Copper: the NEW ‘Poor Man's Gold'

Silver bulls are very familiar with the somewhat facetious label attached to silver: that it is a “poor man's gold”. However, as investors to the silver sector have increasingly come to realize, with silver inventories plummeting while silver's importance to our modern economy continues to grow, silver doesn't have to take a “back seat” to any other metal. Meanwhile, the price for a different, semi-precious metal is surging higher, while inventories for it are in steady decline: copper.

Since the commodities Crash of '08, I have generally avoided all base metals miners in my portfolio – focusing exclusively on precious metals miners, as it was clear that this sector was going to bounce-back well ahead of any other. However, I certainly never abandoned my general enthusiasm for commodities.

We are currently in the early stages of the largest growth-boom in the history of our species. Previously, the next greatest, protracted episode of economic growth was the rebuilding of Europe following World War II. That economic expansion fueled the global economy for decades, before these mature economies began to substitute credit-induced “bubbles” for real economic growth.

This is not the situation in Asia, nor in many other emerging/developing economies. Here we see a similar episode of rapid, concentrated expansion – except that it is involving ten times as many people as the post-World War II economic boom. As billions of people in (previously) poorer economies begin to urbanize, their standard of living is quickly moving toward the middle-class affluence which Western economies used to take for granted.

There is every reason to believe that a growth-boom fueled by ten times as many people is going to lead to ten times as much total economic growth – meaning that this boom will be ten times as large, ten times as long, or (more likely) some combination of the two. To fuel this unprecedented growth means expanding resource production at the greatest rate in history.

Here we immediately see problems. With “peak oil” already a reality for our global economy, we are seeing supply constraints popping-up for many essential raw materials. In this respect, I remain heavily influenced by the superb research and analysis conducted by Chris Martenson. While his video presentation, “The Crash Course” is now several years old, Martenson was so far ahead of his time that the analysis remains “cutting edge”.

Among the most notable of Martenson's conclusions is that it isn't necessary to be facing absolute limits on the quantities of various minerals in the Earth's crust in order for us to begin facing “peak production” scenarios. Instead, Martenson focuses on two related points.

First of all, most of the high-grade/easily accessible mineral deposits for many key minerals have already been found and developed. Thus, we must now dig much deeper, or do much more processing of lower-grade ore in order to simply replace the existing deposits which are drying up. It is an open (and as yet unanswered) question as to whether we are even capable of significantly expanding supply, given the increasing difficulty (and cost) in extracting these resources from the Earth.

Secondly, this increased “effort” to mine these minerals directly translates into much greater energy requirements. In other words, it will take many more barrels of oil to produce a ton of refined copper than even a single decade earlier. Thus, as resource production becomes more difficult, it also becomes even more energy-intensive.

Even today, in most mines energy is the #2 production cost, behind only labour. This leaves us in a scenario where as oil becomes rapidly more scarce, we will need much more of it to produce every unit of raw materials for this massive, global expansion.