Brass in Pocket

Alloy: when two metals are brought together to form a composite, like copper + zinc = brass

Brass in Pocket: a British slang term for money in your pocket

So another one bites the mining dust. Having watched the Canadian mining industry for over 40 years, one thing is clear - we will never have a Canadian-controlled global mining champion. After once declaring "Canada is not for sale," Norm Keevil is throwing in the towel, just like so many Canadian mining managers before him, by agreeing to merge with British-controlled Anglo American. We can now add Teck Corp to the list of fallen contenders, which includes Inco, Alcan, Noranda, Falconbridge, Hudson's Bay Mining and Smelting, and Cominco.

But I did my best to help create one once.

I vividly recall an investor meeting I once had with Bruce Flatt, the head of Brascan, a conglomerate predecessor to Brookfield Asset Management, who was newly installed at the time. Formed from the remnants of Brazil Light and Power, Brascan became the Canadian Berkshire Hathaway of its time, acquiring stakes in mining giants Noranda and Falconbridge Mining as well as Norcen Energy, London Life and other assets. As the manager of pension funds that held these shares, I asked if the concept of a globally competitive Canadian mining conglomerate interested him. I argued that he should be a buyer of mining assets to create the necessary operational scale and investment heft. I got a quick answer in the negative. He proceeded to sell off anything with cyclical resource exposure in short order, creating the template for the Brookfield we see today.

I get that the dirty business of resource extraction wasn't to his refined tastes. He is kind of the Niles Crane of Bay St. - but I digress. But we could have been a 'somebody' in the mining world if someone had the balls to do it back then. I guess it's just the colonial origins of Canada that have doomed us to settle for being hewers of wood and drawers of water. The template was always there, but the necessary visionary required for the construction of a global mining superpower never showed up.

Although the 2023 Glencore bid was rebuffed, it did set in motion a refocusing of Teck on the top driver of value creation for base metal miners - copper. They quickly sold the met coal and oil sands divisions, allowing them to prioritize expansions of their Highland Valley and QB2 mines. And, there is a good chance that these assets will attract competing bids to the Anglo deal. The scarcity of copper assets globally, combined with a surge in demand for the metal from massive electricity needs from AI, is a powerful combination.

I recently said I like Teck over tech, and now you know why. While the investment world obsesses over the AI mania and chases Nvidia ever higher, a vastly cheaper play is sitting right under their noses. I have a rule of thumb when it comes to investing in resource assets: when the value of a commodity in the stock market falls below its real-world replacement cost, buy! As Teck's $4Bn QB2 cost over-run expansion demonstrated, there isn't much sub $5 copper left to find. Estimates of Teck's copper reserves and potential resources are potentially above $75/share if higher prices than the current consensus are used.

The copper chart looks poised to grind higher now that the tariff squeeze has unwound. The moves come quickly when they do happen and are often 3-5 baggers from the lows of the prior cycle. I can see $9-15 copper as a minimum target before a meaningful supply/demand response occurs.

So if we continue to see a melt-up in asset prices, one aided and abetted by a friendly Fed, I see a rotation towards hard assets as inevitable. We are depleting our copper resources faster than they can be replenished. This year's capacity expansion is a legacy of projects started 10 years or more ago. The lead times are enormous to develop new production sources. Shortages are inevitable. Anglo knows this and has slit the fuse on a potential investment boom for mining assets the world over.

As for the broader market, I'm still hoping for the correction in overpriced growth stocks to allow for a better entry point, but with an easy Fed, stable credit conditions and lower bond yields, I may not get it. Perhaps the Fed cut will be a sell-on-news event if investors become concerned about the rationale behind it. Possibly, a fiscal shock from the reversal of Trump's tariff windfall (assuming the Supreme Court upholds prior rulings) could destabilize Treasuries enough to provide a much-needed breather for the bull market. Maybe the Leafs will win the cup. My sell strategy is looking more like wishful thinking now.

The Fed's highly telegraphed easing will set the economic recovery in motion, paving the way for a 2026 recovery from the tariff-induced uncertainty that has held the economy at bay. A barbell of quality defensives and deeply discounted cyclicals should perform well in this environment, as my favourite strategist, Martin Roberge, has posited this week.

That should put some brass in your pocket.

Risk Model: 2/5 - SELL

The TSX sits at a nosebleed 12% above its 200-day moving average and has had an RSI above the 70 line for a couple of weeks. The AAII bull bear ratio is notionally favourable, as is the VXV indicator. The copper/gold ratio is the swing variable, as the anti-growth side effects of Trump's agenda erode confidence and hinder investment intentions.

Bubbling gold shares and resurgent banks have made the once-forgotten TSX the most overbought primary market in the world. However, the rotation towards any 'left behind' markets has investors scrambling for alternatives to the now-exhausted U.S. mega-cap growth stocks.

Correlations between bond and stock prices have gone sharply positive, leaving stocks bid ever higher while the deceleration in the economy is ignored. This stock market has nothing to do with the economy, especially when it's dominated by companies in a technological arms race. But many consumer-facing companies that previously had pricing power are fading fast in the face of higher input costs and weaker demand. Today, Apple is having its 'sell on news' investor day, I'm betting.