Barry FitzGerald: One copper stock to watch as Robert Friedland’s 'supply cliff' approaches

Oh, to have been in Cape Town during the week drinking Castle Lager and dining on antelope, as well as listening in to Robert Friedland’s take on the copper market.

Friedland is a billionaire mining financier/entrepreneur famous for many things, the latest being the development by his Ivanhoe Mines of the big and high-grade Kamoa-Kakula copper mine in the Democratic Republic of Congo.

He also knows how to rev-up an investor crowd.

And that is just what he did in Cape Town at the Indaba conference, providing a tonic to those who might have been thinking that the fall in the copper price from around $US4.60/lb recently to $US4.13/lb this week means copper’s glory days are over.

Thanks to coverage of his speech by the ever intrepid Kristie Batten, editor of MiningNews.net, Garimpeiro can relay that Friedland pointed out that the world will need to mine 700Mt of copper in the next 22 years alone as it sets about electrification of everything.

It is a big and maybe impossible task given all the copper mined in history amounts to 700Mt.

“Let’s get real here. We’re sitting on a copper supply cliff,” Friedland said. “We need eight Kamoa-Kakulas by tomorrow – big problem.’’

Friedland’s rev-up is in keeping with what BHP has been saying on copper’s outlook – that there could be some price pressure in the next couple of years as some new mines come online but then it’s game on as Friedland’s supply cliff emerges around 2025.

From all that, Garimpeiro reckons the sell-off in the ASX-listed copper stocks of the last couple of weeks could well be an opportunity to build a position ahead of the approaching supply cliff.

Because the broader market is still nervous about what direction it is heading, Garimpeiro has limited himself to just one copper stock of interest this week – Austral.

AUSTRAL (ASX:AR1): Trading at 23.5c for a $107m market cap.

As Friedland was wooing the crowd in Cape Town during the week, Austral CEO Steve Tambanis was doing the same with a bunch of investors at the Melbourne Mining Club’s “Cutting Edge’’ series.

Tambanis had good reason to be pumped – Austral is the newest copper producer on the ASX from its Mt Kelly project in northwest Queensland.

Formerly known as Lady Annie when it was owned by others who hit hard times because of low copper prices, Mt Kelly starts out this weekend on its way to becoming a 10,000tpa copper cathode producer for an initial four years.

This time the Mt Kelly solvent extraction and electrowinning plant ($160m replacement cost) that produces premium priced cathode plates is being supplied with ore from the newly developed Ant Hill mine.

Each of the road trains that travel the 40km on a bitumen road to Mt Kelly are carrying ore containing about 1 tonne of recoverable copper. The material is loaded on to a heap leach pad and the copper liquor is collected at the bottom for delivery to the SX-EW plant.

Assuming the project hits its straps, it has got to be said that 10,000tpa for an initial four years is a lot of copper for a company with a $107m market cap. In gross revenue terms, it equates to $A530m at the current copper price.

Compare Austral’s market cap to the $150m-plus market caps of a crop of junior explorers that have recently reported copper exploration success in the same neck of the woods. Promising for sure, but they don’t have a proven resource, and they are certainly a long way off from producing, if at all.

Tambanis’ plan is to plough back $10m into exploration over the next 12 months from the project’s cash flow to build a resource base beyond Ant Hill to make Mt Kelly a 10-year plus operation, potentially at a bigger production rate too given Mt Kelly’s installed capacity is good for 30,000tpa of copper.

The company’s big tenement position in the western part of the Mt Isa Inlier is certainly up to the task, with a deep dive by Austral into the potential of its tenements identifying no less than 140 exploration targets.

Planning to drill the first five or six priority targets is underway. Austral is not adverse to bringing in exploration joint venture partners or trading some of the exploration targets.

To that end, Tambanis hinted that an exploration deal with an industry gorilla was not far off.

Aside from the oxide copper ores that underpin Mt Kelly, Austral has a much larger resource base in sulphide copper ores in the region. It is spending some cash to see if a US process for the SX-EW treatment of sulphides can be applied at Mt Kelly.

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