Thread by @puppyeh1

There has been a lot of talk about copper lately (esp w Chile and Peru likely incr in taxes). I am hardly an authority but here is how I think about it.

TL;DR the setup for copper prices is about as attractive r/r you’ll see in commods in the mid-term imo.

Let’s start w the basics. Copper is almost in structural deficit today (and will certainly be in a cpl yrs). Basically every major mining house CEO is saying this. GS is saying this, etc.

Miners have been high-grading for years; not making large scale new discoveries...

The problem in commods markets is when an ancillary use case for a commod develops much faster than mine supply can be brought online. In this case that use case is EVs.

Historically copper consumption grew w global GDP but is now growing multiples - because EV adoption is increasing so rapidly. This will not change mid term.

Meanwhile post covid stimulus means trad copper consumption (construction, etc) is ripping back.

This is why copper was breaking 6yrs highs...before these tax issues emerged. Basically every copper producer globally is incentivized to max produce w copper @ $4.5/lb

Now we have Chile - 30% of global production - proposing taxes that take 27.5% of SALES at $4.5/lb. in other words $1.2/lb of value. This is pre Corp income tax too 🙉🙉

The issue is this likely doesn’t become law until next yr, or maybe later. This means every copper investment decision in next 2yrs will be halted....

Chile is a huge piece of global supply but the mines are old and mined out. Most all the large mines need big ongoing capex to run in place, let alone meet new demand for the metal...

Meaning if taxes like this get put through it’s a certainty Chilean production goes lower. Probably quickly. You may see a decent chunk of the fleet “shut in”...

With the market straining for supply, even a small decline here would be rocket fuel for prices. What if just 5-10% of Chilean supply is lost in the next 2yrs? That’s 2-3% of the global market!

And this is just Chile. Peru is already copying suit and others will follow...

Basically the set up is this. If Chile et al calm down and moderate the tax take, copper prob goes up - but slowly/linearly. There is still a structural deficit that needs higher prices to stimulate production...

But if these taxes even partially stick, or are extended, you could see a massive, massive reckoning. Prices could do a palladium...simply put you could see crazy levels and global markets is massive backwardation...

You can express this view via non-South American copper plays or just the direct metal itself. It is deep and liquid. I have the latter as well as some Chile plays (but higher octane now 🔥).

Good luck to all, let’s revisit this when copper cracks $10/lb 🤣🤣