Copper Price Could Double Due to These Factors, Gianni Kovacevic Reveals
Angela Harmantas | SmallCapPower | April 15, 2016: Gianni Kovacevic is a natural resources investor, and a champion of copper. In an exclusive interview with SmallCapPower, he tells us why being a ‘realistic’ environmentalist makes economic sense, how copper will be the key component of the technological revolution to come and which companies he thinks could benefit from copper’s rise.
Gianni Kovacevic is a well-known commentator and investor in the natural resources sector, and a champion of copper. His new book, “My Electrician Drives a Porsche: Investing in the Rise of the New Spending Class,” is a parable of wealth creation due to shifting demographic trends and the significance of cleaner, greener energy. He is currently driving a Tesla across North America to debunk common myths about electric cars and clean energy. In an exclusive interview with SmallCapPower, Gianni tells us why being a ‘realistic’ environmentalist makes economic sense, how copper will be the key component of the technological revolution to come, and which companies he thinks could benefit from copper’s rise.
SmallCapPower: You call yourself a “realistic environmentalist.” What does that term mean to you?
Gianni Kovacevic: A realistic environmentalist is someone who appreciates and recognizes that there are more and more people on the planet who require access to electricity. Right now there are over one billion people who don’t have access to electricity but by 2030 nearly everyone is going to have an electricity bill. It’s inevitable. As a realistic environmentalist I recognize that environmentalism and investment go hand in hand – we can adhere to sustainable development practices while also creating wealth.
SmallCapPower: Can you tell us about your book, “My Electrician Drives a Porsche”?
Gianni Kovacevic: Funnily enough, the book has nothing to do with fast cars. It’s an allegory about contrarian investing told from the perspective of two characters: a young storytelling electrician and his family doctor. The doctor likes to invest in the stock market but sticks to standard, blue chip companies, whereas the electrician, a millennial, has a much more broad perspective. He slowly indoctrinates the doctor into the world of contrarian investing following the longest trend in history, the ascent of man. The electrician recognizes that most of the major revolutions in world history share a common bond – copper.
SmallCapPower: How does copper play a role in this revolution?
Gianni Kovacevic: I like to tell people that oil is energy, and energy without the use of fossil fuels is electricity, which demands copper. The greener and cleaner we create and utilize energy, the more we demand of copper. Over the next few years copper is going to disproportionately benefit from the move to replace fossil fuels with cleaner electricity. We’re also talking about building more and more electric vehicles, which typically require 300% more copper per machine. Furthermore, and even more profound, is the magnitude of wind and solar energy that is being installed by hundreds of gigawatts per year, on a global scale. This kind of electricity needs 300% – 500% more copper than conventional electricity generation. There is a whole new set of demand backers for copper that really does provide an economic incentive to build new copper mines. It’s also an opportunity as an investor in copper-related companies.
SmallCapPower: Copper prices are on a run to start 2016. Do you think it is sustainable?
Gianni Kovacevic: Right now, copper prices are tightly correlated to oil prices, this relationship goes back decades in fact. In the future we should witness a definitive decoupling of the prices of copper and oil. The price of copper could realistically double even if oil prices remain stagnant. Technology is not the friend of the oil industry, whereas copper really stands to benefit from the de-carbonization of the energy mix. I do think it’s sustainable in the long term. The situation now is different than it was in the early 2000s when some producers hedged copper in the low $1 range forgetting they had a new customer, China, and the price rose to $4/lb. Once again the copper industry has countless new customers – anything that creates and utilizes energy without fossil fuels – and the industry is going to literally have millions of new tons of copper demand. My guess is that demand will rise about 30% in the next 10 years, and it is hard to build more production. New demand for oil will never again rise 30%, not ever. The real question for oil is when to we go into terminal decline for demand? Not yet, we need more oil, but in 10 years? Yes.
SmallCapPower: Are there any companies that you like at this time and why?
Gianni Kovacevic: There are a number of companies I like from each part of the food chain. In production I like Lundin Mining Corporation (TSE:LUN) – it has great assets, a lot of copper exposure and a strong balance sheet. In the development stage one of my favourites is NovaCopper Inc. (TSE:NCQ). They have the highest-grade project of scale in Alaska with potential to grow in size and a great management team. Right now it is trading around one third of a penny per established pound in the ground. Most projects are closer to a penny per pound. Exploration-wise, it doesn’t pay, there is no joy for discovery so it’s better to acquire established pounds and hold them. CopperBank Resources Corp. (CNSX:CBK) is a holding company with a very simple philosophy of acquiring projects of merit that do not require large cash expenditures. The company has built a depository of three copper projects that are trading at one-tenth of one penny per pound in the ground. Finally, if you want something different, Focus Graphite Inc. (CVE:FMS) owns what many people consider being the highest grade, highest quality graphite asset in development. The company also owns a large position in Grafoid, a graphene development company that has support from governmental bodies – so they aim to create value-added products rather than just mine graphite in the future. All these companies also have great knowledge centres on their websites for any inquisitive readers out there who want broader resources to explore. (Disclaimer: Gianni is a shareholder of all four companies.)
SmallCapPower: What are you hoping to achieve with your Tesla tour of North America?
Gianni Kovacevic: What I have tried to accomplish with the book is to take the reader down a path of enlightenment to appreciate and understand the army of new spending class consumers and the ramifications of the changing energy mix. Tesla plays heavily in the book because a lot of it is about electric cars and green energy. The Tesla tour is my tool to engage with a bigger audience to talk about the pledge to move away from fossil fuels. I think that there are a lot of people who don’t believe that the future is now so I’ll take them in the car to show them that electric cars are not an inconvenience – they are an integral part of our future. I do love talking about copper and I believe that there’s a tremendous opportunity in copper equities at this time.
Follow Gianni on Twitter @RealisticEnviro for information on his next tour stops. “My Electrician Drives a Porsche” is available now in bookstores across North America.