Copper stocks may actually be better off than we think
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Copper supply is tightening due to global uncertainty and US-China trade tensions coupled with rising demand.
Most base metals have come under pressure since US President Donald Trump announced his wide-reaching tariffs on $US250 billion worth of products imported from China.
The trade battle has ignited fears in the market of weaker demand, prompting some already in production to pull back on supply.
This could be a boon for those copper stocks getting closer to production, with strong demand predicted and the widening gap in supply spurring the price north.
ANZ senior commodity strategist Daniel Hynes said global copper inventories are down 5 per cent in November and are now at their lowest level since July 2016.
The International Copper Study Group released figures last week that highlighted copper supply was short about 260,000 tonnes in the first eight months of this year.
By comparison, the deficit in the first eight months of 2017 was 98,000 tonnes.
Research group Wood Mackenzie sees the copper supply gap stretching to 300,000 tonnes next year and predicts that will drive the average annual price up to $US7050 per tonne.
So far this year the price has averaged just under $US6600 per tonne, which is already 7 per cent higher than last year.
China has been the biggest contributor to the growing demand, with copper imports up 17 per cent year over year in the first 10 months of 2018.
Wood Mackenzie said continued tightness in the scrap market in China had supported global refined copper consumption of 2.4 per cent this year.
This is set to continue through 2019 with forecast refined consumption growth of 2.5 per cent.
Mr Hynes said that only 40 per cent of copper consumed by China goes into manufactured goods, which would include some export driven demand.
And just 15 per cent of the current $US250 billion of Chinese imports into the US contain copper, he noted.
But Wood Mackenzie said the US-China trade war risks producers having less appetite for project investment.
“By the middle of the next decade, producers are running the distinct risk of being underprepared to respond to the combined impact of demand growth and replacing sharply falling supply,” Wood Mackenzie warned.
EVs need a sh#@ load of copper
Copper demand from electric vehicles (EV) is forecast to surge by 1.7 million tonnes by 2027.
The more electric a vehicle is, the more copper it needs.
According to UBS, the electric Chevrolet Bolt uses 80 per cent more copper than the similar-sized petrol-powered Volkswagen Golf.
The ICA says conventional petrol-powered cars contain around 9 to 22kg of copper, while a battery-powered EV contains something like 80kg and a fully electrical bus requires as much as 400kg.
ASX copper stocks
Venturex Resources (ASX:VXR) is advancing its Sulphur Springs copper and zinc project in Western Australia towards production.
The company released a definitive feasibility study in October that indicated the project would produce 65,000 tonnes of copper concentrate and 75,000 tonnes of zinc concentrate annually over a plus 10-year mine life.
The project is forecast to generate life-of-mine revenues of over $2.6 billion and will deliver pre-tax life-of-mine free cash-flow of $818m.
Venturex has been progressing talks with domestic and international banks and other financiers in relation to project debt finance to fund development of Sulphur Springs.
The company expects to receive expressions of interest in December.
Aeon Metals (ASX:AML) is developing its Walford Creek copper and cobalt project in northwest Queensland.
Chairman Paul Harris described it to shareholders as “one of the best, new world-class copper-cobalt mineral systems outside the DRC” at Aeon’s annual general meeting earlier in November.
“From where we sit today, we view Walford Creek as the highest grade and largest cobalt sulphide deposit in Australia, with no known show stoppers to development,” he said.
Aeon recently completed over 35,000m of drilling and is set to release an upgraded resource early next year.
Minotaur Exploration (ASX:MEP) is continuing its exploration across the Cloncurry mineral belt of northwest Queensland in partnership with larger miner OZ Minerals (ASX:OZL).
Drilling on the joint venture is currently focusing on the “Jericho” copper and gold system – where around 30 holes have now been drilled.
Minotaur is hoping the work will extend the mineralisation further.
Xanadu Mines (ASX:XAM) recently released an updated resource for its Kharmagtai project in Mongolia’s South Gobi Desert.
Indicated and inferred resources now stand at 598 million tonnes containing 1.9 million tonnes of copper and 4.3 million ounces of gold.
Xanadu plans to increase the resource further still.
Castillo Copper (ASX:CCZ), meanwhile, is getting closer to a binding deal to supply major Hong Kong-based commodities trader Noble Group copper from the stockpiles at its Cangai mine in New South Wales.
Last month Castillo and Noble signed a memorandum of understanding to work towards a formal deal that would see Noble exclusively sell up to 200,000 tonnes of copper concentrate from the existing stockpiles at Cangai.
The deal would give Castillo early cash flow to fund continued exploration of the Cangai mine.