Garimpeiro likes the long-term implication in BHP's recent $3.2bn copper M&A splash.
Barry FitzGerald: Forget the here and now, BHP’s dealmaking foreshadows the next copper boom
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Should copper stock investors be worried about the 22% fall in the price of the red metal from its record high in May?
The fall from US$5.20/lb to $US4.07/lb is not a good look. But take heart, the current price remains comfortably ahead of the 2023 average of $US3.85/lb.
More than that, check out BHP’s (ASX:BHP) move during the week to lay down $3.2 billion for a half-share in two undeveloped copper assets high in the Andes straddling the border between Argentina and Chile.
It follows on from last year’s $9.6 billion acquisition of South Australian copper producer OZ Minerals and BHP’s failed attempt tin April to buy Anglo American for $60 billion, principally for its copper mines in Peru and Chile.
So it is fair to say BHP can’t get enough copper, a metal it expects to “fly-up” in coming years as the world realises there is not enough to meet electrification and decarbonisation demands, let alone the untold demand coming from AI.
BHP is in effect making a $3.2 billion medium-term bet that copper prices will have to rise to higher levels to incentivise the development of the sort of low-grade but bulk tonnage projects it is adding to its portfolio.
Who’s to judge?
So if BHP is considered a good judge of these things, investors in ASX-listed copper stocks can relax about the medium to long-term direction of the copper price.
But what about the near-term, and the pain that copper’s 22% fall since May has been inflicting on the ASX junior copper sector?
On that score, Garimpeiro took comfort during the week from heavyweight investment bank Citi.
Acknowledging headwinds for copper of late, Citi said it was likely the metal would continue to struggle in the weeks ahead.
But then it expects a recovery to US$4.30/lb within three months, and US$5/lb by early 2025 in response to tailwinds from US interest rate cuts among other things. Happy days.
Garimpeiro’s take on all that is that it might be time to take advantage of the lower levels of ASX junior copper stocks on the assumption that BHP knows what it is doing with its copper buying spree, and that Citi is on the mark with its $US5/lb call early next year.
There is another level to take into account. BHP’s Andean copper pickups are of the low grade/bulk tonnage epithermal/porphyry type. The potential to mine tens of millions of tonnes annually and pick up a gold credit is what can make 0.3% copper deposits work in a major way.
Readers might remember that Garimpeiro has been down this path before when digging around the juniors copper stocks that had large scale epithermal/porphyry type deposits as their exploration focus or in fact already have a big deposit under their belt.
Names like Sunstone Metals (ASX:STM), Caravel Minerals (ASX:CVV), Alma Metals (ASX:ALM), Canterbury Resources (ASX:CBY) and Hot Chili (ASX:HCH) fall in to that latter category, yet they have been treated just as harshly as the pure explorers in the wake of the copper price fall.
Share price falls since copper’s peak in May range from 10% to 35% in the copper juniors. The copper stocks mentioned above, and others were covered off in Stockhead’s recently published “Investor Guide: Gold & Copper.”
READ: Investor Guide: Gold & Copper FY2025 featuring Barry FitzGerald
Porphyry potential at Belararox
Another covered in the guide and one that gets a special mention today is Belararox (ASX:BRX) , trading mid-week at 23c – the same price as back in May when copper was at its all-time high.
The reason for the relative price strength of the $20 million company is interest in its flagship Toro-Malambo-Tambo (TMT) project, proximal, as they say, to the two copper development projects BHP has just bought into – Filo del Sol and Josemaria.
Filo del Sol is the one BHP is particularly excited about because of the spectacular drilling results reported from the project since 2019, pointing to a huge porphyry/epithermal discovery yet to be fully defined. BHP gets its 50% exposure by jointly bidding with Lundin Mining for the current owner, Canada’s Filo Corp.
Filo Corp was a $C40 million company back in 2019 when it first reported 1km intersections grading 1% copper equivalent. It is now being bought out by BHP and Lundin for $C4.1 billion, making it a 102x bag.
Little Belararox has been working up porphyry targets at TMT and plans to start putting them to the test with the drill bit in the upcoming field season, which usually kicks off after the snowmelt in September. BHP will be watching.
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.
At Stockhead, we tell it like it is. While Belararox, Alma Metals and Hot Chili were Stockhead advertisers at the time of writing, it did not sponsor this article.
