On Wednesday, we launch my targeted plan for attacking mining stocks in 2023. You can still register to view it for free by going here.
Below, though, I’m stepping in for Greg to go deep in on a specific aspect of this strategy…
When it comes to looking at future prospects for copper, it pays to understand what is going on in Chile.
After all, Chile is the world’s largest producer of the metal, accounting for around 30% of the total global supply.
It’s what makes copper a serious business in this South American nation, and it’s been that way for more than 60 years.
In fact, 50% of the country’s total exports come from this single commodity alone.
It makes copper to Chile as iron ore and coal are to Australia.
However, this metal has played a leading role in staging a dark, brutal chapter in Chile’s not-so-distant past.
It all started in the early 1970s when the left-wing Chilean government led by Salvador Allende set about outright nationalising the country’s copper mines.
This was a period known as the ‘Chilenisation of copper’.
Frustrated by multinationals siphoning the country’s mineral wealth mostly to the US, Allende gained widespread public appeal by bringing the country’s copper assets under state control.
In 1971, Allende’s government amended the country’s constitution, which gave the nation full ownership of all major copper mines.
With tails between their legs, the multinational mining companies were swiftly extradited from the country.
No compensation was offered. Shareholders were left reeling.
Multimillion-dollar assets were wiped from the company’s balance sheets effectively overnight.
This proved to be a windfall to the country.
In the early 1970s, copper contributed 80% of Chile’s total exports…this is why the commodity was popularised as ‘Chile’s salary’!
Unsurprisingly, the people adored Allende and his Marxist government.
But his bold actions were creating ripples to the north. The US government, suffering from years of chronic communist paranoia, was determined to undermine Allende and eradicate the idea of nationalism for other would-be South and Central American nations looking to repeat Chile’s playbook.
Which is exactly what the US government did.
Chile was condemned by the West and given a strong dose of international sanctions.
But the then US President Richard Nixon wasn’t satisfied with these ‘soft tactics’.
Despite the Chilean public’s overwhelming support for the democratically elected Allende government, US officials systematically went about dismantling his control.
On 11 September 1973, a group of military officers led by General Augusto Pinochet seized power in a coup, ending civilian rule.
Chile called the event their very own ‘September-11’.
The military established a ‘junta’ (dictatorship) that suspended all political activity in Chile and repressed left-wing movements, especially communist and socialist parties.
Allende was killed, most likely executed by the military while his presidential palace was attacked, image below:
Source: People’s World
The Nixon administration, which had worked to create the conditions for the coup, promptly recognised the junta government and supported it in consolidating power.
It marked the end of Chilean democracy, which had been in place since 1932.
It also initiated one of the most violent periods in Chile’s history.
The US-supported government used political suppression using torture and murder to destroy all remnants of the leftist ideology.
This persisted for years.
As the country’s most important export, copper played a critical role in sparking the darkest chapter in Chile’s history.
Knowing WHERE to invest is just as important as timing and picking the right company
Why is it important to understand the nationalisation of Chile’s copper mines in the 1970s?
Well, nationalisation ALWAYS ends badly for investors.
In fact, I have personal experience of this from working in Zambia a little more than 10 years ago.
As a geologist, I spent more than three years working along the Democratic Republic of Congo (the DRC) and Zambian border (thankfully on the Zambian side).
From all reports, the DRC is not a country to mess with, let alone invest in.
Contacts that have worked for the well-known Canadian mining billionaire magnate, Robert Friedland, tell me this guy has a special place in the DRC hierarchy…the government does not touch him.
If you’ve never heard of Friedland, he made a fortune from his copper business Ivanhoe Mines; it holds several key copper assets in the Southern part of the country where the Zambian copper belt crosses into the DRC.
He is Canada’s equivalent of our own Andrew ‘Twiggy’ Forrest.
While Friedland has made a success in the DRC, for everyone else looking to invest in this country, it’s buyer beware.
For example, when I worked in Zambia way back in 2010, the Congolese government nationalised one of the country’s largest copper deposits.
The unlucky victim was the Canadian-listed company First Quantum Minerals [TSE:FQM].
After FQM spent upward of $700 million developing the project, the government stepped in (via military intervention) and took full control of the mine. Workers were escorted offsite under military guard.
It had an enormous impact on the company and its shareholders.
Ultimately the risk didn’t pay off, and many investors have shunned the country since.
It’s one of many examples where investors lost out due to nationalising of mines.
Why this is set to become a BIGGER issue in future
As you know, the global economy has been under immense pressure lately as a consequence of trade embargoes against Russia. This has fragmented supply chains across the globe.
No longer can the world take for granted a steady supply of goods (including commodities) flowing uninterrupted across a harmonious global economy.
World trade has changed.
But this is happening in an era of heightened nationalistic agendas as countries look to turn their economies inward.
Take Brexit, the UK’s decision to exit the European Union.
As The Guardian reported back in 2017, the event was fundamentally driven by a strong nationalistic agenda.
In a similar vein, Donald Trump’s unlikely victory for the US presidency in 2017 showed that voters were in favour of ‘putting America First’.
Right-wing ‘extreme’ parties with strong nationalistic agendas have a growing supporter base throughout Europe, including France, Germany, and Italy.
It is the political trend of the day.
It’s unsurprising really, as populations across the globe grow tired of mainstream governments, nationalism is a way for citizens to vent their anger against the entrenched political elite.
In fact — despite years of moving toward globalising its mining sector and encouraging foreign investment — Chile has recently sent shockwaves down the spines of major mining operators.
This may be a case of history repeating…so let me explain.
In July 2022, Chile’s finance minister, Mario Marcel, introduced a tax reform bill that raised copper mining royalties on companies producing more than 50,000 tonnes a year.
It also increased revenue taxes on the largest mining producers.
But this is just the beginning.
As Reuters reports, Chile has set the constitutional groundwork that allows for the re-emergence of nationalisation of the country’s copper industry.
Unsurprisingly, it’s sparked an angry response from major mining firms, including Australia’s BHP.
You see, BHP has a lot at stake here. In partnership with Rio Tinto and Japanese-based JECO Corp, it operates the world’s largest copper mine, Escondida (image below).
The mine, an enormous porphyry deposit in Northern Chile sitting in the Atacama Desert, provides around 6% of the world’s entire supply of copper!
It’s a HUGE cash cow for the company…but it’s also juicy low-hanging fruit for a government looking to reap more from its copper riches.
It forces BHP and other multinationals to rethink their long-term strategy in the country.
It means a severe pullback on investment, including exploration, in the world’s most important copper province. Ultimately, the political landscape in Chile places even greater threats to the future supply of this important metal.
Source: The Australian
Limiting risk on your copper investments
Demand continues to improve on the back of copper’s central role in decarbonising the world’s energy needs. But compounding the demand side is dwindling grades at existing mines and a lack of new discoveries.
It’s all playing into a perfect storm for copper.
It means operators will try to unlock new frontiers for mining.
This brings added risk to what is already a risky investment class.
If you believe in the fundaments of this metal, finding a pure-play copper producer operating exclusively in a tier-one mining jurisdiction would be an excellent strategy for gaining maximum upside.
When it comes to LOCATION, then Oz Minerals [ASX:OZL] might be a great stock to consider.
Gold credits from its copper operations and project development into the nickel-rich Musgraves of Western Australia means the company is not entirely tied to copper, but it does come VERY close.
Assuming management can deliver on production forecasts, OZL could give you a strong upside as demand and critical supply shortages collide over the coming years.
Investing in copper is indeed an exciting space to be in, but you need to tread carefully!
There are other even more critical metals that require your attention too.
Resource scarcity, in my opinion, is going to be the only story worth speculating on with your higher-risk stock plays in 2023.
We now have a mirror image of 2001–03.
And look to make the right moves with your speculative capital…because this IS still highly speculative…
…you could do even better than early resource stock investors who came in in 2001 and 2002.
In our ‘Attack Plan’, which debuts this Wednesday, we look at what those moves are. Click here to ensure the link is emailed to you for free before it goes live.
Now, I’ll turn you over to Murray Dawes for this week’s ‘Closing Bell’.
For The Insider
[WATCH] Closing Bell — Inflation Turns the Corner
By Murray Dawes
It’s safe to say that trading conditions over the past year have been absolutely awful.
I doubt many investors out there have been making much money. It’s been a case of battening down the hatches and hoping you can get to the other side with all of your limbs intact.
My approach for the trading services I run has been to lower trading activity, set wider stop-losses, and take part profits quicker.
Like everyone else, I’m waiting for signs that the worst is over and it’s safe to pop my head out of my shell.
The release of softer-than-expected CPI figures in the US put a rocket under bonds and equities this week, so there is a strong case to be made that this rally will have legs.
But is it the end of the bear market?
Who knows. All I can do is trust the model I have developed to understand price action, and that is saying there are still more hurdles that must be overcome before you can become 100% bullish.
But my shorter-term charts are pointing up for the moment, so I have been buying a few things here and there over the past few weeks in the hope we will be given the chance to take part profits before the selling returns.
I watched Fed Chairman Powell speak after the 75-basis-point rate rise, and it seemed clear he wasn’t going to be moved by one or two positive data points in indicators he doesn’t follow.
So rates will continue to ratchet higher over the next six months. The economy could keel over into a recession, which will hit earnings and, therefore, stock prices, despite the fact the Fed may be nearing the terminal rate.
But that is a story for another day. Markets have been selling off for a year, so a bit of good news could ignite a solid tradeable bounce that could last a few weeks or months.
Perhaps we will get a Santa rally after all.
The US dollar came under heavy selling pressure, which sparked a big move in gold and other commodities. I will show you the developments in gold in the video above and point out a gold stock worth looking into.
We have just brought on a brilliant resource analyst, James Cooper, to head up our new commodities project we’re calling ‘The Age of Scarcity Attack Plan’.
If, like me, you think the next bull market is going to involve commodities in a big way, then you should sign up for the event here.
Until next week,
Editor, Retirement Trader