The last time copper and base metals sustained a multi-year bull rally was in the early 2000s during a period of rapid Chinese industrialization. China is still the world's top consumer of copper and base metals, and the country is about to experience a boom similar to what they had in the early 2000s, only with the "electrification" movement, said Gianni Kovacevic, CEO of CopperBank.
the industrial use cases of copper and how much of this metal, our industries and companies using today. What we're talking about this with author, investor and CEO of copper bank, Johnny Johnny. Welcome back. We spoke not too long ago about the copper price, and we're going to be drilling a little bit deeper today are the industrial side of this metal.
So. Let me start off by asking you this hypothetical question. Suppose tomorrow, all copper production were to cease. There's no more copper production. What would this world look like? Well, people should know that of all the Cocker that's fabricated in the world today. 75% is fabricated into something to generate, transfer, or utilize electrical energy.
So now that we go into hyperdrive where everyone knows this already, like they used the debate of when is this going to happen in our automotive industry, we're going to be pivoting, um, our renewable energy schemes, commercially viable. I think most people can appreciate that. That is all happening now in real time.
And this is the decade where it starts to come to the full. But what repeat people are really to look at is. You know, we saw Volkswagen's power day last week. How much copper have they procured for this plan? Well, nut that comes later, once the plants are, are retooled and built, and then they become a pervasive new buyer for copper for the next, really for that business.
But let's say the next for the rest of this decade. And that's what your listeners should be, should be pegging in on what will the demand growth be? What can it be? And can the miners keep up with that? Okay, let's talk about this demand growth, the steepest part of the curve. What's that going to be driven by right now in America?
If you buy copper cable at home Depot, you've probably bought it from Southwire. They're the largest fabricator of copper in America. And they, I was at the site about, uh, about 18 months ago. And it's been just about 45 miles, uh, West of Atlanta, Georgia, and the world's largest rod mill is still there. And there's a saying, and I'm going to credit my friend, John Gross.
He says, if rod mill is not going in the boar, there's no fish product that's going to come out. The front door is self buyers' business, going to be good for the rest of this decade. Absolutely better than it's ever been. Because if you're in the business of making cake or fee for transformers or windings, or for all of these different networks, it's going to be as good as it's ever been.
They are 550,000 tons a year, w America's largest single fabricator of copper, but they're not the world's biggest, uh, China state grid is the single biggest consumer of copper in the world. Now the copper market is 25 million tons to get people to contact globally. Uh, well, 4 million tons is recycled copper or what they call secondary and the rest of it.
21, 2020 21 million is primary copper, which comes from sulfide mines, 16 million tons and copper oxide. Uh, 4 million tons, China state grid uses it, just a whisker below 3 million tons of copper a year, but that's not the headline. Did you know, as part of China's 14th, 14th five-year plan, the spending of China state grid starting this year is increasing by 50%, five, 0%.
So if China state grid is already using 3 million tons, I haven't done the calculus on it, but I'm willing to wager it's going to be better than 4 million tons this year. So South wire. China state grid or abyss Pirelli next and cable Mitsubishi around the world. It's it's going to get interesting. Where will they procure?
Long-term reliable supplies. You're right. To point out China, Johnny, cause I'm looking at a historical price chart of copper and in 2001, copper was trading at around 70 cents a pound and it quickly Rose to $3.80 a pound. In a matter of six years, that's, that's a huge growth in just a span of a couple of years.
And I think that was closely tied to the China industrialization story. The, the, the major theme of the early two thousands. I recall with China, rising double digit GDP growth and industrialization at a pace we've never seen before. Um, how much of that can we see today? Because China is shifting to a more consumer based economy.
Well, China is going through. What's called right now, the re electricity of China. And that continues used with this big investment of, um, China state grid. And they have 1 billion, 200 million customers, and they did achieve one of their old goals, which was to give every single household in China access to reliable electrical energy that was achieved.
And in some areas it was done at a bit of a clumsy way. Um, bit of a old technology way, but now they're going through this process, which combinates and really everything, not helicopters, not airplanes, but everything else they want in the medium to longterm to be electrical energy. So the cycle that you're talking about when copper was at its all time, low 2001 and copper was 70 cents a pound.
And if you talk to the people in the industry and I'll, once again, I'll use Don Cox, his basic points. He was, he did the keynote at PDAC all those years. And he talks about in 2003 as the copper place, just ticked a little bit higher and he was talking about China and more people consuming more things and how it will be an unprecedented commodities.
Boom. And it was, we saw that it was something the world had never seen. It caught everyone off guard. But they themselves, many executives didn't believe it. And he was the saying, he says those that know what the best love at the least, because they've been hurt the most. We have something similar right now where you talk about the engineering to enable what we already found.
And we can talk about that in a second here. But when, when I talk about. Making turning a resource into our reserve in copper. And if we look at all the things that we found in the pad dream that trying to Supercycle, because we did spend tens of billions of dollars looking for more copper, the engineering is killing me.
You're going to see copper well above $10,000 a ton, and it's not the wheel. You've got lots of that. And Lima, you got lots of that in Santiago. It's the money, David, you cannot make this stuff work. And so where. When the copper price is that these elevated levels, because as we go through this, uh, electrification of the world, where are they going to want to choose?
Which, which jurisdictions, because God geologically speaking, it's very scarce copper. Okay. Let's talk about the supply side now. Perfect segue. We've talked about, uh, in the industry, you've talked about peak oil, peak gold. Is there such thing as peak copper, Johnny? Not at the right price. We ha we found a lot of low grade resources.
So there was no real world-class deposits. But if you let's say hypothetically copper today is trading at $4 and 10 cents a pound that correlates exactly to $9,000 a ton. And when you, when you look at that on a. On the, the resources that I'm talking about. There's dozens of projects that are 0.3% copper and maybe 0.4% copper equivalent.
And that's important because if you take a ton of war, what's it worth at $9,000 a ton it's worth about $35. If it's 0.4 and it's worth about $27, if it's 0.3%. How can you make a project work location matters. So you have to ask a few questions if you're a copper mining company. Uh, do you have a readily available workforce?
Yes or no? Um, is your tailings going to be relatively straightforward or somewhat complicated and far away from the operation? Yes or no. Do you have, um, is your, uh, near, near, near Tidewater? Or is it a high elevation? Yes or no? Do you have access to water or are you gonna have to desalinate the water and move it up to three or 4,000 meters?
Yes or no. If you're answering no to all these questions, do you have to pay for this? And that's where you're getting these four and five and $6 billion CapEx. Part of it is building the mine, but the second part of it is all the other anciliary things that are required to operate a copper mine. And it tells me.
It's going to be pretty difficult because when you look at dozens and dozens of feasibility studies or pre-feasibility studies, even at $9,000 a ton, it's going to be a T it's either difficult at the margin, or it's not going to give the bankers enough confidence to finance these projects, which tells us because demand's going to be good.
People make these cable products are going to, is business going to be like never before? Um, I believe it will go there and we, they will be able to convert. These low grade resources into reserves to answer your question the long way around, we're not going to run out of copper. As long as the copper price stays at a level that enables these companies to turn a resource into reserve in the answer to that question, it's well in excess of $10,000 a ton or over four and a half dollars a pound or over the all time high, in my opinion.
Hmm. Yeah. All right, let's go back to the price. One more time, Johnny. I'm looking at the price of just take last year, for example, why did it run up from two 30, three of a pound to where it's at now? That's almost doubled like an 80% increase in less than a year. I would expect during a recession of pandemic, when everything's shut down, there will be less industrial activity.
Well, there was, but for some reason, copper, just skyrocket. Why is that? Well, we were really late into a bear market. When you're early into a bear market, you can do certain things and inventory can be taken out and people can always tighten their belts. We were seven or eight years into a bear market, so that was already factored in.
So inventories were actually, we were under supplied. We were taking the last couple of years before COVID out of, out of warehouses on or off warrant. And it was two or three or 400,000 tons a year oldest coming out that game stopped. And then. Not only did demand fall off a cliff during COVID, but a lot of the mines shut down.
They had, they also had COVID closures and a lot of production that came offline and they almost offset each other in, in some respect. And so now when people realize that it wasn't as bad, maybe it wasn't going to be like a 10 year global shutdown. And then they started talking stimulus, but then the stimulus focused on green energy and we're talking $10 trillion and people could already start understanding the POS already started to come in and all of a sudden what happened next, the speculator got involved.
People that have no interest in fabricating, any kind of copper. And they started taking out these tens and 20 and a hundred thousand ton blocks of material. From this Alliance of minor and fabricator, all of a sudden came someone that actually had nothing to do with the copper fabrication business, right.
All that came together and it created this supply scare. And I, I will submit to people that it was the speculators that were able to move the copper price. Well in excess of maybe where the fundamentals drove it. But now we are looking at where is the global economy going? And this money is going to start to be allocated.
These, um, the China's 14th five-year plan heavily to do with renewable energy and the reluctant real electroporation of China and America, the stimulus programs. And of course, there'll be in Europe and even some of the lesser economies in the emerging markets, they're all going towards the, a plan of electrification.
And on top of all that, all these car manufacturers and all the charging, the charging facilities, and even some of the big energy companies, they're already doing these things. Irrespective of everything I just talked about, they're all coming together. Like a Pensar. And, uh, creating at the margin way more demand than supply.
So will the price of copper I believe is going to continue to be very strong. Is there still a deficit right now as we speak we're about a year into the pandemic? Yeah, well, there there's, some of the material has come back to market, but we saw these weird spoofing in the aluminum market where these huge quantities by a computer clicker moved from not being visible to being visible.
And that's not happening with copper. I think copper is something that's, there's only five or six or seven days of annual of daily demand in global warehouses. It's not like the oil market. It's not like the aluminum market. And as I started that, my first thing, if you don't have rod meal going out the back of your plant and you're not going to have any finished product going out to the front of it, And before hand to mouth may have worked, uh, not anymore.
I think people need to have a longer-term vision and maybe some, a longer-term grasp on supplies and what they're going to pay for, for the coming quarters. One thing that also struck out to me is that while precious metals continued to fall, since they're high in August, copper was not the same story.
It continued to rise, actually. So I'm guessing, yeah. Congress coupled and it's decoupled from, from, uh, actually the classic one is the oil decoupling where I've been talking about. This old energy decoupling from new energy and copper simply has to rely on a higher prices for engineering dubbed killed with what should be unprecedented demand.
The oil market is not growing by five or 6%. It's going to it's it's anemic at best. And, um, we may have even reached peak oil. So if you look at that 20 year correlation, which we always share the oil to copper correlation that is already broken down. And when you see copper at at four and a half dollars or $4, I don't, other than politics, I don't see any reason that oil should be 120.
It's a barrel. Do you remember last time copper was $4. Yeah. Copper oil was consistently over right. A hundred at the same time. Those days are gone. The only thing driving that market is going to be politics. And can that happen? Absolutely. But copper's being driven by overwhelmingly by fundamentals. So where's the opportunity for people watching this show.
Let me give you some guidance on what I think is going to take place. Contrary to what many people think there are only about 15 major companies that can basically produce the big bulk of the world's copper. And then you get all the smaller companies. So really it's the thinking of the 15 CEOs of these 15 companies, where will they go?
Because they are going to get a lot of pressure from their shareholders and from their board to grow reserves because. The business is going to be good and their share prices have done very well. So they're going to have to choose between, as we always talk about higher elevation, um, countries that require, uh, AK 47 type protection, or as we like to say are going to be areas that don't have historical, uh, copper mining culture, or they're going to have to go back to historical compromising camps.
And why are they going to do that? Because never would have just talked about tailings. Water electricity readily available workforce. It's all there. So if you look at Arizona, you know, what does it cost to build a 100,000 ton a day mill in the copper corridor compared to, um, three years, 4,000 meters in Peru or in Bougainville or, or in, in the Philippines?
Um, well, it's a lot lower. Let me tell you, and I'm talking like a billion or $2 billion lower for the same metal output. So I believe that's where they're going to be going and what will they pay? So we can look at, in the China Supercycle that you were talking about, there was over 30 transactions and the average price David was between about three and 10 cents.
More than that, even per established pound in the ground. So to be clear, if a project had 10 billion pounds, There would be, um, they were paying on average between 300 million and a billion dollars. That's kind of on the high end. I think there wasn't so many pounds involved with those big projects, right?
So why are they paying this? They paid it last time because, um, the cost to delineate measured, indicated copper pound in the ground based on tens of billions of dollars of exploration and countless hundreds of, of resource estimations and studies. Is 4 cents a pound David, that's what it costs. So to find that 10 billion pound copper porphyry on average, the days of, you know, a hundred million dollars to delineate it gone, we know from all these studies, it's on average 4 cents a pound.
So will the pay knowing that that's what it costs. And it takes 20 years to find a project from discovery hole to the bank of what the usability study. They want projects that year 15 and copper bank is. One of the few juniors that has a project in Arizona that based on the historical economic studies, which they were done in 2013, we don't consider it, consider them to be contemporary, but they were done to a 43, one Oh one standard, all categories.
David we've got 8 billion pounds of copper. So the 500 million tons of measured indicated is 0.4, 4%. The inferred that we have 480 million tons of that 0.3, 4%. That's important because those grades are actually higher than most of the in production stuff in the state of Arizona. So I will submit the people.
Is it plausible? Is it plausible? If they say it's going to cost us 4 cents, times 8 billion pounds, about $300 million to find a project like that, you know, Could it be worse, something like that in the future. And it's you look at the historical market cap value of all the projects that we own in copper bank it's well in excess of $3 a share and it costs them 2 cents a pound, the previous operators to delineate these copper pounds we're treating right now, David, at less than one half of one penny.
So is copper bank undervalue. I will submit to people. We are, um, you know, owner operators. People can see our share prices has behaved. We do what we say. We say what we do, and we are going to be moving forward. Some what I think are pretty exciting drill programs in the state of Arizona. And that's just one example.
So just, you can use the copper bank example against any of your favorite copper juniors, where are they? What, how much, uh, infrastructure, water readily available workforce are they going to have to implement, to develop those projects? Is it a lot, or is a little, and that gives you guidance on what the CapEx will eventually should be and are major minors going to want to endeavor to finish those projects off.
Cause you do not want to be with a junior that you know, that things they're going to be building a compromise. That's a totally different skillset. So there's the people that delineate the resource. There's the people that discover the, the official hole, the discovery hole. And then there's those people that are qualified to build copper mines.
We are custodians of our projects and we believe that we have something that they're going to want. And then that's how we're playing it. But people can use our market value, our costs and where we are, and they can superimpose it against any other junior with that, with an established, advanced stage copper project, anywhere in the world.
Excellent. Johnny, thank you very much for your update. I appreciate your time as always. Thank you, David. And thank you for watching kiszko news. I'm David Lee. Stay tuned for more coverage.