Guy on Rocks: There’s nothing like finding copper in a bull market for copper
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‘Guy on Rocks’ is a Stockhead series looking at the significant happenings of the resources market each week. Former geologist and experienced stockbroker Guy Le Page, director, and responsible executive at Perth-based financial services provider RM Corporate Finance, shares his high conviction views on the market and his “hot stocks to watch”.
Figure 1: 5-year Zinc spot price (Source: www.kitcometals.com).
Zinc doesn’t normally get the airplay that nickel and copper receive, however the price has recently touched all-time highs of US$1.67/lb.
Premiums (+US$25/tonne) for physical zinc are currently at record highs as Nyrstar places its Auby smelter in France on care and maintenance due to surging power costs. This follows on from the closure of the Portovesme Zinc plant by Glencore.
Together the smelter closures account for around 260,000 tonnes of zinc in Europe. It appears that zinc may be on the verge of breaking through its 14-year October 2021 highs of US$1.78/lb.
There may be some relief on power prices as we move into the northern hemisphere summer however I believe zinc will follow copper and nickel on an upward trajectory for some time to come.
In the interim Chinese stocks have risen to 92,333 tonnes (up over 20% in a week) so I am sure traders may see a European arbitrage opportunity.
According to Macquarie, cash costs for smelters in the Netherlands have moved from break-even in 2021 to negative.
Lithium has remained remarkably strong (figure 3) over the last 6 months reflecting supply issues, with little product available outside of existing contracts.
Carbonate prices in China reached over $60k/t, still well above other markets with hydroxide reaching just under US$50/t.
The world’s largest lithium producer SQM also saw average lithium and derivatives export prices rise by 19% month-on-month in January of this year.
And surprise, surprise … commodity trader Trafigura admitted it was involved in last year’s aggressive buying of LME copper stocks (not unlike a bank robber admitting to robbing a bank) leaving a lot of end users out in the cold or paying very high prices.
On-warrant stocks at Rotterdam have been reduced to just 2,400 tonnes and those at Hamburg to 5,300 tonnes.
It is only a matter of time before 3-month spreads on copper breaks out of its US$9,500 to US$10,200 trading range.
There is nothing like finding copper in a bull market for copper. Carnaby Minerals (ASX:CNB) (figure 5) has had a stellar start to 2022 following its announcement in December 2021 of some cracking intersections at its Greater Duchess Project (figure 6) near Mt Isa in Queensland which covers around 1,000 square kilometres.
The discovery hole returned an impressive intersection of 41 metres @ 4.1% copper at the Nil Desperandum Prospect (figure 7).
This was followed up by 27 metres @ 2.8% copper and 0.80 g/t gold at the Lady Fanny Prospect where over 400 metres of high-grade copper mineralisation was identified from historical workings.
The company recently took advantage of this and raised $20 million at with Oz Minerals Limited participating at $1.30 share.
The company is embarking on an aggressive 20,000 metre RC, diamond, and geophysical program and considers Nil Desperandum could represent a 500 metre + plunging shoot that is open at depth.
Not surprisingly CNB has recently expanded its footprint in the region picking up the Magna Lynn and Makbat tenement to the south of these discoveries (figure 8).
With an enterprise value of just over $200 million the stock’s not cheap, but I like the address (near Tick Hill which produced 511,000 tonnes @ 22.5g/t Au) and the project is situated near Mt Isa with excellent infrastructure.
I think this ranks as one of the better copper discoveries in recent times.
Let’s hope the grade and continuity holds up so I don’t have to eat those words. One thing for sure, there will be plenty of investor interest over CY 2022 as exploration kicks into gear.
In a market littered with overvalued mineral explorers (not pointing the finger at anyone in particular but happy to expand on this at Cigar Social), Chesser Resources (ASX:CHZ) is an exception. It is headed by ex-Macquarie Banker Andrew Grove (good picture of him on the company website grinning like a Cheshire cat) and is exploring for gold in Senegal, West Africa.
Good to see Adelaide is well represented on the board, which includes Simon O’Loughlin and Robert Greenslade (who was a handy 800m runner at school as I recall).
The company recently discovered high-grade mineralisation over an apparent strike length of 125 metres at Area H with better intersections including:
Chesser has also published a maiden JORC Resource at Diamba SUD of 781,000 ounces (table 1) of gold which will be incorporated into the upcoming Scoping Study along with mineralisation from area A and D at Diamba Sud.
The resource contains a high-grade core of 493koz @ 3.0g/t gold (1.5g/t cut-off) with the majority of the mineralisation in the top 135 metres.
Recoveries were also excellent at 96% using a conventional cyanide leach circuit.
The company is currently embarking on a 15,000 – 20,000m drill program on Areas A and D and target with a view to incorporating Area H mineralisation for inclusion into the Mineral Resource inventory during 2022.
A Scoping Study over the Areas A and D Mineral Resources (figure 11) is also due with targeted completion in the March quarter 2022 (excluding Area H at this stage).
I think we will see +1Moz this year at good grades in the near term and a Scoping Study with some very positive metrics.
At an enterprise value of around $44 million (aproximately $5 million in cash) this equates to an EV/JORC Resource of around $44/ounce compared to an average for ASX African listed juniors in the range of $40-$60/oz.
I think the resource quality (grade and tonnes) will be better than average however. The recent price weakness should present an attractive entry point.
At RM Corporate Finance, Guy Le Page is involved in a range of corporate initiatives from mergers and acquisitions, initial public offerings to valuations, consulting, and corporate advisory roles.
He was head of research at Morgan Stockbroking Limited (Perth) prior to joining Tolhurst Noall as a Corporate Advisor in July 1998. Prior to entering the stockbroking industry, he spent 10 years as an exploration and mining geologist in Australia, Canada, and the United States. The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.
Stockhead has not provided, endorsed, or otherwise assumed responsibility for any financial product advice contained in this article.