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: Investing in exploding mines, Trump’s love of American Copper, and an ESG-friendly HVAC company turned weapons manufacturer.
“Digging for Value, One Story At A Time.”
Let’s Make A (Bad) Deal
Well, it looks like Zelenskyy and Trump have a deal. The two will meet Friday to officially declare a JV on Ukraine’s “rare earth elements” and other commodities like copper, oil, zinc, lead, iron ore, cobalt, and graphite.
We’ve written before about how this deal isn’t about rare earths, but everything else in Ukraine.
But the deal is kind of confusing? The BBC reported:
“Kyiv and Washington would manage the fund on “equal terms.” Ukraine would contribute 50% of future proceeds from state-owned mineral resources, oil and gas to the fund, and the fund would then invest in projects in Ukraine itself … The US would own the maximum amount of the fund allowed under US law, but not necessarily all of it.”
The US and Ukraine will run the Investment JV as equal partners, yet under US law, the maximum amount the US can own is 30%.
Here’s the fun part. Nobody really knows how the US will get its money back, if it ever will. From the FT:
“The deal says the fund will collect and reinvest revenues “at least annually in Ukraine to promote the safety, security and prosperity of Ukraine”.
But it does not stipulate that all revenues will be reinvested and it adds that the subsequent fund agreement will “provide for future distributions.””
I don’t know. This seems like a bad deal for the US?
Basically, Ukraine commits 50% of all future revenue from its state-owned natural resources into “Build Back Ukraine Fund I”, and in return, the US controls 30% of a fund that might one day pay dividends?
But it gets worse:
“Some of the country’s mineral deposits have been seized by Russia. According to Yulia Svyrydenko, Ukraine’s economy minister, resources worth $350bn (£277bn) remain in occupied territories today.
There are warnings too that a deal allowing the US access to Ukraine’s vast mineral wealth cannot happen unless the country addresses its problem with unexploded mines.
A quarter of Ukraine’s landmass is estimated to be contaminated with landmines, mainly concentrated in the war-torn east of the country.”
Hold up.
- 70% of the $500B value is tied up in Russian-controlled territories?
- Ukraine’s mines could explode at any point because a quarter of its land mass is contaminated with landmines?
Mining is already hard enough. Imagine trying to mine a footwall deposit while dodging land mines.
There are other mining-specific problems with this deal. Ukraine’s reserves are poorly understood, severely underexplored, and are in remote locations. Did I mention the landmines?
Exploring and developing mines takes time (read: decades), energy (read: lots of diesel and electricity), and capital (read: billions of dollars).
Who’s left footing that bill? Probably the US.
So not only will the US get only a 30% interest in this natural resources fund, but it will have to invest upfront capital to kickstart the entire process.
I don’t know how this deal “pays back” the United States? I don’t even think this deal will payback, well, this deal.
What happens if the US spends billions of dollars only to find that half of Ukraine’s resources are un-minable?
Maybe this is one of Trump’s 4D chess maneuvers where he knows Ukraine doesn’t have any minable resources and he’s using this agreement as leverage to make a deal with Russia?
Regardless, I wonder if all this money would be better served building our domestic copper smelting and processing capabilities.
Everything Is Nationally Strategic
There’s a government document called “Mineral Commodity Summaries 2024” produced by the US Geological Survey. You can read it, it’s fun.
The paper tells you everything you need to know about the US’s involvement in, production of, and magnitude of importing/exporting for pretty much all commodities.
Now, imagine Trump flipping through this PDF while downing some Diet Cokes and Tootsie Rolls.
“Okay, I see rare earths. We’ve already covered that one, we’re making Ukraine pay for those. Next.”
*Flips page*
“Copper. Ooo, copper seems important. Do we have tariffs on copper yet? China probably controls that entire process. We use a lot of copper don’t we? If we don’t have tariffs on copper let’s consider those. And can I get another Diet Coke?”
Well:
“President Donald Trump on Tuesday directed the government to consider possible tariffs on copper, the latest move by the White House to tax a wide array of imports and reshape global trade.”
White House Trade Advisor Peter Navarro called the move:
“An effort to stop China’s build out of its copper sector and to address a broader national security vulnerability. There is also a desire to restore the domestic mining, smelting and refining of copper given potential military and technological needs.”
Trump’s logic makes sense:
- The U.S. has plenty of copper in the ground (we’re a top-five producer globally).
- We suck at processing it. Our smelting and refining capacity ranks outside the top five nations, while China controls over 50% of global smelting.
- Because of that, we import 45% of the copper we use, up from ~0% in 1991.
Mathematically it’s A + B + C = National Security Threat.
Copper is the second most-used commodity by the Department of Defense. There’s copper in fighter jets, communication equipment, ballistics, and other ammunitions.
It’s not that we don’t make enough copper – the US is a top-five global producer and exports $11.3B of copper annually – it’s that we can’t smelt and refine it into useful products.
Instead, we sell our copper to China, they smelt and refine it for us, then we buy it back from them to put into guns, tanks, ships, and planes.
There are good reasons why we don’t smelt and refine copper. It’s dirty, the smelters and refineries take up too much space, and there’d be angry TikTok dances protesting it all.
But remember, this move is more than just national defense. Copper is a proxy for the broader battle over green tech supremacy. China dominates solar panels, batteries, and EVs—all copper-heavy industries. By securing copper, the U.S. isn’t just protecting missiles; it’s trying to future-proof its economy.
I guess the trade here is to just buy all the US copper assets? (Not advice!). I’ve got a few on my watchlist.
Someone should launch a US National Defense Metals hedge fund. Imagine the fund flows after four years of stuff like this.
Speaking of national defense.
ESG Investors Ruin All The Fun
I love everything about this:
“Daikin Industries, the Japanese air conditioning heavyweight, has announced it will cease the production of white phosphorus rounds for the Japan Self-Defense Forces, according to Nikkei. The decision comes in the wake of mounting pressure from investors, who have raised humanitarian concerns about the smoke-producing munitions.”
Daikin was just another Japanese company quietly producing reliable HVAC units that kept offices cold in the summer and warm in the winter … and also smoke screen bullets?
You just know at some point a board member or executive asked, “Hey, what if we also made, I don’t know, chemical weapons like smoke screen ammunition? We already use chemicals and metals in our HVAC systems. How hard could it be?”
This is an elegant, if not dystopian, example of the razor/razor blade business model: I make chemical smoke screen bullets that incapacitate you, then you buy my air filtration system as to not die.
The company’s weapons division got flagged in an EU ESG fund blacklisting, forcing the company to wind down the business.
But did they have to shut down the business? Defense contractors have long argued that their work is “essential for national security,” a claim that shields them from most ESG scrutiny.
There are three lessons here:
- Anything is ESG if you say its “essential for national security.”
- Mining copper is one of the most ESG things you can do.
- How many other companies are secretly manufacturing weapons in underground business divisions?
