Lundin Mining (TSX:LUN, Financial) and Capstone Mining (TSX:CS, Financial) – Our base metal mining companies, namely Lundin and Capstone, comprised roughly 10% of the portfolio by weight at quarter end. Both have been among the better performers within the Fund during 2020. It is generally accepted that demand for base metals will accelerate as and when economics conditions improve. What is far less appreciated is that metals demand, for copper in particular, has largely been uninterrupted by COVID disruptions and inventories of copper continue to plumb new decade lows. It is also underappreciated that roughly a decade of underinvestment in mining supply has left some metals, especially copper, substantially supply constrained. Given the length of time it takes to increase supply, supply shortages can grow severe and lasting. Couple that observation with the fact that mining companies, in general, are trading at near historic cheapness relative to the broader equity market, based on the profits being generated today, and one can easily envision both far higher profits for base metal miners as well as far higher multiples assigned to the those profits. Lastly, there is little acknowledgement to date that the clean energy revolution, taken as fait accompli, that has propelled some stock prices into the stratosphere, would consume extraordinary amounts of copper in a market where inventories are at decade lows and very little supply response appears possible. The implications for copper prices could be profound.
From the Third Avenue Value Fund (Trades, Portfolio)'s second-quarter 2020 commentary.
