Texas Freezes, but a New Commodities Supercycle Could Be Heating Up

Texas Freezes, but a New Commodities Supercycle Could Be Heating Up

As many of you know, I grew up in Toronto, where winters can be brutally cold. Like most people who live in northern U.S. states, I’m accustomed to driving on snowy, icy roads.

But then, roads in the north are plowed, sanded and salted when there’s snowfall. With rare exception, the roads here in sunny San Antonio, Texas, do not see that kind of maintenance. There are no snow plows or salt trucks. Driving, then, can be several times more precarious when we get the kind of extreme weather that hit us this week.

Similarly, our electrical power infrastructure was designed to withstand heatwaves, not blizzards. I think a lot of Texans this week learned for the first time that a large share of the Lone Star State’s power grid operates separately from the rest of the U.S. Because of this, much of the infrastructure, including plants and pipelines, has not been winterized, which contributed to the widespread outages that left millions without power and water for days.

Texas electric power grid is an island unto itself
click to enlarge

That fact alone, I believe, presents a good investment case for commodities and natural resources.

A joint state and federal investigation into the outages has already been announced. Improvements to (and winterization of) aging infrastructure will likely be recommended, if not required, to prevent this from happening again. Such a massive overhaul would require an incredible amount of metals and other basic materials, which would be positive for miners and producers.

We’re particularly bullish on copper, used extensively in electrical wiring and circuitry. Our favorite explorer-producer is Ivanhoe Mines, which recently announced positive mining results at its Kamoa-Kakula project in the Democratic Republic of Congo (DRC). Ivanhoe is up about 116% over the past 12 months. Our favorite speculation play is CopperBank Resources, which offers investors optionality to higher copper prices. Shares of the company are up more than 200% for the 12-month period, and today they hit a new all-time high of C$0.61.

Texas is the ninth largest economy in the world, ahead of Canada, South Korea and now Brazil. It consumes the most energy of any other U.S. state. Its residents and businesses deserve a world-class power grid that operates reliably in all weather conditions, even those that strike only once every 100 years.