Barry FitzGerald: Elon Musk is talking down copper. Time to look at copper stocks, then
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Garimpeiro mentioned back in mid-December that copper was finishing off 2022 with a bang and that it was probably a good time to reload the watchlist with some junior copper stocks.
The red metal had picked itself up from its July 2022 low of $US3.30/lb to get to $US3.80/lb, the level at which it closed out the year. It has gone on with things in the new year to be quoted mid-week at $US4.22/lb.
A copper price above $US4/lb is good news for the copper juniors as it prompts investors to expand their horizon from the ever fully priced copper producers to include the more leveraged offerings in the junior ranks.
So it really should be party time for the juniors. But unlike their gold cousins in response to higher gold prices, the share prices of the juniors with decent copper credentials have not been keeping pace with movements in the copper price.
Brokers report that inquiry levels are up about where best to find copper exposure amongst the juniors. So it has to be assumed that it will not take much on the copper price front from here to really to fire things up for the juniors.
Having said that, Elon Musk did his best recently to talk down the copper price by tweeting that no change in copper production was “required for the transition to sustainable energy”.
Is there anyone on the planet, or in orbit, that agrees with him on that? No one sensible anyway.
It needs to be remembered that his Tesla recently cut prices to encourage buying in the high interest rate environment, and that copper usage in electric vehicles is about 2.5 times that of a good old fashioned petrol chariot.
So margins are being squeezed by consumer reluctance to commit at high interest rates, and the higher cost of copper and the other metals that go in to comparatively metals intensive EVs. Musk could be seen to be talking his own book.
Garimpeiro could list lots of reasons why Musk was talking nonsense with his copper call. But he’ll just mention that the world’s biggest copper producer, Chile’s state-owned Codelco, this week said there will be a supply deficit of 8 million tonnes by 2032.
To bring the market in to balance, eight new Escondidas – the world’s biggest copper mine in Chile owned by BHP and Rio Tinto – would be required to be in full production by 2032.
That is an impossible task and is why BHP says that after 2025, a “durable inducement pricing regime’’ will be needed to encourage investment in new production to close the supply deficit. It means much higher prices are needed.
And a final word on Musk. Earlier in the week he was fronting a San Francisco federal court defending claims that he defrauded investors with an August 2018 tweet that he had funding secured to take Tesla private (it didn’t happen).
At one point in in the proceedings he said the following: “Just because I tweet something does not mean people believe it or will act accordingly.’’
He was right about that when it comes to the copper market.
In Garimpeiro’s mid-December copper yarn he mentioned four stocks he had put on the radar in November because of the upwards momentum in the copper price, and he added another two.
The November four and their prices moves since mid-December are Rex Minerals (ASX:RXM, up 7c to 28c), Hammer Metals (ASX:HMX, down 0.7c to 7c), Caravel (ASX:CVV, up 5c to 24c) and Coda (ASX:COD, down 6c to 23.5c).
So more losers than winners in that lot. Given they are on the watchlist because of the people, projects and their activity levels, they all stay put as the copper price does its stuff at higher levels.
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