Why Taseko mine stocks are crashing today


What happened

Actions in a copper miner Taseko Mines (NYSEMKT: TGB) fell more than 9% as of 3 p.m. EDT today. Although Taseko’s mining assets are almost all located in Canada (the company also has a US project in Arizona), today’s decision concerns a single country: China.

Moreover, it is not only on China; this is the potential ripple effect of the debt crisis at one of its largest real estate developers, Evergrande Group in China. The market spent the weekend digesting speculation that Evergrande would default on its debt, then quickly sold off the market on Monday.

Image source: Getty Images.

Given Evergrande’s over $ 300 billion debt and scars from investor memories of the Great Financial Crisis, it’s understandable that the market has concerns.

So what

The Chinese real estate sector that could catch a cold is not good news for the markets, and it is not good news for miners like Taseko. In a nutshell, copper is the most economically sensitive metal in the world, and Chinese construction markets are typically the main driver of marginal demand.

Construction is the largest end market for copper and accounts for around 28% of demand. In addition, construction activity influences power grids and transport demand. Together, these three end markets account for more than two-thirds of copper demand.

Crane on top of a large construction site.

Image source: Getty Images.

Indeed, it is no coincidence that the large copper mining companies of Taseko like Freeport-McMoRan, Southern copper, and Antofagasta are all down significantly today. Taseko is particularly at risk because its only target is copper, so there is nothing else to offset the fall in copper prices.

Now what

Wait and watch. What will happen with Evergrande is far from clear. A managed default or even a bailout is a possibility, and it’s unclear what level of contagion in the global economy would occur even if Evergrande were allowed to go bankrupt. So companies heavily exposed to copper, like Taseko, could see better days ahead if the reality isn’t as bad as the speculation.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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