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I Believe I’m Right, But I Hope Robert Friedland is Right

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September 8, 2017

Robert Friedland says the price of copper will be so high in the future that you’ll need a telescope to see it.

If he’s right, shareholders in the right copper stocks stand to make a fortune.

But is Robert right with his forecast?

Or… is mining giant Glencore right?

Or am I right?

If you’re not familiar with Robert Friedland, you should be. He’s one of the world’s richest, most successful mining entrepreneurs. His first mega mining score was Diamond Fields. Friedland’s team discovered Voisey’s Bay, a world-class nickel deposit. The discovery made Diamond Fields’ shares go from $0.25 per share to over $160 per share, a more than 63,000% gain. This single deal made Friedland a billionaire at a young age.

Friedland made another huge score with Ivanhoe Mines, which discovered and developed the giant Oyu Tolgoi copper-gold deposit in Mongolia. The share price of Ivanhoe Mines went to a high of $28 per share in January 2011 from a price under $1 just a decade earlier.

These days, Friedland is looking to make his next big score with “Ivanhoe Mines 2.0”, his company that owns three world-class projects, with a heavy emphasis on copper.

Friedland is an incredible salesman and presenter. Recently, he has wowed audiences with claims that the price of copper will skyrocket over the next decade. A big driver of this copper bull market, says Friedland, will be electric vehicles (EVs).

Regular Katusa Research readers know that I believe EVs are very bullish for long-term copper consumption. They know 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.

For a long time, mass adoption of EVs was an environmentalist’s fantasy. Zero emission vehicles that run on electricity just couldn’t compete with conventional cars on price, quality, and fueling infrastructure. But thanks to incredible advances in technology, massive investments by large car makers, and huge government support, electric vehicles (EVs) are poised to go mainstream.

But just how mainstream will EVs go? And how much copper will EVs consume?

Below, I’ll go over EV copper consumption forecasts from Friedland… commodity giants BHP and Glencore… and your independent source of investment research and ideas, Katusa Research.

To compile data on these forecasts, I’ve combed through public data and public statements… and modelled their assumptions to 2040.

To make such a forecast, you need two inputs. The first one is how much copper, on average, each EV will consume in the future. The second input is how many EV cars will be on the road in the future.

Robert Friedland has stated that EVs will require 330 pounds per vehicle. BHP, the world’s largest mining company claims future EVs will require 176 pounds per EV. Glencore claims 110 pounds, and Katusa Research is pegging 100 pounds per EV.

For the second input – how many EVs will be on the road – I’m using Bloomberg New Energy Finance’s EV outlook, which is the industry’s accepted forecast. The Bloomberg folks forecast EVs will have a 2% share of the global vehicle market by 2020, a 24% share by 2030, and a 54% share by 2040. A market share of 54% by 2040 may sound high, but I believe that adoption rate is very realistic.

Using the inputs described above, I created the chart below. It shows how much copper the EV market will need each year based on the assumptions made by Friedland, BHP, Glencore, and yours truly.

You’ll note that my forecast is very similar to Glencore’s. I’m glad to see this. Glencore is one of the smartest natural resource companies in the world. Its managers are smart and tough and they have a lot of skin in the game. I say that with great respect.

You’ll note that BHP’s annual EV copper demand forecast by 2040 is 76% higher than mine. Robert Friedland’s forecast is an incredible 230% higher than mine. If Robert Friedland is correct, over 20 billion pounds of copper will be required in 2040 to meet just the copper demand for EVs. That is equivalent to about 40% of today’s total copper production and demand.

Before I ran the numbers, I would have guessed Friedland would be the highest. Friedland is a world-class promoter. He wants to drum up interest in his copper company. Naturally, he’s going to create and promote an extremely bullish scenario.

I’m not here to sell you a copper company. I’m just showing you what the numbers tell me. And granted, I always like to be conservative in my forecasts to give me and my readers a margin of safety.

But here is the point: Even if my conservative forecast is right, copper is going much higher over the long term. I’m forecasting that in just 12 years, EVs will consume 1.3 billion pounds per year. This demand is greater than half the annual production of Escondida, the world’s largest and most productive copper mine. But as I’ll share in the near future, the world can’t supply that much copper at prices below $3.50 per pound. It will require at least $4 copper.

Now, if we use BHP’s projections, copper will probably go north of $5/pound.  

And if Friedland is right, we will see copper north of $8/pound. 

Friedland is a force of nature. He is smart, rich, aggressive, and abrasive. I have seen him go into Mongolia and make billions, while having everyone doubt him the whole time. He has done the same in the Congo. You don’t want to bet against Robert Friedland.

Although I’m openly doubting Friedland’s copper demand projections, I’m not betting against him. I believe I’m right, but I hope Robert is right.

The good news is, no matter who is right, copper is going a lot higher, and those who own large, high-quality copper deposits in mining-friendly jurisdictions will make a fortune in the Electric Vehicle boom… without selling a single car.

Regards,

Marin

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