Ground Breakers: Chile supply issues prop up copper as miners cop a belting

Materials and Energy sectors dive as market falls in morning trade
Copper prices were propped up by supply shortfalls in key markets in Peru and Chile
Red 5 a rare winner after announcing reserve and resource upgrade at King of the Hills

Mining stocks are copping an absolute hiding, with even superheated coal miners down in early trade as a wave of negativity sweeps over the ASX.

Energy prices fell backwards while metals were mixed as supply issues compete with Chinese commodity demand to pull the market up or down.

Aluminium and copper went separate ways as stockpiles increased on the LME for the former, sending it 1.1% lower to US$2261/t while mines in Chile and Peru, the two largest producer of the red metal, stumbled in July, with copper up 0.4% to US$7683/t.

“Base metals were mixed as traders weighed up weakening economic backdrop against ongoing supply side issues. Aluminium fell after stockpiles at LME warehouses rose 11%. After steady declines over the past 12 months, this is the first sign that demand may be weakening,” ANZ Research’s David Plank said in a note.

“Nevertheless, the industry is facing further disruptions as high energy prices force uneconomic smelters to close.

“Copper found some support after data highlighted the supply issues the industry is facing. Copper output in Peru fell 6.6% y/y in July.

“In Chile, output at Anglo American’s Sur unit tumbled 38%. Codelco saw production slide 6.5%. BHP’s Escondida and the Collahuasi mine also registered y/y declines.”

Materials stocks fell 1.69% this morning, with the energy sector down 2.52%.

Only a handful of large caps made gains, with coal producer Yancoal (ASX:YAL), and lithium stocks Lake Resources (ASX:LKE) and Sayona Mining (ASX:SYA) finding favour.

Ground Breakers share prices today:

Red 5 rises on resources upgrade

One gold stock in the green this morning is Red 5 (ASX:RED), which announced a big resource and reserve update at its soon to be producing King of the Hills gold mine.

Red 5 poured the firs gold bar at the 176,000ozpa gold mine near Leonora in June, but says it could ramp up its mining and processing rate after increasing its reserves by 12.5% to 2.7Moz and resources by 7% to 4.7Moz.

“Underground drilling at KOTH has enabled a 20.5 per cent increase in the underground Resource to one million ounces of contained gold, with a very pleasing 32 per cent increase in the Indicated Resource category,” managing director Mark Williams said.

“In the KOTH open pit, we are very pleased that the grade control drilling has increased the overall resource confidence.

“The King of the Hills Ore Reserve has increased by 12.5 per cent to 2.7 million ounces of contained gold, largely reflecting grade control drilling and some enhancements to the open pit design.

“KOTH continues to demonstrate exceptional capacity for Resource and Reserve growth, and we believe that an orebody of this size and a mining operation of this scale has the potential to support a higher processing rate than the current designed capacity of 4.7Mtpa.

“A study will be initiated to determine an optimal future processing rate for the KOTH operation, potentially increasing annual gold production and cash-flow.

“Importantly, the process plant has already been built with this expansion objective in mind, leaving scope for the gold leaching and recovery circuit to be expanded at low cost with minimal disruption to plant operations.”