October 13, 2020: Global Metals & Mining: King Copper once and future - Bernstein

Global Metals & Mining: King Copper once and future

What makes for a good commodity stew? A dollop of demand strength. A sprinkle of supply concerns. A rising cost curve. Minimal threats from alternatives. We see all these ingredients and more for the copper sector and are thus more bullish than both consensus commodity forecasts and the forward curve (Exhibit 81).

How do we arrive at these conclusions?

We provide 10 reasons why copper demand is robust (Exhibit 3-Exhibit 34): A 100-year trend supports growth, Per capita consumption modest but critical, Infrastructure spending too low, Stimulus programs benefit copper demand, The EV revolution needs copper, Substitution and minaturization has plateaued, A circular economy for copper is impossible in the near term, Greening of electricity means copper wins, Copper serves a variety of endmarkets, and Copper least sensitive to carbon price of the metals.

We provide 11 reasons why copper supply may disappoint (Exhibits 35-Exhibit 65): Copper is geologically relatively scarce, Ore grades of copper fall over time, Productivity gains have been stagnant for years, Wage deflation can’t offsite productivity, We are finding less and less copper, We aren’t spending enough to find more, We aren’t spending enough to develop more, Ever higher environmental standards are lengthening time needed to approve, finance and execute mine construction, Consensus supply forecasts over-promise and under-deliver, Disruptions to supply are significant and inevitable, and Metals & Mining companies have remained disciplined and have not been paid for growth.

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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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