Money Talks: A couple of expert picks in the hot-right-now small cap copper space
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Money Talks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to see what’s hot, their top picks and what they’re looking out for. Today, we hear from Rob Brierley, executive at Perth-based financial services provider RM Capital.
The copper sector is looking pretty hot right now because of an emerging shortage of the red metal, according to Brierley.
“Copper is forecast to go into supply deficit soon and I think there is the likelihood the copper price will firm quite dramatically over the next one to five years, and copper is also quite a difficult thing to find,” he told Stockhead.
“So if there’s companies out there that have already got existing resources and are moving towards feasibility, or even just grassroots exploration, there’s a chance they could do quite well over the next couple of years.”
Chile is the world’s largest copper producer, but mines in the country are getting deeper and lower grade.
Many operations are also shifting from oxide to sulphide ores, which means they need to “rejig their production profiles”.
“Basically, you’re seeing a number of existing copper production centres come under pressure as far as age of the operations and also grade depletion,” Brierley said.
One of Brierley’s top picks is MOD Resources (ASX:MOD), which has an advanced copper project in Botswana.
The company has a market value of more than $106m at a share price of 35c.
“They’ve got a project in Botswana that’s all proven up, they’ve got ore reserves there, they’ve just completed a feasibility study,” Brierley said.
The pre-feasibility study estimates the T3 open pit mine would produce an average of 28,000 tonnes of copper and 1.1 million ounces of silver each year — worth an estimated $US2.3 billion ($3.3 billion) over its initial 11.5-year life.
The metrics are based on a “long term” copper price of about $US3.08/lb. Copper is currently selling for about US$2.92/lb.
“They’re on the cusp of being able to develop that project and move from being an explorer/developer into a production company at a time that should be quite good as far as copper pricing goes,” Brierley said.
Another favourite of Brierley’s is junior producer Aeris Resources (ASX:AIS).
Aeris, which has a market cap of $57m, has been in the headlines most recently over its ambitious attempt to acquire Glencore’s CSA mine for about $800m — a bid it wasn’t successful in.
“You’ve got to admire their resilience I suppose and their ability to try and take on these huge acquisitions,” Brierley said.
“They’re an existing producer from the Tritton copper mine and they’ve been crippled by a whole heap of corporate debt that they’re slowly but surely paying off.
“But they’re an interesting company and … because they’re an existing producer, any copper price increase should flow through to their bottom line very quickly.”
Brierley’s last pick is an interesting one — a “small punt”, he says.
The $39m Gindalbie Metals (ASX:GBG) is better known as an “iron ore failure”, but it’s now positioning itself in copper.
The company is selling the Karara iron ore mine to its Chinese joint venture partner Ansteel.
But it also has an advanced South Australian copper project that it plans to spin out into a new company called Coda Minerals.
“They’ve got a resource of about 19.5 billion tonnes at 0.8 per cent copper at Mt Gunson and from what I can see, by the time they spin out this Coda Minerals it’s going to have $10m in the bank, an existing copper resource and a fair bit of prospectivity going forward,” Brierley noted.
“I like that as a grassroots exploration play which [shareholders] will probably end up getting for nothing, because I think at the current share price of 2.6c, that’s how much cash each Gindalbie shareholder is going to get from their divestment of the Karara mine to Ansteel.
“So really you’re getting that little copper project for free at the current share price.”
Rob Brierley joined RM Capital in July 2017 after being the head of research at Patersons Securities. As head of research, he was responsible for the management of a team of up to 20 research analysts and support staff, located around Australia. Brierley has sat on numerous boards as an executive and non-executive director, as well as having acted as a key adviser to both industrial and resources companies.