The contrarian play on electric cars
Yesterday, a little over 50 people shuffled onto a bus, out to an industrial estate turned tourist mecca.
We were off to hear an exclusive panel speak about the opportunities in the mining sector. Byron King, a geologist turned investment writer from the Agora network, was on the panel. As was Adrian Day, founder of Adrian Day Asset Management.
The panel members were seated just behind me. However, to my right was a man from Brussels.
‘I backpacked through your country many years ago,’ he told me.
My co-worker and I were the only two Aussies on the bus. So, our Aussie twang stood out.
Back in 1988 and fresh out of university, this now private European investor spent 12 months hanging around in Australia. ‘I bought a Holden, drove it from Sydney to Cairns, sold it and headed off to Asia.’
But the year he spent in Australia stayed with him. He is a large institutional investor in many different mining companies.
In fact, early-stage commodity exploration companies are his passion.
And he was attending the Sprott conference in search of his next opportunity.
The contrarian play on electric vehicles
New investment ideas often strike when you least expect them.
Monday’s panel spoke about precious metals and the opportunities ahead in copper.
And believe it or not, it was yesterday’s story on copper that caught my attention. We can skip the precious metals analysis for today.
You see, Australia’s BHP is putting some funds towards a junior copper explorer called Riversdale Resources, listed on an exchange in Canada.
Yet, that’s not the remarkable part. Large companies often invest in small-time explorers. It’s a way of offsetting share price risk. Put some money into the coffers of the small guys, and then that tiny listed company takes on the exploration risk, which shows up in the share price.
What’s notable about this copper play, though, is the reason for exploring copper in the first place.
And that is the rise of electric vehicles.
When it comes to electric cars, most people prattle on about commodities like lithium, cobalt, nickel and zinc.
Rarely do you hear about the role of copper.
Yet copper is crucial to electric vehicles.
Many years ago, in the 1980s, the average car had about 400 metres of copper wiring. Of course, cars didn’t have many electronic features then. A check engine light, wiring for the indicators, and the demisters for the rear windscreen.
Old cars were pretty scant when it came to electrical components.
Fast forward to today, and the average car has about four kilometres of electrical wiring. That’s a tenfold increase in almost 40 years.
However, the average electric vehicle has even more than that. When a new Tesla rolls off the production line, there’s about six kilometres of electrical wiring in it.
As car technology increases — and we move closer towards self-driving cars — the demand for copper wiring will increase…
…making copper the contrarian play on the electric vehicle story.
This was something Adrian Day, of Adrian Day Asset Management, stressed on Monday. That the copper story is a supply story, not a demand one.
New copper deposits are becoming increasingly rare. And as Day said, even ‘the smallest shovel-ready project’ would still take anywhere from four to six years to come online.
Adding weight to this story is the fact that large supplies of copper come from very old mines. The 120-year-old Chuquicamata copper mine in Chile is ageing. And its advanced age makes it more susceptible to natural disasters like flooding.
So for investors, finding a large deposit of a humble metal like copper is becoming increasingly urgent.
Got a hunch, bet a bunch
The official part of the conference began on Tuesday, with Rick Rule opening the symposium.
Source: The Daily Reckoning Australia
This year, Rick had a couple of key points he wanted investors to remember.
The first is that commodities prices are either ‘at the bottom, or coming up off the bottom’ and leaving the ‘epic bear market’ they were stuck in.
Rick is convinced is that there are better times ahead for physical commodity prices…and therefore commodity-related stocks.
His other point was about how to become a better investor.
Too often, he said, people have the investing style of ‘got a hunch, bet a bunch’.
In a commodities bull market, that may work, said Rick. Even ordinary stocks rise when the commodity price rallies.
But according to Rick, that’s not smart investing.
Rather than blindly rushing in, Rick urged all attendees to improve their investing by asking questions.
In this context, the big question is: Is there stuff in the ground? The answer comes from a drill hole.
It might not always be the answer you want, but it’s an answer nonetheless. What you do with that information shapes how you invest.
I’ll be back tomorrow, with more insights from the conference.