Jennifer's avatar
$5.1m follower assets
Africa is Copper Country
$IVN.TO

Investors often fear jurisdiction risk when considering Africa. Governments across the continent are seeking to reassure the world that it's a safe and supportive environment. Africa will be hard to ignore as the world transitions to clean energy, with its abundant resources of lithium, copper, cobalt, and manganese.

"Existing investors are doubling down, and others — like giant BHP Group — are sniffing around the region for the first time in years...there’s a growing awareness that copper and cobalt are central to the world’s shift toward renewable energy, and security of supply will become crucial in the coming decades. The global copper market is already tight and new mines are difficult to find. In cobalt, Congo is so dominant that it’s impossible to ignore."

Zambia's 'government sees copper as “the new oil” and wants to benefit from the growing demand for electrification in the way that oil-rich countries capitalized on energy booms, he said. That means growing production levels.'
Oliver's avatar
I agree that copper producers should do well in the electrification of western countries to meet 2050 climate goals.

I’m looking at the $COPX to give me a broader suite of companies in the copper business.

Do you have any thoughts on the EFT vs selecting a handful of individual copper companies?
Jennifer's avatar
@odysseus Hi Oliver, apologies it took me a few hours to get back to you. Your question is actually one that has crossed my mind occasionally, and I wanted some time to ponder it. I am attaching a few links to support my personal opinion on ETF's vs a handful of individual companies. I think ETF's offer several advantages, particularly for those that want to spend less time monitoring or researching individual companies. My personal preference, however, is to have greater control over my investments and potentially achieve greater returns via higher risk choices.

I have not performed any DD on $COPX but a quick look tells me that if I were to invest in commodity based ETF's, it's one I would strongly consider. I currently own two of their holdings, $IVN.TO, $TECK-B.TO and in the past I have traded $FCX and $GLNCY. Just looking at a the ~30% difference on COPX between the 52wL/52wH. Now if I look at TECK/IVN/FCX as examples the differences are 56%/41%/42%. As you can see the individual stocks could potentially offer more attractive entry and exit points over the course of a year.

As the quote below from Investopedia states:
"Sectors that have a narrow dispersion of returns from the mean do not offer stock pickers an advantage when trying to generate market-beating returns. The performance of all companies in these sectors tends to be similar." Therefore an ETF may be a better choice when investing in utilities & consumer staples.

"When deciding whether to pick stocks or select an ETF, look at the risk and the potential return that can be achieved. Stock-picking offers an advantage over ETFs when there is a wide dispersion of returns from the mean. And with stock-picking, you have the ability to gain an advantage using your knowledge of the industry or the stock."

I have invested in ETF's previously, $CWW.TO for water and $WEAT when the war in Ukraine broke out. Though both were profitable for me, the returns on CWW were significantly less than I was able to achieve in a higher risk/reward areas (junior mining) and the stock is currently back at the levels I initially bought it at.

As for $WEAT, it was a lesson learned that not every ETF is the same. Reuters article attached: "Ordinarily, ETFs can constantly create or redeem shares depending on demand. But WEAT is a so-called commodity pool, which have a pre-set number and require regulatory permission to generate more. With demand still strong on Monday, the fund temporarily halted the creation of more shares pending the approval of the U.S. Securities and Exchange Commission." Therefore, ETF's also require significant DD. I assumed otherwise and once the stock hit its 52wH and didn't head higher despite strong fundamentals, I became aware of this particular problem.

I believe the bottom line is this: do you wish to spend time researching individual companies and take on higher risk in the hopes of a greater return than a basket could offer? Does the ETF expose shareholders to capital gains? does it have issues similar to those I encountered with WEAT?

I personally prefer to research individual companies and invest based on my estimate of the return, rather than have someone choose those companies for me. My return on NGEX.v over the past year is well over 100% and I believe it could potentially achieve much more as drill results are returned throughout this year. Really it's a matter of personal preference, neither is a poor choice.

Hope that helps and best of luck to you!




Oliver's avatar
@jennymanydots again thank you for a really good explanation on the pros and cons of EFT vs individual stock picks.

I’m quite new to investing (started late 2020) and I’ve been trying to create a future focused portfolio around the shift from fossil fuels to renewables that encompasses everything from the raw materials, component parts and end products.

I’ve really enjoyed reading your posts on raw minerals and yeah thank you for taking the time to really explain your approach.

I think I’ll do with copper what I did with lithium and do a real deep dive to find a company that is nearing production (similar to $LAC ) and open a position into them but complement that with a similar investment into $COPX so I can ride the electrification wave upwards (hopefully)
Jennifer's avatar
@odysseus Always happy to chat, if I don't have an answer then I do my best to find one. I would suggest looking at Ivanhoe $IVN.TO as a copper investment. With Western Foreland results out in the near future, I think that one has plenty of upside. I am not generally concerned with jurisdiction risk in the Congo (incidents tend to happen with artisanal mining locations rather than majors with good security) but I know some are hesitant about it. You also might enjoy the book called The Big Score about Robert Friedland! Best of luck to you :)

Author

Related