RE:How does energy price affect valuation of Oroco?Oil and copper prices have historically been closely linked, but that link has become somewhat weaker, with oil struggling even while copper prices have risen. One reason for this is the glut of oil as a result of abundant in-ground supply as well as the rapid rise of US production as a result of technological changes (fracking, shale oil, etc.). Copper has undergone no such production revolution and likley won't.
All else being equal, higher energy costs means higher production costs, which should dimish the value of copper producers, but in the past the same forces that drove energy (oil) higher also drover copper higher; increased economic activity. So, copper projects tended to rise in value as oil prices rose as copper prices also rose and with that the perception that copper production became more profitable.
It's my belief that in the coming years and decades energy price will fall, as low-cost renewables are introduced, and oil producers pump more to drive prices down in an effort to complete. And every time renewable become cheaper, oil is forced lower as well. Lower renewable energy costs mean more end-use energy being delivered as electricity, which requires copper. The result will be lower energy costs, benefitting copper production costs and increasing profitablity, and increased demand for copper, meaning higher prices, also driving profitablity. A double win for copper.
The result is that copper production, and assets like Santo Tomas, become much more profitable and much more valuable. And this is why copper is the favoured non-precious metal, and after gold gets the highest levels of exloration expenditure. I see few, if any, assets with as much leverage to this trend as Santo Tomas.
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