Remember last year’s market rally when Trump won the US election despite using tariffs as his primary election catchcry?
How times have changed!
The market is now regurgitating on anything to do with the T-word.
Markets have become extremely short-sighted and reactionary.
That’s why I wouldn’t be surprised if market sentiment shifts wildly in the opposite (positive) direction soon.
Anyway, how does all this relate to a potential opportunity I’ve uncovered in the commodity space?
Identifying A Rare Winner from Tariffs
Given that America imports most of its raw materials, tariffs will raise the costs of steel, copper, and aluminium.
That’s bad news for American manufacturers.
And as material costs rise, manufacturers will pass those costs on to American consumers.
But will the US consumer be able to absorb those higher costs?
Unlikely.
Much of the global economy is still in a ‘cost-of-living crisis’, where rising rent, real estate, food, etc., are out of whack with muted incomes.
That includes the US economy.
So, there’s NO room for consumers to bear even higher costs.
And that’s the major worry for markets…the US is the world’s largest consumer economy, and tariffs could force it to tighten its purse strings even further.
And that won’t be good for global growth.
So, it might be hard to think of any positive investment idea from Trump’s tariff war. Other than shorting the market, of course!
But here’s one ‘long’ idea:
The American Mining Advantage
Have you ever considered how mining stocks might fare against all this tariff bluster?
Specifically, companies with operations INSIDE the US.
To explain what I mean… Imagine you own a copper mine in the US.
Your advantage is clear: you can secure direct sales with American manufacturers, potentially at a premium to the market price.
How so?
Well, locally mined copper doesn’t carry any tariff risk.
This means domestic miners can offer US manufacturers a reliable supply of copper at a discount to imported material.
That potentially gives them room to charge a premium to global market prices.
In other words, free cash!
But for this to work, these domestic miners must hold downstream refining infrastructure.
You see, many copper miners only partially process their ore on-site into what’s known as ‘copper concentrate’.
That’s often sent to China for processing, where it’s refined into a high-purity metal called copper cathode.
That’s the raw material used for making pipes, wiring, or any goods made from copper.
But copper is just one example…
Given tariffs will likely hit ALL minerals, this opportunity isn’t just for copper miners.
Any US-based mining operation that can process ore on-site and sell it directly to manufacturers could potentially hold an advantage.
Whether that’s mining iron ore and processing it into steel or digging up rare earths and processing it into the prized NdPr magnets.
The advantage comes from OWNING
the entire supply chain.
AND preventing the product from ever-shifting outside US borders.
That’s the only way these miners will side-step tariffs and tap into a potentially lucrative domestic metals market.
One that could offer a substantial premium above global market prices.
So, how do you play that as an investor?
I fully admit that the US doesn’t have a rich offering of listed mining stocks for investors, especially those with downstream capability.
However, my research has identified a handful of potential winners from this unique opportunity.
I issued a buy alert on one of those stocks earlier this month.
If you’re interested in learning more, you can join me here at Diggers & Drillers.
Enjoy!
Regards,
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James Cooper,
Editor, Mining: Phase One and Diggers and Drillers
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