• Rumours of China’s reopening have mining investors hoping a new dawn could be on the horizon for copper
  • Just three days of visible warehouse stocks, Shaw and Partners analysts say
  • Our experts suggest eight cheap copper juniors who could benefit from a surge in demand

Copper prices have fallen in the order of 20% in 2022, hammered down by a heady cocktail of Chinese Covid restrictions, energy struggles, rate rises and global recession fears.

At a touch over US$8000/t yesterday, the price of the red metal is a far cry from 2021 highs, when a spike in industrial activity and excitement about its role in the transition to renewable energy sent prices beyond US$10,500/t to record highs not once but twice in both May and October.

“China’s Covid lockdowns have had the biggest impact on demand in Q2 this year, when the flow of raw materials to copper processors was disrupted, while others saw operations crimped by restrictions,” S&P Global Commodity Insights metals pricing analyst Han Lu told Stockhead.

“Data from Platts at S&P Global Commodity Insights show cathode premiums to have fallen to as low as US$20 per ton through March and April, a US$55 per ton slump from the start of the year.

“We have seen premiums recover more recently, mainly due to low domestic inventory levels, although slowing property sector growth is expected to weigh on this recovery.”

But something could be stirring beyond the Great Wall.

Economists think China is unlikely to unwind its restrictive Covid policies quickly after Xi Jinping secured his political aims at the National Congress in Beijing last month.

But rumours China could change tack, with its economic growth poised to undershoot official targets by half in 2022, have lit up the resources market in recent days.

Copper surged almost 8% on Friday, with other base metals and iron ore following.

It has many investors excited, especially since wafer-thin back-up supplies and expectations that the growth of renewables and EVs will supercharge demand paint a pretty picture if China gets its house in order and reopens.


Three days of stock

“While we’re seeing mixed signals as to whether Covid Zero will persist, the manufacturing and property sectors would likely be the immediate beneficiaries if it were lifted, which would help boost copper demand,” S&P’s Lu said.

“Market participants also expect the renewable energy and electric vehicles sectors to provide longer-term support for copper demand.”

According to S&P’s forecasts copper demand will rise ~60% from 25Mt in 2020 to 30.6Mt in 2025 and 39.9Mt in 2030.

It will continue rising to 48.9Mt by 2035 and 53Mt by 2050, the date for most commercial and regulatory Net Zero targets.

Under a high ambition scenario, assuming a high conversion of copper assets into sources of supply, deficits peak at 1.6Mt in 2035.

In a more pessimistic “Rocky Road Scenario” that deficit will hit 6.1Mt in 2030 and 9.9Mt in 2035, equivalent to around a quarter of that year’s mined and recycled supply.

That’s a lot. Consumption from energy transition uses will rise to 20.5Mt, peaking at 42% of total demand.

But supply challenges today portend a tough path to meet those needs.

Even with the impact of China’s Covid restrictions on demand, just three days of supply are available in visible warehouse stores across the world. Stockbrokers Shaw and Partners say this is an all time low.

“We usually run in weeks not days,” analysts from the firm said in a note over the weekend.

“Copper supply is under threat. Overnight, MMG announced that its giant Las Bambas mine in Peru is being progressively closed due to blockades at the mine.

“This at a time when most analysts are forecasting increasing deficits of supply over coming years due to the massive demand growth from the energy transition. Electrification requires a lot of copper.

“Ironically, the pullback in the copper price this year is probably going to make the coming deficit in supply even larger. How much exploration has been put on hold? How many development studies deferred? How hard has it been for emerging resource companies to access capital?”

copper stocks shaw and partners
Copper stocks are running dry. Pic: Shaw and Partners

Lu says weakness in demand hasn’t just been related to China. Buyers in other countries have been hit by rate rises and a rising US dollar, which has made copper more expensive in their home market.

But backwardation suggests physical demand for copper is fairly solid.

“While nominal copper prices have not risen significantly, cathode premiums in China have soared to an eight-year high of US$146 per ton on Oct. 21 on dwindling inventory levels,” Lu said.


Miners still bullish on copper

Copper has become the must-have commodity for M&A hungry miners who either don’t have it in their portfolio or are facing organic growth challenges.

Rio Tinto (ASX:RIO) has run the gauntlet of a thorny minority shareholder base in its efforts to take out Turquoise Hill, the Canadian company which owns its two-third stake in the Oyu Tolgoi mine in Mongolia.

The total cost could be in excess of US$3.3b.

BHP (ASX:BHP) has yet to up its rejected $8.4b bid for OZ Minerals (ASX:OZL), but market watchers think it remains watching from the wings.

Sandfire Resources (ASX:SFR) paid $2.6b earlier this year to seal the purchase of the MATSA copper and base metals complex in Spain off Trafigura and Mubadala Investments, while South32 (ASX:S32) tipped in US$1.55b for 45% of the Sierra Gorda mine in Chile from Sumitomo.

Services firms are pivoting to focus on green metals as well. This week Orica (ASX:ORI) CEO Sanjeev Gandhi, whose company provides mine-site explosives services among other things, said demand for the commodity remained strong.

“Look the macros are uncertain, we all understand that, there’s a lot of volatility, geopolitics and everything else happening,” Gandhi said after the release of its annual results.

“But the fundamentals are quite strong in my view because the energy transition of the world is not going to stop, it’s even going to accelerate given the challenges Europe is facing.

“There’s going to be more demand for renewable energy, there’s going to be more demand for wind and solar and you just can’t transmit electricity without copper.

“If you look at our portfolio we have already grown our copper exposure, we are the largest solutions provider to copper mines in the world, we expect that to continue.

“The copper price was US$10,000 (per tonne), it’s US$8000 today, but is it profitable? Yes it is extremely profitable. Is there enough supply? No, so the outlook is pretty healthy for copper.”


So where do I look if I want copper when China re-emerges from its cocoon?

OK, it’s portfolio building time. We’ve hit up a couple of experts for their thoughts on the copper market and where to look.

If you’re looking for large cap exposure you could go to Rio and BHP, but their share prices and dividend streams are today still dominated by iron ore and in BHP’s case coal, despite being two of the world’s biggest copper miners.

Far East Capital executive chairman Warwick Grigor says the first place to look for immediate exposure to copper thematics is OZ.

OZ Minerals is the standout leading copper producer. BHP obviously thinks so as it made takeover approaches earlier this year,” he told Stockhead via email.

“This is an institutional stock with high volume turnover. Thus it is a good quick entry to copper exposure.”

Juniors, Grigor says, have had a harder time in the ASX copper space.

“There are many explorers that boast good, isolated grades, but making the leap to be a profitable copper producer has been challenging,” he said.

“There is a list of explorers chasing copper porphyries, particularly the large low grade ones in South America, and often these have gold as well, but these invariably need the boost that a JV with a major provides.”

Here are four he thinks are worth considering.


Cyprium Metals (ASX:CYM)

“This has a portfolio of pre-loved copper projects in WA. CYM brings new management perspective and solid industry experience,” Grigor says.

“Given that management is up to 80% of the investment decision, and CYM has very good management, it is surprising to see that the market hasn’t embraced it more.

“That will change though as it gets closer to the production decision.”


Hillgrove Resources (ASX:HGO)

“This is an established copper producer (but temporarily on care and maintenance while developing additional resources) in the Adelaide Hills, that is finding more copper at depth,” he said.

“From being in a position where it has run out of easy open pit ore, it is in the process of establishing a longer, underground mine life.

“It is a solid, though not spectacular copper play with an improving outlook.”


QMines (ASX:QML)

“Looking for a restart of the relatively high-grade Mt Chalmers copper mine near Rockhampton,” Grigor says.

“It is very well placed regarding infrastructure and recent drill results have been very encouraging. This looks like it could be on the path to a development.”


Celsius Resources (ASX:CLA)

“This has two large copper porphyries in the Philippines. The share price is at rock bottom prices and it will need a joint venture partner to take the project to production, but the MCB project looks to be very economic,” Grigor says.

“Investors just need to get their heads around the new government and appreciate its friendly attitude towards mining. This week’s announcement of the 302Mt resource at Sagan, also in the Philippines, adds a second project of value.”


Far East Capital copper picks share prices today:



Want a second opinion?

The red metal is often referred to as Dr Copper thanks to its ability to diagnose the health of the global economy with its price, one reason it’s gone a tad — just a tad — anaemic this year.

As with all medical things, it’s good to get a second opinion. So we’ve hit up Shaw and Partners for their copper picks as well.

They say if you’re looking at large caps BHP and Rio, both looking to grow the penetration of copper earnings in their portfolios, are obvious places to look.

Their exploration and development picks also include QMines, but they have four other picks to look at as well.

“They have all been sold off this year,” Shaw said. “Smart and patient money would be buying them now.”


Eagle Mountain Mining (ASX:EM2)

EM2 owns the Oracle Ridge copper mine in the United States, where it last month upped the resource by 12% to 16.5Mt at 1.45% Cu, 15.10g/t Ag and 0.19g/t Au for 240,000t copper metal, 8Moz of silver and 102,000oz of gold.

Oracle Ridge is located in Arizona, near the San Manuel copper mine, the world’s largest in the 1980s which produced over 700Mt of ore from open pit and underground sources.

Led by well-known mining investor Charlie Bass, co-founder of iron ore boom winner Aquila Resources, the company is planning to expand drilling at extensions of historic mines which have previously been left outside resource estimates.


AIC Mines (ASX:A1M)

Closely watched by the market of late due to its takeover bid for regional neighbour Demetallica (ASX:DRM), AIC is one of a handful of small scale copper producers on the ASX.

Its Eloise copper mine near Cloncurry in Queensland contains reserves of 36,000t of contained copper and 32,600oz of contained gold, and delivered 9828dmt of concentrate containing 2629t of copper at all in sustaining costs of $5.35/lb in the September quarter.

What it is seeking is a bit of scale, with the Demetallica deal folding the nearby Jericho deposit into AIC’s portfolio.

It opens the door to a 20,000tpa Cu, 10,000ozpa gold operation with a +10-year mine life.


New World Resources (ASX:NWC)

Like EM2, New World is in Arizona, where its high grade Antler deposit continues to show promising signs in exploration.

Recent drilling boasted some of the best intercepts at the project to date, including a hit of 26.8m at a 7% copper equivalent.

That included 15.9m at 8.7% CuEq, including 4.8% Cu, 0.8% lead, 42.6g/t Ag and 0.52g/t Au from 948.4m in the deepest hole in Antler’s South Shoot, where mineralisation remains open at depth.

A scoping study in July put a US$201m capex bill on a 10-year operation producing 271,240t of copper equivalent metal in concentrate over its life, generating free cash flow of US$952m ($1.36b at the time), with a PFS due in early 2023.


Coda Minerals (ASX:COD)

Coda owns the Elizabeth Creek project in South Australia, where drilling last year lit up the market around its Emmie Bluff IOCG discovery.

Located in SA’s Gawler Craton, near the likes of BHP’s Olympic Dam and OZ’s Prominent Hill and Carrapateena mines.

According to its most recent quarterly report, Coda is inching toward the completion of a scoping study on the Elizabeth Creek copper and cobalt project, where it announced a maiden Emmie Bluff resource last year of 43Mt at 1.3% Cu, 470ppm Co, 11g/t Ag and 0.15% Zn (1.84% CuEq), containing 560,000t of copper, 20,000t of cobalt, 15.5Moz of silver and 66,000t zinc.

In total 1.1Mt of contained copper equivalent has been defined across the Zambian style deposits at Elizabeth Creek, with 18Mt at 1.14% CuEq at Windabout and 1.8Mt at 1.67% CuEq at the MG14 deposit.


Shaw and Partners small cap copper picks share prices today:


At Stockhead, we tell it like it is. While Eagle Mountain Mining and New World Copper are Stockhead advertisers, they did not sponsor this article.