“The Third Turning” De-Tease: Tilson’s “SWaB Revolution” and “Gold 2.0” — What is the little company that “Has What Tesla Needs?”

by Travis Johnson, Stock Gumshoe | December 5, 2022 1:01 am

Checking into Whitney Tilson's latest pitch for Empire Stock Investor... Gold 2.0, 3D Internet, $4 Inflation Fighter and more...

This story was originally published on October 31, 2022. It has not been updated or revised, we’re just re-posting it here to help answer continuing reader questions.

Whitney Tilson[1] is out with a new teaser pitch about “SWaB” for his Empire Stock Investor[2], which is the “entry level” and most mainstream stock-picking letter from Empire Financial… at the moment, he’s selling it for $79 (renews at $199), which is about what the usual pitch is, and, as has recently been the case for some Empire ads, it comes with their crossover promo of a free year of Navellier’s Growth Investor[3] (Navellier’s Investorplace[4] and Tilson’s Empire Financial are both published by MarketWise (MKTW)[5]).

The story this time is about what Tilson calls “SWaB,” and that lets him punch in the connection to some attention-getting stories out of Saudi Arabia, where they’re trying to begin to transition from oil[6], and from Elon Musk[7]’s Tesla, which hopes to be as big someday in energy storage as it is in electric vehicles. And, of course, the big picture sounds impressive…

“With the United States committing $369 billion, companies like Google, Tesla, and Apple are scrambling to position themselves ahead of a $28 trillion global reset. This could be your next – and possibly LAST- chance to see as much as 50X gains”

The backdrop is essentially just that the world is going to cleaner energy, backed by much lower cost solar[8] panels and windmills, and that the dramatic price reductions in batteries are going to bring a revolution. SWaB stands for “Solar, Wind and Battery”, with the promise that enough big battery[9] installations can turn intermittent power generation from solar panels and wind farms into “baseload” energy.

Here’s the hype-y version of that, since, well, pretty much everything depends on electricity…

“Today we are on the cusp of a once-in-a-century breakthrough that will not only have a bigger global footprint than the internet…

“But it will be crucial to 5G, AI, Quantum Computing, Blockchain, Augmented Reality… and almost every other modern technology you can think of…

“Over the course of the next few minutes, I’m going to show you how this breakthrough is about to deliver a knockout punch to a $3.4 trillion industry and completely disrupt $100 trillion in global assets.

“I expect this trend could create one of the biggest wealth-building opportunities since the start of the internet…

“And dozens of companies could double… triple… even soar 10X in value.”

Nothing exactly new about that argument, of course, the debate is mostly about the timeline and the viability of different battery storage ideas, but a lot of investment is certainly going into large battery installations that can allow us to rely on “green’ energy. And there are lots of big solar farm installations and large windfarms that are being built around the world.

The pitch here is that you can benefit from “Musk’s ‘Secret’ Move” to expand Tesla’s energy business and become an electricity retailer, effectively using its battery installations to become a utility company.

So what does Whitney Tilson think we should do with this base level of knowledge… where’s the opportunity for investors and, as he puts it, “The Best Way To Take Advantage Of Tesla’s SWaB Business?”

This time around, he skips over the direct providers, so there’s no green energy company, there’s no solar panel maker or battery technology startup… and no Tesla, he says we should go with the smaller provider that’s making Tesla’s work possible.
What he’s pitching is gold[10].

Well, not gold actually… but Gold 2.0. From the ad:

“Just as computer need chips and chips need silicon…

“SWaB relies on one key mineral.

“The average wind turbine in the U.S., which generates around 3 megawatts of energy, requires 4.7 tons of this mineral.

“To generate the same 3 megawatts of energy, solar panels require 15.5 tons of the mineral.

“Together, electricity generated with SWaB requires 6 times more of this key mineral than your current electricity….

“That’s why many in the media – including Forbes[11] and the Financial Post – are referring to this mineral as the “new gold.”

[12]

“But because this is going to be one of the most important minerals in the world of technology and energy… I prefer to call it ‘Gold 2.0.’

“Just like gold did back in the 1840s Gold Rush… this ‘Gold 2.0’ is on the verge of creating massive gains for people who are positioned correctly.”

So no, this isn’t a pitch for Bitcoin as “gold 2.0” or “new gold,” it’s a pitch for an actual commodity that is in heavy demand as the world electrifies. So what might it be?

As you might expect, he’s really just talking about copper[13]. And yes, a big new wind turbine might easily require 4.7 tons of copper, about half in the turbine and the transformer and the rest in the cable and wiring to build the turbine and connect it to the grid. Offshore, that number could be even higher because of the need for tonnes of cable, so an offshore wind farm might require ten tonnes of copper per megawatt of electricity generation constructed.

The amount of copper produced and consumed every year is a huge number, roughly 20 million tonnes, but new electricity generation projects do consume a growing percentage of the total. As do just electric motors in general, so an electric vehicle, for example, might include close to 200 pounds of copper, compared to 20-50 pounds for a similar gas-powered car. There are lots of other uses of copper that have also been growing over time, including just the continuing effort to extend electricity to more consumers around the world or upgrade those power grids, and to build new homes (an average new home might include 200 pounds of copper tubing for the plumbing system, and another 200 pounds to wire the house for electricity).

So yes, Whitney Tilson is pitching copper as “gold 2.0” — how does one profit from that?

Sounds like he likes a copper miner. These are the clues…

“One little-known Canadian company has been quietly buying out strategic land in different continents. It’s perfectly positioned RIGHT NOW to take advantage.

• The company’s revenue is soaring,
• They are on track to increase output by 102% by 2023,
• They have an elite management team,
• They have one of the industry’s lowest costs to produce “Gold 2.0,” and”
  They are a market leader.

So what are the real clues in there? “Little-known” is not actually a clue, since I’m sure that 99% of Americans couldn’t name a single copper mining company. The fact that revenue is “soaring” is a clue, it means revenue is going up, and the specific increase in output by 2023 is a good clue (though from what starting point, he doesn’t say). “Low cost” and “market leader” are subjective, as is “elite management,” but that at least means he’s not talking about some new fly-by-night junior copper producer, it must be one of the larger and more established companies. Which makes sense — he’s not selling a high-end mining advisory here, he’s selling a generalist stock investing newsletter.

Which “gold 2.0” company could this be?

The only other clue he really drops is that, “This company is committed to mining in an efficient and environmentally sustainable manner.”

Which is, of course, something EVERY mining executive says… though I’m sure some are much more committed to that ideal than others.

So what’s our stock? Thinkolator sez our best match is… Teck Resources (TECK)[14], which is indeed a Canadian company with a (growing) focus on copper, mostly in Chile[15], as well as a world-leading zinc[16] business and a relatively low-cost and efficient steelmaking coal[17] business (they owned a chunk of an oil sands[18] project in Canada[19] as well, but sold that to Suncor this year). They have long been reliant on metallurgical coal for about half of their revenue, but they are very intentionally pivoting to copper as their “green” metal and the source of their future growth, pushing most of their cash flow into developing more copper resources.

Teck expects to more than double their copper production overall in the coming years, and most of that will come from their biggest current project, the QB2 copper mine in Northern Chile (phase 2 of Quebrada Blanca), which itself is expected, yes, to help Teck grow production by 102% from 2021 through 2023. That one specific match is all we’ve got to go on in connecting Teck precisely to this tease, but it’s a reasonable match on all the less-specific clues as well — so we can’t call this a 100% certain solution, but it’s the best answer we’ve got.

Mining stocks in general are pretty inexpensive, including other large copper-focused miners like Southern Copper (SCCO)[20], but Teck does stand out as being pretty cheap these days — they’re valued at about 4X earnings, they’re highly profitable, and their debt looks quite manageable. They will probably be quite cyclical, since copper prices have a habit of being very sensitive to GDP growth (that’s why traders have often referred to the commodity as “Dr. Copper,” with the “Dr.” referring to the metal having a PhD in economics… historically, copper prices have been a pretty good indicator of economic health), and Teck still gets about half of their revenue from metallurgical coal, which means they’re also exposed to the pace of steelmaking. Both metallurgical coal and copper have been driven by Chinese demand in the past 15 years or so, and the COVID-driven slowdown in China[21] might therefore also be hurting them at the moment… but there’s certainly a case to be made for future demand growth for copper.

This idea of copper being a big play on green energy and electric cars has been around for a while, and gets teased from time to time — Dave Forrest at Casey[22] was teasing EMX as a “copper royalty” stock for a while, Bill Shaw[23] at Stansberry similarly teased Nova Royalty starting last year, and Nomi Prins[24] included some copper exposure in one of her EV teaser pitches as well. I’m always inclined to look for the royalty exposure to any given metal, rather than buy into a real miner, but the actual copper miners, including TECK, are awfully cheap right now… and you can’t really say the same for many royalty stocks.

Incidentally, Whitney Tilson also throws in some special reports as bait for subscribers — his “Five Ways to 10X Your Money from the 3D Internet”[25] report is very likely just a rehash of his pitch for five metaverse stocks that I covered earlier this year[26]…. and his “The $4 Inflation[27] Stock That Can Change Your Life” pitch is a repeat of a pitch that has been filling up my inbox for about six months[28] now.

So what say you, dear readers? Have any favorite “Gold 2.0” stocks that you like as plays on the rising demand for copper? Think there’s a better match for our copper producer tease than TECK? Think buying into copper is a dumb idea here? Let us know with a comment below…

Disclosure: Of the stocks mentioned above, I own shares in Google parent Alphabet. I won’t trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.

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