Much of the ASX water cooler talk so far this week has been dominated by copper.
Yesterday, we learned that the mining giant BHP Group Ltd (ASX: BHP) had put in a takeover bid for OZ Minerals Limited (ASX: OZL).
BHP put forward an offer of $25 per share in cash for the company. This was swiftly rejected on valuation grounds.
OZ Minerals is one of the largest copper miners listed on the ASX. It also produces other metals from its mines, including gold and silver.
The fact that BHP is eyeing it off is an interesting insight into the red metal's appeal and why companies like BHP are desperate to increase their exposure to it.
What is copper?
Copper is an elemental metal. It's extremely useful for its electrical and heat conductivity and is relatively abundant. A number of metals efficiently conduct electricity, including gold and silver. But copper is in the sweet spot in terms of cost.
It is a lot cheaper to make electrical wiring out of copper than say, gold or silver. And copper is a far better conductor of electricity than other cheaper base metals like steel or aluminium. As such, almost every electronic device in the world uses this metal in some shape or form.
According to reporting in the Australian Financial Review (AFR), the global investment bank Goldman Sachs is bullish on copper.
Goldman is predicting that just like oil has been in the past, "copper will be at the centre of global competition between Western countries and the emerging autocratic bloc", as global demand doubles by 2050.
The new oil?
Traditional cars and other road vehicles use very little copper compared to other materials like steel and aluminium.
But for next-generation vehicles that are powered by electric motors driven by rechargeable batteries, rather than burning petrol or diesel, copper is far more applicable. According to the AFR, electric vehicles require four to six times the amount of copper found in traditional internal combustion vehicles.
Not only that, but copper is also a vital ingredient in renewable energy infrastructure like wind farms and solar plants. So this is a metal that is going to play a massive role in the transition to a carbon-free world. That might be why Goldman Sachs is calling copper the "new oil".
Goldman is predicting a global supply shortage in copper in the years ahead, which will boost the prices that the metal can command.
So it's perhaps no wonder that BHP is trying to shore up its own operations by buying out OZ Minerals. But perhaps investors should get used to hearing about this red metal. It will certainly be hard to escape if copper does indeed become the new oil.
