The Opportunity in Copper’s Political Woes

For years I’ve explained the electrification of everything would require abundant supplies of metals that are vulnerable to supply shortages. 

Metals like copper and lithium, among others.

Those shortages will be made worse by rising geopolitical risk as wealth inequality around the world is made worse by central bankers and the politicians who facilitate their policies.

That risk is starting to make itself apparent as the old class of politicians is slowly but surely being shown to the door.

In Peru — the second top copper producer — the June presidential runoff is starting to look like it will be a lot closer than many predicted. Many “experts” have already called the election for socialist candidate Pedro Castillo. But right-wing, and very pro business, candidate Keiko Fujimori now appears to be within a 3% range according to a recent poll.

Castillo made headlines after pledging to rewrite Peru’s constitution for fear he would nationalize the country’s natural resources, though he’s accused his political foes of mischaracterizing his position.

What’s not up for debate is this weekend’s results from Chile — the top copper producer — where the “experts” once again got it wrong.

Earlier this month, Chile’s lower house approved a bill meant to extract higher taxes on copper miners. The tax is said to be necessary to help address the escalating poverty levels in the country. 

That makes the election results this past weekend a lot more consequential. Chile's center-right ruling coalition failed to secure the critical one-third of seats in the body that will draft the country's new constitution.

Instead voters elected independents — economists, actors, politicians, bakers and candlestick makers (I made that last part up but it might be true and Chile may be better off for it — to spend a maximum 12-month period debating new text for the Constitution. 

Chileans then get to vote. If the proposed version fails then — and this is important — Chile keeps the current text, which was crafted under the 1973-1990 dictatorship of Augusto Pinochet. The citizenry believes that text is heavily tilted in favor of business interests and a driver of wealth inequality and corruption.

What’s happening in Chile isn’t a one-off. Established candidates from both right and left were voted out.

I reached out to companies operating in Chile and they are crystal clear that change is coming in Chile and that it will be important to get it right from a social license perspective — and to get it right early. 

It’s a bit interesting given the results in Chile and the recent sell off in the Peruvian market (and companies with Peru exposure) that if Fujimori wins in three weeks, Peru may suddenly become a much more attractive mining jurisdiction and an alternative for capital seeking the metals necessary to power the future. 

If that happens, expect a sharp rally.

If it doesn’t, we’ll get the opposite. 

But you can then expect higher premiums to be allocated to companies able to discover and produce in stable jurisdictions with a predictable path forward.

Let's get it!
 

Gerardo Del Real
Editor, Resource Stock Digest
 

For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Resource Stock Digest, Junior Resource Monthly, and Junior Resource Trader. For more about Gerardo, check out his editor page.

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