Return To Copper

We can suffer from analysis paralysis at moments like this.

The big economic picture offers us many reasons to worry…and that gets in the way of acting on investment opportunities when they occur.

That’s a common malady among analysts.

Mea culpa.

The trade war and its global impacts are here. We need to navigate the markets as they are right now. We expect that the bluster will end with much ado about nothing. Regardless of whether they stay, the lack of faith will have broad implications for the U.S. economy.

Life goes on.

Former U.S. trade partners are now striking deals among themselves. For example, incoming Canadian Premier Mark Carney wants closer ties to Europe. And China’s president Xi Jinping toured Southeast Asia, to persuade those countries that China is a more reliable trading partner than the U.S.

Even as the U.S. set off a trade war, the government announced a delay in implementation. And that sent demand spikes throughout the world.

The delay of U.S. tariffs on the world, spurred massive buying. The U.S. imported so much stuff in the first quarter that the trade deficit skyrocketed (and sunk GDP into negative territory).

That was artificially driven by the tariff deadline.

We can expect the second quarter to see reduced demand across the board. And that will show up in industrial metals. We can see that in the amazing volatility of the copper price:

The copper price was up over 30% by the end of March, only to plunge 20% in a week

This is incredible price volatility for something as critical as copper.

This is a metal that will be susceptible to demand decline, as the trade war grips the world. It moves with industry. If we use less stuff, demand will fall. But that comes at a time when the world faces massive shortages of copper.

All demand decline will do today is push that shortage back a bit. But we have some interesting historic data from the last U.S. induced trade war.

In 2018, China stopped buying scrap copper from the U.S. – a policy it just reintroduced. And it clobbered copper supplies:

That disturbance led to a strong increase in copper prices:

There’s a good chance that we’ll see that again this time around.

As for the longer term, the big bank projections are all over the place. Here’s what S&P Global forecasts (more of a middle-of-the-road estimate):

Our forecast for 2025 LME 3M copper price of $9,716/t represents a year-over-year increase of 4.8%. Despite concerns over the ongoing deficit in concentrate, further upside to near-term prices faces headwinds from the strong US dollar and the potential impact of Trump administration policies.

S&P Global continues to be bullish on copper over the long term, which agrees with our outlook as well.

The chart below illustrates what we see happening:

Concentrate is unpurified copper from mines. It still needs to be refined. China is the world leader in metal refining.

The current trade war will rebuild concentrate supply on weak demand. But then the supply plummets and we see copper supply drop.

The takeaway here is that we can (and should) buy the best copper development projects that we can find.

The “oceanfront property” of future copper mines will be in huge demand.

These are the assets that must be owned by majors or will create the next generation of major mining companies on their merits.

Today, there are only about eight projects of the thirty largest copper projects that aren’t currently owned by major mining companies.

This month, we’re going to invest in one of them.

Solaris Resources’ Warintza Project – Investing in Future Copper Production

Solaris Resources (NYSE: SLSR) is a $732 million mining company developing the massive Warintza copper project in Ecuador.

The country has embraced mining. The industry grew rapidly from significant investment from companies based in Australia, Canada, China, and the U.S. Today, mining accounts for more than half of all foreign investment in the country.

This is a recent change for the country. Mirador is Ecuador’s first and largest copper mine. It began operations in 2019. It produces 137 million pounds of copper, 34,000 ounces of gold, and 349,000 ounces of silver per year.

Today, mining is Ecuador’s fourth-largest export sector. In 2023, mineral exports reaching a record $3.2–3.3 billion.

There are two major mines operating in the country. Mirador (copper) and Fruta del Norte (gold).

The government backs mining as an important economic driver. It forecasts over $4 billion in annual mining exports by 2025. Companies plan to invest $11 billion in construction of seven new mines in the coming years.

Warintza is one of several large mine development projects including Cascabel, La Plata, Curipamba, and Loma Larga.

It sits about 40 km north of Mirador.

That’s great news, because it reduces our political risk.

That’s something we must take more seriously, thanks to Panama seizing the Cobre Panama copper mine. That mine remains halted. We doubt that production will resume in the near future.

That’s why it’s critical for us to find more advanced copper projects in good jurisdictions. Copper demand remains high. The trade war will delay the worst of the copper demand spike, but it won’t stop it.

The rest of the world continues to electrify. Electric vehicles from China are spreading throughout the world. Demand will be less with the U.S. marginalized…but it won’t be gone.

That’s why we see Solaris as a great opportunity right now.

While Solaris has several projects, we really only care about Warintza. It’s big, over 1 billion tons of measured and indicated resource. The average grade is about 0.34% copper. That’s lower than I like, but it has some economic tailwinds.

Grade matters because it relates to the amount of rock we need to move to get paid. Warintza has about 7.4 pounds of copper per ton of rock. That works out to a gross value of around $30 per metric ton.

If this were underground, it would not be economic. However, Warintza’s ore sits close to the surface. It can be mined with a truck and shovel, which is much less expensive. And they don’t need to move a lot of barren rock to get to the copper. That means economic mining starts quickly.

Warintza has an enormous area of mineralization. It has another three billion metric tons of copper mineralization at 0.2% (inferred). That speaks of the sheer volume of copper that invaded the rocks to form this deposit.

This won’t be a mine soon. The company has a lot of drilling to go there. They currently have an 80,000-meter drill program underway. That will tell them a whole lot more about this deposit.

Solaris Resources (NYSE: SLRS) is another good copper deposit worth putting in our portfolio. There’s no need to rush into the position.

Our big risk here is more trade war news pushing down the copper price. If that happens, that’s when to buy Solaris.

As we said, this won’t be a mine soon. The rocks aren’t going anywhere. Take opportunities to buy when copper prices are weak. We’ll do our best to keep you up to speed with the weekly updates.

In the meantime, we remain skeptical of U.S. stocks.

Be careful out there.

For the Good,

The Mangrove Investor Team