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Rio Tinto: Copper Plus

09/13/2018 5:00 am EST

Focus: COMMODITIES

Jim Powell

Principal Analyst, Global Changes & Opportunities

I think exceptional returns for the metals are a slam dunk for long-term investors who take advantage of today’s lower stock prices for the leading producers, asserts Jim Powell, editor of Global Changes & Opportunities Report.

The biggest and most profitable long-term metal play will almost certainly be copper. Copper prices are down some 20% over the past 10 weeks due to worries about global economic growth. An economic slowdown is certainly possible, but I continue to think the trade dispute will be settled before it can cause significant damage.

No matter what may happen to the economic outlook over the near-term, the extended outlook for copper is very good. The metal is a crucial component in the development of renewable energy, electric cars, the national electric grid, and homebuilding — all of which are likely to expand rapidly.

I am a long-term bull on the technology metals because I don’t think there is any chance that electric vehicles, solar and wind power, and other “green” products will fail to develop and replace their less efficient predecessors.

At the same time, all the rich copper deposits are being played out. Some mines have been in production for over a century. What’s left are lower-grade reserves that require more expensive extraction and processing. If new and richer mines are not brought into production within a few years, the world is likely to experience a copper shortage.

Aggressive long-term copper investors should consider Rio Tinto (RIO). The company has a diverse portfolio of high value metals, minerals, and diamonds that it extracts worldwide. The company is primarily in North America and Australia — but also has operations in Asia, Africa and South America.

Although Rio Tinto isn’t a copper pure-play, it is working to greatly increase its copper operations. The company is currently developing the rich Oyu Tolgoi mine in Mongolia that may be the world’s last available high grade copper deposit.

The open pit mine has been in operation since 2013. The even larger underground deposits are now being developed by Rio and its partners — which includes the government of Mongolia.

Although the latter is forever complaining about skimpy tax payments and royalties, the bottom line is that Mongolia can’t afford not to fully support the project that should contribute 30% of the country’s GDP when it is fully operational in 2020.

I continue to believe the long-term demand for high tech metals will push prices up substantially. Rio Tinto is clearly speculative — but not as much as some investors might think. That’s because the company’s other operations also have excellent long-term prospects.

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