November 20, 2019: “Copper Up, Gold Down: The Investment World Is Shifting” - Forbes

by Tim Treadgold

If in doubt about the case for investing in copper, whether the metal itself or through a copper-mining company, then the man to ask is the boss of the world’s second biggest gold-miner, Barrick Gold.

Mark Bristow, the straight-talking South African chief executive of Barrick, emerged last week as an advocate for copper as a metal most likely to succeed in a world with an increasing appetite for everything electrical.

A Bigger Copper Footprint

While gold seems likely to remain the backbone of Barrick, it could also have a bigger copper exposure because, in Bristow’s words: “Where we have opportunities to secure or expand our copper footprint, we will.”

Why copper appeals to Bristow is the potential for rapid and significant demand growth at a time when supply seems to be peaking as old mines run short of high-grade ore and new mines prove hard to find and increasingly expensive to develop.

Copper, to Bristow and a number of other well-connected mining experts, is morphing from its traditional role as an industrial metal into a strategic metal which is developing new markets in electric cars (which use four times as much copper as a gasoline-powered car) and in renewable energy systems such as wind and solar which are also copper-heavy.

Until recently, copper was not a hot commodity, marked down by investors because of the potential for a demand decline caused by the China v U.S. trade war.

From a peak price earlier this year of $2.96 a pound copper has slipped to $2.64/lb, though that price is actually up 11c on the low point of $2.53/lb reached last month.

Gold Fades As Confidence Grows

What makes that modest copper-price recovery interesting is that it has occurred as another metal, gold, has been falling – almost as a mirror-image to copper. Gold is down 4% over the past month to $1469/oz, whereas copper is up 4%.

Whether much can be read into the direction of the two metals is an interesting question, especially when the views of seasoned gold-miners liked Bristow are considered along with the new-found interest of other mining leaders in copper.

Brian Gilbertson, another South African with mining in his blood, has nominated copper as a prime target for a new fund he is setting up with the metal trading firm Traxys, which has the asset manager Carlyle Group as its major shareholder.

A former chief executive of BHP, the world’s biggest mining company, Gilbertson is now most closely associated with the private investment vehicle, Pallinghurst Group, which has a range of mining interests and plans to become a significant player in the world of battery metals, a group that includes lithium cobalt, nickel and copper.

The Pallinghurst-Traxys Battery Materials joint venture will look for controlling interests in mines and processing facilities in order to grow exposure to the electric vehicle and energy storage revolution.

In terms of timing, both Bristow and Gilbertson are betting on the rise of battery metals, especially copper and nickel, as signs grow of a possible end to the trade war which, if it happens, will drive demand for basic raw materials.

Boiled down, there appears to be a “risk on” shift which will boost industrial commodities, and a “gold off” move as funds are rotated out of safe havens into segments of the commodity market exposed to growth.

Copper Shorts Shrink

A significant shift in speculative sentiment towards copper was noted last week in a report carried by the Reuters news service. It said a record net-short position in the CME copper market of 74,597 contracts just three months ago had collapsed to just 17,838 contracts with a short position.

Funds and private investors turning bullish about copper coincides neatly with Bristow and Gilbertson naming copper as a metal of interest in their future growth plans – and the decline of gold as the appeal of safe havens fade.

Investment banks are also slowly subscribing to a “copper on, gold off” investment thesis.

Morgan Stanley, for example, has copper as the second hottest metal on its “investment heat” list, topped only by cobalt. It also sees gold being a metal at risk of a sharp correction.

“We see increasing risk to out 2020 first-half (gold price) outlook of $1515/oz, assuming continued progress on a China-U.S. trade agreement is made,” the bank said.

Morgan Stanley now sees the potential for gold to retreat to its bear case of $1394/oz in the first half of next year.

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These historical resource estimate models are based upon historical resource estimates prepared by John Thornton in 2011. While, in the opinion of Dane A. Bridge, author of the revised NI 43-101 standard technical report, Geology, Mineralization and Exploration of the Santo Tomas Cu-(Mo-Au-Ag) Porphyry Deposit, Sinaloa, Mexico dated April 21, 2020 (the “Report”), reliable estimation practices were used, in order to upgrade or verify the historical estimations, resampling and assay of historical drill samples, twinning of historical drill holes, and a new program of regularly spaced drilling is required. No qualified person has undertaken sufficient work to classify the current mineral resources or mineral reserves upon which these models are based and the Company is not treating the estimates as current estimates of the mineral resources. The Company gives no assurance that either these models or the historical resource estimates upon which they are based are accurate, and does not undertake any obligation to update the models or to release publicly any update or revisions of the resource estimates except as required by applicable securities law. The reader is cautioned not to rely upon these models or the historical resource estimates upon which they are based.

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