Copper the ‘commodity of choice,’ Lukas Lundin says

Lukas Lundin, chairman of the Lundin Group of Companies, was one of the distinguished speakers at The Northern Miner’s Canadian Mining Symposium in London in early May. In a fireside chat with Gianni Kovacevic, executive chairman of CopperBank, Lundin shared his views on a range of themes, including  commodities, his group’s energy and metals businesses, and China’s dominance. Below are edited remarks by Lundin:

The Lundin Group

What is going to shrink over time is probably oil. Oil is the biggest business we have.

When I grew up, oil was a question of supply. We could never supply enough oil. Over time, it will become a question of demand. Are we going to peak at 100 million or 120 million barrels a day? The oil picture might slow down a bit.

The base metals, probably, are going to stay strong — especially copper, if we think about all the electric cars. And we haven’t found anything else to conduct electricity better than copper.

Gold is a basic tool of fear. If you are worried about the world, gold is going to get bigger. If everything in the world goes well, gold is going to stay the same. That one is hard to read. But base metals are a good place to be.

Fossil fuel divestment

Everybody hates coal. But 85% of China is coal fired. We talk about Denmark, which is an interesting place because they say they are environmentally friendly, but it is still 52% coal fired.

Over time, we can reduce fossil fuels because of economics and because it is more efficient to do something else. But this is not going to happen overnight. We are going to become more efficient in the world. But economics will dictate that, not divestments from fossil fuels.

Lukas Lundin (left) tells Gianni Kovacevic that China is “not that much export-driven anymore. It’s more internal consumption. It’s becoming a bit like the U.S.” Photo by Martina Lang.

The brokerage world

It might have changed. But it is also a question of supply and demand. When we have low commodity prices, people are less interested in investing. But if we get stronger commodity prices, the brokerages will be back, and there will be more financings.

I don’t think the brokerage business itself is broken. It’s more complicated. There are more regulations. But if we get a good commodity market again, we are going to see a lot of different vehicles pop up. It’s like flowers in the desert. They disappear. And when it starts raining, they come out.

Lukas Lundin acknowledges that over the last decade big tech companies such as Apple, Alphabet and Microsoft have replaced big oil companies, in terms of being the largest firms in 2016 by market cap.  Photo by Martina Lang.

China’s dominance 

China is a very, very important part of the equation, especially in our commodity business. They consume basically half of everything that we produce. Now they are the second-largest oil consumer at 10 million barrels a day.

They are still going to have an effect on all of our commodity prices. China is not going to disappear. It is going to go through some wobbles. But they have enough infrastructure to keep going. And they are going to have to renew it. China is going to be a major factor to be reckoned with as long as I live. It is not going to disappear.

Big oil vs. big tech 

I don’t think big oil is going to make a comeback. As I spoke earlier, oil is a question of demand, not supply anymore. The business is changing over time. I don’t think they will make the comeback. The big tech is here to stay. They do a different kind of mining. They are mining information. And they are here to stay. What do I think big tech is doing? They are making the world extremely efficient, and with that efficiency we are going to consume less commodities.

‘The Donald’

He has a lot of good ideas and a lot of bad ideas. He is for sure a character. My gut feeling that the U.S. is going to be slightly inefficient for the next four years. To rule the country by executive decree is not going to work. The constitution was built to protect against the Donald. You have to go to the Senate and to Congress for approval to get things done. If he doesn’t work with the system he will get nothing approved, and it will be gridlocked.

He got this Obamacare done. He got every Republican on his side to vote and no Democrats. I think he’s going to find out it is tougher to run a big country than he had expected.

Lithium

Lithium is a small market. It is 200,000 tonnes a year — I think that is what somebody told me. It is not very big. It’s $3 billion. I think 90% of the lithium is from brine and most of that is from Chile.

It’s complicated. It is quite tough to recover lithium. Lithium itself is not a product. You can’t just produce lithium and go to the car company and sell it. There are different types of lithium. You need a proven process. You need a refinery and to produce it for years before you get it. So it is not an easy business.

It is a small market and it is quite hard to make money. It’s a good promo right now, because everybody likes to hear it.

But to make lithium work — it’s not that easy.

Copper

Copper is a commodity of choice, with a good future. An interesting thing about copper is that we don’t have many greenfield projects. We have Cobre Panama that First Quantum is building, and it’s coming up. But in general, we don’t have that much coming on.

Copper over time is going to be stronger, and demand is looking good. It’s probably a good time to invest in greenfield copper projects. And there are some around to look at. We are very, very interested in doing that right now.