Copper is headed up says BHP; and these stocks could benefit
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Barry FitzGerald writes his legendary Garimpeiro resources column weekly for Stockhead:
BHP kindly shared its thoughts on the future direction of commodities prices this week when announcing its thumping $US8.9 billion June year profit.
Its thoughts on copper in particular were supportive of ASX-listed juniors looking to get in production like Venturex and MOD Resources, both of which were picked as stocks to watch at this month’s Diggers & Dealers forum.
BHP’s commodities wrap was posted on its Prospects blog. Given the recent sell-off in a broad range of commodities on US-China trade war fears, it’s a safe bet the site has been hit plenty of times by investors hoping to divine the next moves for metal prices.
That’s because it is not often that investors get a “free’’ insight into the thinking of the world’s biggest miner on the direction of metal prices (and other commodities like oil and potash).
If there was an underlying message to it all, it was that there is no need to panic in response to the recent dive in metal prices. BHP’s thoughts on bellwether copper underscores that assessment.
Upside for copper
Copper has tumbled from a peak of $US3.30/lb in the opening six months of the year to $US2.72/lb this week, a nasty 17 per cent fall.
“Prices were trading near the top of this range in early June,” BHP said.
“They subsequently weakened across the end of the financial year and into July and August as investor appetite for pro-growth asset classes declined on the back of escalating trade tension.”
But the good news is that BHP believes current market fundamentals support a $US2.95/lb – $US3.18/lb trading range for the red metal. So BHP sees 8.5% to 17% upside in the copper price.
There was a caveat.
“Given the slightly lower global growth trajectory we now envisage, and the impact of trade tensions on financial market sentiment, the average for the coming year is more likely to be in the lower end of that range, rather than in the middle,’’ BHP said.
Still, a return of copper to around the $US3/lb level would be welcomed by the juniors looking to get their copper projects into production to take advantage of the price-supportive supply deficit BHP and others see opening up in copper come the early 2020s.
That sort of outlook was why the booths of the junior copper developers were among the busiest at Diggers & Dealers — notwithstanding the current price pressure on copper and other metals.
Venturex and MOD caught the eye of Blue Ocean’s Steuart McIntyre at Diggers & Dealers, while Macquarie also noted their “emerging base metals stories’’.
Venturex was mentioned here on April 12 on the basis that it was starting to appear on investor radars following the appointment as managing director of well-regarded mining engineer Ajanth (AJ) Saverimutto.
AJ was introduced to Venturex by the company’s 19 per cent shareholder, the can-do gold producer Northern Star, and big things were expected of him.
He has not disappointed, giving fresh momentum to Venturex’s Sulphur Springs copper-zinc project in the Pilbara, including a revitalised regional exploration effort to find the region’s next big orebody.
A definitive feasibility study in to a development is due at the end of the current quarter and will likely include optimisations and capital savings on the now long-dated “value engineering study’’ in to the development.
That study pointed to the potential for a $166 million development with average annual production of 32,000 tonnes of zinc and 12,000 tonnes of copper (in concentrates). Copper production costs were estimated at a robust US58c a pound (after zinc credits) over an initial mine life of 12 years.
Venturex has recently dressed itself up to become a producer by undergoing a 1-for-15 share consolidation. It is trading at 18c for a market cap of $43m.
MOD Resources (ASX:MOD)
Meanwhile, MOD is working towards completing a feasibility study in to the development of its T3 copper and silver deposit (590,000t of copper and 27m ozs of silver) in Botswana by the end of March next year.
It also introduced some nearby exploration excitement to the story at Diggers & Dealers where it announced a 52m intersection grading 1.5% copper and 14g/t silver at the A4 Dome prospect. It is trading at 45c for a market cap of $104m.