by Marin Katusa, Katusa Research:
Regular Katusa Research readers know that one of the biggest, most important, most lucrative trends of the next 20 years will be the rise of green energy… and the concurrent decline in fossil fuel consumption.
Thanks to radical improvements in technology, solar energy and wind energy are now cheaper than energy from fossil fuels in many areas. Also, pollution and climate change are huge worries around the world.
To go along with voters’ desires and fight what they see as man-made climate change, governments will spend trillions (with a “t”) of dollars on solar and wind energy. They will pass laws to encourage green energy production and consumption. They plan to revolutionize the way we power our electrical and transportation systems.
Huge winners and huge losers will be created. It’s going to be one of strongest financial tailwinds we’ll see in our lifetime. Making money from this trend will be like selling web services during the ’90s Internet gold rush… or selling bullets during World War II.
Like any big trend, there are many ways to position yourself to benefit from it. For example, my readers and I own one of the world’s premier small cap green power operators. And over the coming months, I plan to accumulate stakes in some of the world’s best copper deposits.
That’s right. Copper has become a great way to invest in the green energy super-trend. I believe it can make us a great deal of money over the next five years.
To fully understand the upside potential copper mining stocks have right now, we need to quickly cover where the copper market has been, and how the right copper investments can create great wealth quickly.
Making Huge Returns in Copper 101
Copper is a vital building ingredient in nearly everything around you. It’s used for wiring and plumbing in houses. It’s used in cars, infrastructure projects, and appliances. It’s a major component of power lines and electric motors. And as the 2009 – 2011 period shows us, this vital building material is capable of staging incredible rallies.
Like all natural resources, copper goes through huge booms and busts. That’s why we say resources are “cyclical.” If you get in early before the booms and avoid the busts, you can make a lot of money in natural resources.
As you can see from the chart below, copper experienced a huge bust during the 2008 financial crisis. Investors were terrified the next depression was around the corner… which would mean a lot less copper consumption.
But as we know, there was no depression. Central banks stepped in and created enormous amounts of credit…so much that asset prices soared off their 2009 bottoms. Copper was no exception. Because they are leveraged plays on the copper price, Copper miners soared. Some copper miners, such as Copper Mountain, Taseko Resources, First Quantum, and Hudbay Minerals increased in value by over 1,000% in the years following the crisis.
Over the past four years however, it’s been downhill for copper investors. Global economic growth has been sluggish…and copper plummeted from $4.50 per pound to $2 per pound, a decline of more than 50%. You can see this bear market in the long-term chart below:
Note the right side of the chart. It shows that copper has rallied off its 2015 lows. I believe this rally will turn into a long period of rising copper prices. To show you why, I’ll cover both supply and demand.
Why Copper Demand Stands to Increase… a Lot
Let’s start with the obvious demand growth catalyst: Electric Vehicles (EVs). I believe this sector will enjoy tremendous growth over the next 20 years. EVs are a major part of reducing carbon emissions around the world.
Electric vehicles require three times more copper than conventional vehicles with international combustion engines. On average, an internal combustion engine uses 55 pounds of copper. A hybrid uses about 110 pounds and an EV uses 165 pounds of copper.
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