Big admission by BHP during the week that it too can make mistakes when it comes to forecasting the direction of commodities.

BHP’s mea culpa was on nickel. All nice and rosy on the outlook for the steel and battery making material throughout 2023, our biggest miner says it was shocked as anyone by the metal’s recent price collapse.

It took solace though in mentioning that it was not alone in getting it wrong on nickel, saying it had framed its nickel outlook commentary based on its own market intelligence, and that gleaned from 20 private-sector forecasters who in January this year were predicting nickel would average a little more than $US19,000/t.

And here we are with nickel back at a little more $US16,000/t and with little to no prospect of the situation changing much until the end of the decade. The local industry is on its knees, including BHP’s own Nickel West business.

Garimpeiro is big enough to give BHP and its team of commodity price forecasters another chance. They have a long history of getting it right over being wrong like the low-rent forecasting types Garimpeiro usually relies on.

So it was with great interest that Garimpeiro notes that in the commentary on the outlook for commodities that accompanied the release of BHP’s $US6.6 billion December profit report during the week, the industry leader was decidedly bullish on copper.

The red metal has been a solid performer in recent times. Nothing spectacular but when stacked against the likes of lithium and nickel, it has been solid all right.

It averaged $US3.75/lb in the December half which was up 5% on the first half of the 2023FY. In its commentary on the metal’s performance BHP substituted solid for “lack of volatility.’’

But change is in the air, with lots of good reasons to think volatility to the upside in the copper price is coming down the tracks. Read BHP’s take on copper and the rest of the commodities on its website.

In a nutshell when it comes to copper, BHP reckons that the supply deficit in the metal previously expected to emerge in the final third of the 2020s, could well come earlier.

What’s more, the supply deficits could be “pronounced’’ in BHP’s words in the medium–term (five years).

Supply deficits force higher prices, and when those higher prices could be pronounced, Garimpeiro gets busy dusting off junior copper stocks with tonnes of leverage to what could well be copper’s coming golden era, if that makes sense.

29Metals (ASX:29M): Just like BHP get things wrong, Garimpeiro got this one wrong last year when it was trading at 70c a share for a market cap of $336 million. It is now back at 28c for a slimmed down market cap of $196 million.

So while the stock it is still not really a junior, it has been trading like one. Fundie Ausbil has exited the register as a substantial shareholder while the biggest of all local fundies AustralianSuper has taken an opposite view and has been increasing its stake.

Australia’s original copper bull, Owen “Stronger for Longer’’ Hegarty is 29Metals’ chairman.

He recently took to writing to shareholders via the ASX platform to say that the “recent dramatic fall’’ in the share price was in the opinion of the board, unwarranted and of serious concern.

He reminded shareholders that 2024 was a recovery year after the group’s Queensland copper operation was hit by floods in 2023 and that it had one of the biggest resource/reserve bases on the ASX.

Expect this one to be jumping around all over the place. So it might not be for the faint-hearted. But Hegarty is an AFL Bombers fan, and that is good enough for Garimpeiro to hear him out.

Caravel Minerals (ASX:CVV): Trading at 15.5c (mid-week) for a market cap of $82 million. Garimpeiro has mentioned this one previously as well, and at higher prices than it is now trading.

Still, he can’t find an ASX junior with more leverage to the potential for copper to crack $US4/lb and then keep going.

The leverage comes from its 3.03Mt namesake copper project some 150km northeast of Perth in WA’s wheatbelt. It is being worked up as a 65,000tpa copper producer with molybdenum-gold-silver credits.

It is low-grade at 0.24% copper and has a $1.6 billion capex requirement. But its potential scale of production in a Tier 1 location means there is likely to be support in one form or another to get it in to production, just about when copper could be enjoying the sort of price strength that BHP’s forecast pronounced supply deficit would deliver.

The project’s economics look okay at a copper price of $US4/lb. But plug in $US5/lb or $US6/lb copper for its planned 143M/lbs of annual production potential, and the extreme leverage to higher copper prices is plain to see.
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