Pic: Getty
Mining
There is no denying the world is on an unprecedented path of growth and industrialisation as it gears up for the transition to a greener economy.
Metals and mining will be put to the test to provide vast quantities of raw materials for things such as electric vehicles, wind power, solar photovoltaic, batteries, 5G technology and hydrogen production.
This is especially good news for copper bulls – when the red metal is in demand it usually means industries and economies are moving forward due to its broad application uses.
According to Matt Fernley head of research at Westbeck Capital’s Volta Energy Transition Fund and editor of Battery Materials Review, around 30% of copper is used for construction (mainly pipes and wiring), another 30% in electricals and equipment, 15% in infrastructure, 15% for transport and the remaining 10% for industrial purposes.
“But primarily, copper is an infrastructure commodity in the energy transition,” he said.
“Copper wires are used for high and medium voltage power lines, offshore wind is particularly copper-intensive, and renewables as a whole are more copper-intensive than the hydrocarbon power sources they’re replacing because they require a substantial amount more transmission and distribution infrastructure.”
While the copper price continues to circle around record highs – trading consistently over US$10,000/t, Fernley expects the price to go down in the near term as the world heads into an inflation related cyclical slowdown.
“The price will then go back up in the second half of the decade as supply tightness and stronger demand for cabling related to the energy transition causes an uptick in demand.”
The copper supply crunch felt around the world is not expected to get any better anytime soon.
Last week members of the copper world gathered in Santiago for CRU’s 2022 World Copper Conference where mining consultancy group, CRU, highlighted the annual copper supply deficit will be 6Mt per annum for the next decade.
This means around eight more Escondida Mines (a joint venture between Rio Tinto and Japan-based JECO Corp) is needed to fill the gap in the immediate future.
CRU head of base metals supply Erik Heimlich said an investment of more than $100 billion is required if the world is going to meet demand requirements.
“The message is there are challenges on the horizon at a time when there is more and more demand for metals,” Olive Capital managing director Andrew Sparke said.
“Around 40% of the world’s copper is produced in two countries – Chile and Peru but northern Chile holds the greatest concentration of the largest copper porphyry deposits on earth.
“A lot of these porphyry deposits are way up in high altitudes in the Andes so there are practical challenges that come with that – even getting water up there to process copper as well as labour and electricity are quite challenging feats,” he said.
“While this bodes well for the copper price going forward, the supply side is where we could see some surprise.”
FAVOURITE STOCKS: AIC Mines (ASX:A1M), Coda Minerals (ASX:COD), and QMines (ASX:QML)
AIC Mines owns the Eloise Copper Mine, a high-grade operating underground mine southeast of Cloncurry in Queensland.
The company acquired the project off Evolution Mining back in August 2021.
“This is a well-established asset that was divested from a major, meaning AIC can now spend more time and money on exploration,” he said.
“We expect ongoing news flow in relation to extensions and definition of the Eloise Reserve and Resource – a surface rig will begin drilling in late March (8,500m drill program), which will complement the two existing underground rigs that are currently drilling.”
“They are trading at 68 cents a share, but we have a buy 78 cents per share price target for AIC Mines with catalysts including ongoing resource expansion and operational execution at Eloise.”
Bosio’s next pick is Coda Minerals – a company based in the Olympic dam province in south Australia.
“They have had spectacular exploration success in a large, under-explored part of the world and in a playground of the majors like the BHPS.”
COD has announced a new copper-rich bornite dominated zone at the Emmie IOCG system [2-3% bornite from 812m over 15m].
Combined with detailed re-logging of previous holes, Bosio says this suggests there may be multiple bornite zones within the Emmie IOCG mineralised system.
“The fact that they have made a significant discovery – which could be a very large project – is very exciting.”
QMines is Bosio’s third stock pick – the company listed on the market last year.
“They are currently at the 30 cents market, but our price target is 74 cents – they have the Mt Chalmers Project in Queensland, a small but old producing asset and have consolidated some good old high-grade mines.”
“They have been able to give it some attention for the first time in a long time so its more speculative but it one driven by exploration.”
FAVOURITE STOCKS: PolarX (ASX:PXX), Tempest Minerals (ASX:TEM), and Tennant Minerals (ASX:TMS)
“We closed a $4 million placement and rights offer for PXX, which has two assets in the US – one in Nevada and the other in Alaska,” Dagan said.
“Recent drilling at the Caribou Dome Project returned a massive hit of 19.1m of copper at over 7% and more than 11grams per tonne of gold.”
“They are currently undertaking some further drilling and are trading at only $16M Enterprise Value here.”
Second on Dagan’s list is TEM, another explore who has recently made a major copper discovery, with the stock going up north of 300% since they released the results.
“Our third is Tennant Minerals, they too have come out recently with a spectacular copper hit of 50m at 2.7% copper and the stock more than doubled on the back of that news.”
“What this all highlights is that there is still investor capital moving into battery metal stocks provided the results are positive.”
FAVOURITE STOCKS: OZ Minerals (ASX:OZL), Hot Chili (ASX:HCH), and Locksley Resources (ASX:LKY)
“Copper is one of most utilised commodities in the world, it’s a highly efficient conduit and used in renewable energy systems everywhere – it is un-replaceable,” Raad said.
“There isn’t another metal that has the same use case as copper, there are very few elements that do exactly what copper can do.”
“Demand is expected to reach about 25.5Mt per annum by 2030 , but if we look at the supply forecast it shows us a 12% decrease in supply from 2021 levels.”
“We are seeing companies focusing attention on development to capitalise on this because as we see demand increase but supply decrease, we will see the price of copper continue to rise.”
Raad’s first pick is OZ Minerals, one of the biggest producers in the market.
“My second pick is HCH, they are planning to be production by 2026 and if that’s the case, they will capitalise on those macroeconomic themes and trends,” he said.
“They have a very large resource base of almost one billion tonnes of copper across all their projects and are approaching the DFS stage.”
“Third is LKY, a junior explorer based in NSW with a market cap of around $4 million.”
FAVOURITE STOCKS: Oz Minerals (ASX:OZL), Aeris Resources (ASX:AIS), and Sandfire Resources (ASX:SFR)
“We have a good size holding in OZL, they are the largest pure-play copper producer in Australia and therefore, represents one of the best ways investors can play the copper thematic,” Sala Tenna points out.
“Our next pick is AIS, they are currently trading very cheap at three to four times price earnings ratio (PER) and is one of only a handful of listed copper producers on the ASX,” he said.
“They have made some good discoveries in the last two years, which will be coming online and as they do, we will see the mine life increase from 5 years out to more than ten years.”
“Its market cap is at $305 million, which is cheap for a company that will potentially be producing 30,000 tonnes per annum.”
Towards the end of 2021 Sandfire announced the acquisition of MATSA in Spain and they successfully assumed control in February this year.
The US$1.87bn acquisition is the new corner stone asset and was funded with a combination of cash, debt and A$1,248m equity raise at A$5.40 per share.
MATSA contains three underground mines with a central processing plant capable of producing 100kt-120ktpa.
“The acquisition instantly transformed Sandfire into one of the largest copper focussed stocks on the ASX with combined copper production from Motheo and MATSA of 100kt in FY24 and growing to 130ktpa over three years,” Sala Tenna said.
“Management also have an aspirational target of 300kt by 2030 – in comparison OZL, the largest copper producer currently on the ASX, produced 125kt last year and trades on a market cap just over $9bn vs Sandfire at $2.3bn.
“SFR isn’t without risk with plenty of hard work ahead for management ensuring Motheo is completed to schedule, MATSA operates smoothly post acquisition and of course country risk… but another way to look at it is the stock is catalyst rich if management delivers.”
Mining
Mining
Mining
Get the latest Stockhead news delivered free to your inbox.
