As an energy and infrastructure specialist, I think the greatest way to make money in the coming decades is to buy “TIME” companies. I’m not talking about the magazine, but rather Technology, Industrials, Materials and Energy.
Today, I’m going to focus on materials -- particularly the raw varieties: Iron ore, silver, palladium, platinum, aluminum, wood and a host of others. Materials like these are what companies need to make the things that people use every day.
After all, everything we use starts with a pile of raw materials. We obtain them by open-pit or sub-surface mining, harvesting, or pumping them out of the ground. They’re then refined, molded, cast, machined, or otherwise transformed into everything we have and use.
TIME companies – particularly the suppliers of several kinds of raw materials – have nearly unlimited upside potential in a global, emerging market-based, economic environment, like the one we’re in right now.
And my favorite material? Copper. It’s been around since the Stone Age, or for about 60,000 years. The greatest copper deposit ever discovered was at Rio Tinto, in Spain.
Copper from the Rio deposit supplied the armies of the Roman Empire and gave mining giant Rio Tinto plc (NYSE:RIO) its name.
Life Without Copper? Forget It
Ever wonder what your life would be like without copper? Chances are you don’t give it a second thought. But without copper, we’d be stuck with no running water, no phones, no TVs, no cars and no electricity. Copper is probably the most important thing in our lives today.
You might think that food and water are more important -- and from a life-sustaining standpoint, they are. But unless you grow your own food and have a water supply fed by gravity through wooden pipes, copper plays a key role in getting both.
Most companies start with 99.99% pure copper when making products. But getting to that level of purity is quite an involved process.
It All Starts at the Copper Mine
One of the biggest open-pit mines in the world is the Bingham Canyon Mine, run by Kennecott Utah Copper, a division of Rio Tinto. The Bingham Canyon Mine is the largest man-made excavation in the world, and is visible from space with the naked eye. Over the lifetime of the mine, it’s produced nearly 20 million tons of copper.
Over 500,000 tons of ore are removed from the mine every day. Why so much? Well, the ore only contains miniscule amounts of copper, anywhere from 0.4% to 1.0%.
To begin separating the valuable metal from the rest of the materials, the ore is first crushed into a fine powder. It’s then mixed into a bath that causes it to float to the top of a large tank, where it’s skimmed off the top. Then it’s dried, burned in a furnace and further smelted.
The copper extraction process from the ore yields other valuable products, like gold, silver, molybdenum and sulfuric acid, all of which are sold. Back in 2005, molybdenum prices were so high that the value of the molybdenum produced that year was worth more than the copper.
Copper Demand: Outstripping Supply Since 1925
Here’s the important thing to know as an investor: The demand for copper is increasing nearly four times faster than the world’s biggest miners can supply it. Things like electric vehicles (EVs) and wind generators will substantially increase its use. The average gasoline-powered car contains about 55 pounds of copper, while electric vehicles and hybrids will have at least double that. The average one-megawatt wind generator uses about four tons of copper. So does a one-megawatt solar farm.
But the real increase in demand for copper – and just about every other commodity – is coming from China, India and other emerging market countries. Growth in China alone is about 15% per year, according to an analysis done by HSBC (HBC).
It’s no wonder the price for copper hit a record high last week. In response, the major miners -- including the world’s biggest, BHP Billiton Limited (NYSE:BHP) – plan to invest over $100 billion in the next few years in order to meet the burgeoning demand for the shiny metal.
Investors who want to include a few TIME companies in their portfolios would be wise to include one or two copper companies among them. There’s simply no end in sight for its demand.