Copper: The Bottleneck Beneath Everything

Intro

I’ve written a lot about my portfolio’s biggest theme - Electrification. Underneath it sit many sub-themes, sub-sea cables, data centers, renewables, grid infrastructure, EVs, smart cities. All of these themes rely on a single key raw material: copper.

I've talked before about "picks and shovels" investing - owning companies that profit from a trend without having to pick the winner. Copper is the metal those shovels are made from, and the more I’ve researched into the next 5-10 years, the more I think the market is too relaxed about how tight this gets. In this post I’ll explain the copper bottleneck.

Why Copper?

Copper conducts electricity better than anything else we can afford to use at scale, making it close to irreplaceable for almost everything I invest in.

• A modern EV uses 60-80kg of copper, where a standard petrol car uses only 25kg

• Grids are evolving, upgrading and expanding and demand a huge quantity of copper

• Renewables. Wind and solar are spread out by nature and all of it needs wiring together

• AI was barely considered 5 years ago, but recent estimates show data centres will require around 475,000 tonnes of copper this year

Almost every growth trend I follow is, indirectly, a bet on more copper.

Supply Can't Just Respond

A new mine takes around 17 years on average from discovery to production, permitting alone can take up to 10 years. The supply available in 2035 is largely determined by decisions made, or not made, years ago.

The copper we mine is also increasingly difficult to reach and process. Average ore grades have fallen from around 1.5% in the 1990s to 0.7% today meaning we mine double the rock for the same amount of metal. This in turn uses more energy and water, increasing costs.

With more complexity comes more disruption, last year a mudslide in Grasberg Mine, Indonesia cost several lives and only recently restarted production. Chilean mines have cut forecasts this year by around 5%.

What’s really signalling the weakness in supply is the situation with smelters. Ordinarily, miners pay a fee for smelters to process the ore into metal. These treatment charges have declined from $80-120 per tonne to $0 and even negative in some cases. Smelters are paying miners to process their ore because there is more processing capacity than mining capacity.

Sustainability

Mining is not a clean, feel-good industry, and I won't pretend it slots into my "do good for society" framework the way a heat pump or a solar inverter does. But copper is the enabling material for almost everything that does. Without new copper, the renewable rollout, grid upgrades, EV and AI transitions simply stop. I'd rather back the better-run operators in a sector we genuinely need than pretend the transition happens without it.

My Positions

I own two copper miners: $FCX and $ANTO.L, together about 4% of the portfolio.

Copper is already an input to much of my portfolio indirectly through the cable makers, the electrical equipment names, and the grid businesses. So I’m limiting my exposure slightly despite my conviction on the multi-year growth potential. I’m also early on this trade, so will continue to build up my exposure gradually over the next 12 months.

Both my positions are deliberately miners. As those treatment charges showed, the scarce asset is the ore, not the processing capacity.

Freeport is the recovery and scale play. The Grasberg restart is running ahead of plan, increasing mining output by around 60% by 2027. They are also the largest US producer, which matters while Trump is tariffing imported copper.

Antofagasta is the quality name and the better fit overall - pure copper, and among the better-rated large miners on environment and safety. They have two major projects - Centinela and Los Pelambres that will be completed in 2027, adding around 30% to group production.

Closing Comments

The copper story isn't exciting, but it is the reality of what the world needs to electrify everything. The demand is visible years out, the supply constraints are already here.

The certainty of the tight supply and growing demand, and the lack of glamour and excitement around the industry is precisely why I believe it is mispriced, especially against a backdrop of accelerating climate change.

As always, thanks for reading, following and copying. If you like what you hear, please check out my portfolio and consider following or copying. I’d love to hear your thoughts and questions, and will do my best to respond quickly.