at an opportune time because he predicts copper prices will go up. “The demand for copper is just going up and up and up,” he says.
He’s correct: The global demand for copper continues to rise. Copper is usually mined in China, the Democratic Republic of Congo, and in Utah. Since the start of 2023, the price of copper has gone up by as much as 10% and it may increase further. The rise in prices is attributable directly to the role of the metal in facilitating the green energy transition.
The metal is so important that those in the financial industry call it “Dr. Copper.” It earned this nickname, according to Investopedia: “Doctor Copper is insider lingo used in the commodities markets to explain price trends in copper’s ability to predict the overall health of an economy.”
Despite the central role that copper plays in today’s economy and the even more important role it will play in the economy of the future, supply may be dwindling. “The grade in mines is going down,” warns Mark Denning.
Older mines are running out of the ore. And the newer mines are reporting lower grades. According to Mining Intelligence, not only will there be less copper available in mines, but the grades will also be low.
Lower grades mean mining companies will have to spend more money to mine the ore. They’ll have to move more rocks to get to the copper which, in turn, will require more explosives and diesel. This will increase the cost of producing copper.
According to expert estimates, explosives and lubricants add up to 25% of the costs of running a copper mining operation. This means that the increases in copper prices will be substantial.
The demand and supply for copper are polarizing by the day. “The two are going in quite different directions,” Denning says. “You’re going to be in deficit.” And as anyone with even a basic knowledge of economics knows, high demand and low supply mean sharp rises in the prices of a commodity. Mark Denning’s setup of the copper mining fund couldn’t have come at a better time.
The increased demand for copper is also not going to go down anytime soon. “All the electrification of the world is going to have increased demand for copper on a massive scale,” shares Denning.
Without copper, the all-electric future of the world is impossible. The availability of copper is necessary if countries are to meet net-zero emissions by 2050, a fact that’s been confirmed by S&P Global and many other institutions.
The energy systems in the future will be vastly different from the energy systems of today, as they’ll be heavily dependent on copper. The problem, however, is that all this time, we’ve just assumed there will be enough copper, while statistics seem to paint a grimmer picture.
According to a recent report, by 2035, the demand for copper would have increased to 50 million metric tons — double the demand of today. The report also predicts that by 2050, demand for copper will have reached 53 million metric tons. To add some perspective to these numbers, this is more than all the copper consumed worldwide between 1900 and 2021.
Copper is also labeled as the metal of electrification because it’s used in nearly everything, from batteries for energy storage to electric vehicles, and both solar and wind power. “The amount of copper wire in an electric car is extraordinary, greater than a normal internal combustion engine,” says Denning.
A standard combustion engine has 20 kilograms of copper, as compared to 40 kilograms for hybrid engines, whereas a plug-in electric vehicle uses a whopping 109 kilograms of copper.
When it comes to energy generation, it’s estimated that generating 1 megawatt through wind energy requires two times more copper. In contrast, solar energy requires nearly five times more copper, as compared to coal or natural gas.
Based on these numbers, S&P Global predicts that there will be two likely outcomes, both of which see a shortfall in demand. In the best-case scenario, there’s an increase in copper recycling and mines become highly efficient. Even then, there will be a supply deficit for the entirety of the 2030s. And in the worst-case scenario, production rates continue unchanged and by 2035, there will be an annual supply shortfall of nearly 10 million metric tons.
“We really believe in this current world that commodity prices are very, very attractive,” states Mark Denning.
Investment in copper is crucial because it’s the need of the hour, which makes Denning’s setting up of the mining fund a welcome development. It’s predicted that meeting the growing demand will require $240 billion over the next five years.
In past years, there’s been an assumption that technology was going to save us, but the truth is, survival on Earth depends on a flourishing mining industry. Starved of capital, miners look to increases in investment so that their industry and the world at large can continue progressing.