Digging Value: Everyone Wants Copper

Digging Value is a twice-a-week column where I deep dive into markets, mining, and whatever financial absurdity caught my attention.

If you like your investing insights (not advice!) grounded in cash flows, hard assets, and common sense—but also recognize that markets frequently ignore all three—you’ll probably enjoy this.

Let’s explore the wild world of value investing in natural resources together. 

Today’s column: Mercuria bets big on copper, Europeans can’t get enough military stocks, and the EU tells you where to invest. 

“Digging for Value, One Story At A Time.”


Mercuria’s Second Act

Whether diversification is good or bad depends a lot on your incentives. If you’re an investor in Widget Maker, Inc., and that company diversifies into buying rainforest land to create “Remote work silent retreat therapy getaways” you’re probably not happy with that diversification. 

You invested in the company because it was good at making widgets, and you thought the company would make enough money from making widgets to pay you dividends or buy back your stock. 

There’s another type of diversification where a company is really good at one thing, then another thing that’s kind of similar pops up, and then say, “That’s kind of like what we do now, I bet we’ll be good at it too.” Plus that other thing is all the rage and it’s commodity price just hit new all-time highs. 

You could profit by front-running the thing that the diversifying company wants to get into. That sounds like it would work (not advice!)?

Anyways, Mercuria is getting back into the copper business. 

“⁠⁠Swiss commodities trader Mercuria plans to acquire more stakes in mines, particularly in the copper sector, as it expands its recently established metals division—an operation it envisions growing to match its oil trading business.

The Geneva-based firm partnered with Zambia in December to launch a metals trading arm, securing access to copper, a metal critical to the energy transition.”

Mercuria is a commodities trading behemoth – mainly in the oil and gas space. In 2023, the company generated $121B in revenue. $105B of that came from oil. 

But now it wants the hot copper action. Which makes sense because why trade something that hasn’t gone anywhere when you can trade something at all-time highs? 

The company says it “has a lot of catching up to do.” So it’s buying everything: mining off-take agreements, stakes in producing mines, logistics infrastructure. Go big or go home. 

““The idea was to start big, from day one, and it has been executed as such. Because nine months later, we are 70 people, that proves the point”, Bintas, a well-known copper bull who previously co-led metals trading at Trafigura noted.”

Mercuria is also a feel-good comeback story. Four years ago, the company fell victim to a “rock painting” fraud. Yes, the $100B+ commodities trading giant bought a bunch of painted rocks that looked enough like copper to fool (supposedly) highly talented commodities traders. I assume there’s at least one Paint Analyst on their 70-person team.

There’s a larger point here. Mercuria’s copper ambitions reflect a broader shift in the commodities world. As oil demand plateaus and climate policies tighten (or loosen now? I can’t keep track), energy traders will want new growth areas—and metals are an obvious choice. 

But this isn’t just about profits; it’s about securing a foothold in industries that will define the next century. There are a lot of people bidding for mining assets: Bill Gates, auto OEMs, governments, and now large commodity trading firms.

Mercuria’s move into the copper/metals market is just the latest in a laundry list of signs pointing to greater resource scarcity and higher deposit price tags. Remember, Everything Is Bullish Metals. 


Follow The Playbook

I’ve written a lot about defense stocks for three reasons: 

  1. Defense stocks going up are Bullish Metals because you need metals to make all those fun defense products. 
  2. Defense stocks are the perfect proxy for the coming commodities/metals bull market because;
  3. Defense stocks are now ESG. Why? Because their stocks go up. 

It’s a giant circular reference of fund flows, hypocrisy, and the mad scramble for returns as hundreds of billions of dollars underperform the index. 

I wrote earlier this month that, “[mining stocks becoming ESG] will happen slowly, then suddenly. All it takes is a few months (or quarters) of outperformance. Ethics follows money, not the other way around. And when miners outperform, the “ethics” will change to allow mining stocks into every ESG fund. I mean mining has a great ESG PR spin story: The Green Economy, National Security, Domestic Jobs Growth, Resource Nationalism. Pick your favorite. As long as the ends justify the means, right?”

Anyways, the FT says European asset managers can’t make military ETFs fast enough:

“Asset managers are rushing to set up exchange traded funds focused on Europe’s defence sector as a recent rally has prompted investors to rethink their stance on including controversial stocks in their portfolios. 

Amundi, Europe’s largest asset manager, is working on the summer launch of a European ETF linked to defence companies in anticipation of a surge in military spending across the continent, according to two people familiar with the situation. VanEck, a $114bn US fund manager, is also exploring the launch of a similar investment vehicle. 

“There is a massive race to set up these products,” said Kenneth Lamont, an analyst at data provider Morningstar, adding that asset managers “are turning [them] around quicker than I’ve ever seen”.”

I’m sure this increased demand has more to do with the company’s underlying fundamentals, competitive advantages, and reasonable valuation. Right? 

“The Stoxx Europe Total Market Aerospace & Defense index is up 34 per cent this year, far outstripping the broader Stoxx Europe 600, as investors anticipate a spending boom.”

Now replace “military” and “defense” with “mining.” It’s the same story, the same playbook. Mining stocks are nationally strategic and vital for defense – all the fancy things that European investors love about Rheinmetall (RHM) and Leonardo (LDO).

Eventually, European pension fund and ETF managers will rush to buy mining stocks. They’ll create Critical Mineral Mining ETFs and launch “EU Raw Materials Defense Fund I” to invest in developers and producers. 

“Historically, investors had been “squeamish” about putting money into the military sector, said Mike Eakins, chief investment officer of Phoenix, the UK’s largest retirement and savings provider.

But now, he said, ⁠⁠“long-term asset owners . . . should be investing more in defence”.”

Mining is one of the most squeamish sectors of the economy. But like defense stocks, it will blossom into an ESG darling as investors chase returns. What would that look like? Maybe the EU would start with a list of 47 deposits that they deem “Strategic.” 


The EU Gave You A List of Stocks

Two days ago I wrote about European Metals Holdings Limited (EMH.L) and how it’s stock rose 155% because the EU declared its Cinovec Project “Nationally Strategic” under its EU Critical Raw Materials Act.

One potential investment strategy would be to: 

  1. Find all the projects the EU has deemed “Strategic.” 
  2. Filter the ones that have publicly traded sponsors. 
  3. Buy all of those publicly traded companies. 
  4. Wait for the news to hit and hope that enough stocks in that basket perform as well as EMH.

Well, it turns out that the EU already did the first two steps for you

“The 47 new Strategic Projects are located across 13 EU Member States: Belgium, France, Italy, Germany, Spain, Estonia, Czechia, Greece, Sweden, Finland, Portugal, Poland, and Romania. They cover one or more segments of the raw material value chain, with 25 projects comprising extraction activities, 24 processing, 10 recycling, and 2 substitution of raw materials. The Strategic Projects cover 14 of the 17 strategic raw materials listed in the Critical Raw Materials Act. This includes several projects covering lithium (22 projects), nickel (12 projects), cobalt (10 projects), manganese (7 projects), and graphite (11 projects) which will particularly benefit the EU battery raw material value chain.”

I don’t know. This seems like a good opportunity to use Perplexity (or ChatGPT or Grok or whatever AI you use) to do all the heavy lifting for you. 

Honestly, this sounds like something Druckenmiller would do. So it will probably work (not advice!). But it’s never bad to emulate The Druck.

Have fun, kids!

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Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.

AK

Investing & Personal Finance

AK is the founder of Macro Ops and the host of Fallible.

He started out in corporate economics for a Fortune 50 company before moving to a long/short equity investment firm.

With Macro Ops focused primarily on institutional clients, AK moved to servicing new investors just starting their journey. He takes the professional research and education produced at Macro Ops and breaks it down for beginners. The goal is to help clients find the best solution for their investing needs through effective education.

Tyler Kling

Volatility & Options Trader

Former trade desk manager at $100+ million family office where he oversaw multiple traders and helped develop cutting edge quantitative strategies in the derivatives market.

He worked as a consultant to the family office’s in-house fund of funds in the areas of portfolio manager evaluation and capital allocation.

Certified in Quantitative Finance from the Fitch Learning Center in London, England where he studied under famous quants such as Paul Wilmott.

Alex Barrow

Macro Trader

Founder and head macro trader at Macro Ops. Alex joined the US Marine Corps on his 18th birthday just one month after the 9/11 terrorist attacks. He subsequently spent a decade in the military. Serving in various capacities from scout sniper to interrogator and counterintelligence specialist. Following his military service, he worked as a contract intelligence professional for a number of US agencies (from the DIA to FBI) with a focus on counterintelligence and terrorist financing. He also spent time consulting for a tech company that specialized in building analytic software for finance and intelligence analysis.

After leaving the field of intelligence he went to work at a global macro hedge fund. He’s been professionally involved in markets since 2005, has consulted with a number of the leading names in the hedge fund space, and now manages his own family office while running Macro Ops. He’s published over 300 white papers on complex financial and macroeconomic topics, writes regularly about investment/market trends, and frequently speaks at conferences on trading and investing.

Macro Ops is a market research firm geared toward professional and experienced retail traders and investors. Macro Ops’ research has been featured in Forbes, Marketwatch, Business Insider, and Real Vision as well as a number of other leading publications.

You can find out more about Alex on his LinkedIn account here and also find him on Twitter where he frequently shares his market research.