Copper gains from Oils pain

Our thesis for holding the majority of our portfolio in copper in general and Oroco Resource Corp OCO.v specifically has only strengthened in the last months.

SARS-CoV-2 has had a massive effect on the world economy, both in its scope and its velocity. Demand for oil literally dried up in a month. In most conversations on copper, oil will inevitably come up and vice versa as they are affected by the same macro economic factors. Copper is generally thought to lead the price of oil, I think thats about to change.

Supply of both copper and oil is finite and both are seen to be coming to a pivot point in terms of what is left to be discovered and the prices at which it is economic to extract each commodity. You always hear “peak oil” or gold but rarely hear of peak copper. At any rate my opinion is that there will always be oil, gold, and copper available as price will adjust for scarcity. The last drop of oil will never be produced since as price goes up substitutions will be found, shifting demand toward the cheaper option.

Thinking again of demand for copper and oil I will postulate demand for oil will be substituted by demand for copper. Of course they are not at all fungible as commodities but demand will shift from oil to copper as the shift to electrification takes place. I also postulate the SARS-Cov-2 demand shock will hasten the shift away from oil, somewhat counterintuitively. Supply/demand says that as prices fall demand increases. So will we go back to the 5 litre V8 engines of the 1970’s since oil prices have dropped? I think not. Will there be a Hummer 4? Yes, but its electric!

The oil shock of 1978-79 changed the landscape of the automobile industry forever. Higher prices increased the demand for smaller more efficient cars. Those already existed in Japan and were imported to the US, no need to reinvent the wheel, thus Honda etc became the huge multinationals they are today. When the taps were turned back on the more efficient engines didn’t disappear. The structure of the automobile industry had changed forever. This is happening again today but this time its the EV taking over demand formerly supplied by the internal combustion engine. The trend was already happening with every auto maker either having a full EV in its lineup or planning to unveil it shortly.

Electrification of the planet in terms of producing power (solar, wind) and consuming power (EV’s) both take significantly more copper than conventional methods. Demand for copper will increase on both sides of the equation with current supply of copper (both new mines and grades) falling rapidly and the cost of oil (not price) has been going up if you take into account environmental and social impacts. The double demand increases for copper and increasing environmental cost for oil lead us to believe oil will not follow copper in this recovery.

Oroco Resource Corp. OCO.v has one of 5 copper deposits world wide in the hands of a junior (arguably the #1 deposit) available for acquisition by a major. Santo Tomas currently has enough copper to supply the production of 45.5 million electric vehicles, thats one in 3 cars on the road in the US right now. Oroco is planning to expand the current resource with an upcoming drill program set to begin very shortly. The SARS CoV-2 shutdown has delayed the drill program by about 2 months but it has given us the opportunity to increase our position at prices i wouldn’t have thought we would see again.