Ground Breakers: Dr Copper in rude health as majors bulk up on the red metal
Dr Copper is in rude health this morning, rising 2.5% to US$9760/t to counter concerns that the energy and property crises in China would dull demand for the base metal.
The International Monetary Fund had conflicting messages for the copper market in its World Economic Outlook predicting lower economic growth than previously forecast but also noting rising momentum towards net zero policies could see demand for the ‘decarbonisation’ metal rise twofold over the coming decades.
Its use in infrastructure and cabling means copper is a good barometer of economic activity, so slowdowns in the global economy are expected to have a pronounced effect on the metal.
“In the short term there are some headwinds, mainly due to concerns about China’s economy,” Jay Tatum, Valent Asset Management portfolio manager told Bloomberg.
“But once the world gets back to normal growth rates, evenly spread across the economy, we still think there’s a strong case to be made for metals like copper.”
Iron ore dipped overnight by US$4.83 to US$124.17/t according to Fastmarkets MB as Chinese authorities issued a decree that steel mills in North China’s Beijing-Tianjin-Hebei regions would have to curb production over winter between November 15 and March 15 next year.
Imports of iron ore to China slowed in September to 95.6Mt, down 12% year on year and the same for the first three months of the financial year.
Imports were at their third weakest level in 18 months, providing ammo for bears who see the price sliding back before the end of the year.
Gold prices meanwhile surged 1.8% to US$1792/oz, as investors headed for cover when CPI numbers from the US showed inflation in the world’s economic engine room rose to its highest level since the GFC in 2008 at 5.4% on a 12 month basis in September.
With copper up almost 8% over the past week, it was a good time for the majors to announce some big moves in the metal du jour.
BHP is reportedly running the ruler over some copper assets in the less than Tier-1 Democratic Republic of the Congo, but is also ramping up its investment in copper exploration closer to home.
Its most notable prospect its the Oak Dam discovery in South Australia, near BHP’s famous Olympic Dam copper-gold-uranium deposit, but it also inked a farm-in to some copper ground held by junior explorer Encounter Resources (ASX:ENR) earlier this year.
Encounter today announced it had increased the tenure at the Elliott copper project in the relatively unexplored Greater Macarthur Superbasin by a whopping 60% to 7200km2, with BHP’s earn in commitment increasing from $22 million to $25 million to earn a 75% stake in the ground.
“Irrespective of the pace of global energy transition, new sources of copper supply are required in the medium term,” Encounter’s Will Robinson said.
“Greenfields exploration success of globally significant, new resources at projects like Elliott is vital to meet burgeoning copper demand projections.
“Encounter identified the Greater McArthur Superbasin in the NT as having significant untested potential for the discovery of large sediment-hosted copper deposits under shallow cover and we now control an extensive portfolio in the region.”
From BHP to a BHP spinoff, South32 has signalled its intention to move further into the world of battery metals by purchasing Sumitomo’s 45% stake in the Sierra Gorda copper mine in Chile’s Antofagasta region for a massive US$1.5 billion in cash up front.
The mine is 55% owned by Poland’s KGHM, and is another example of the enormous prices companies are willing to pay to lock up high level copper exposure after Sandfire Resources (ASX:SFR) paid US$1.865 billion to buy the MATSA complex in Spain.
South32 will also pay “price-linked consideration” to Sumitomo of up to US$500 million at threshold rates between 2022 and 2025. The mine produced 180,000t of copper, 5000t of molybdenum, 54,000oz of gold and 1.6Moz of silver in 2021.
“We are actively reshaping our portfolio for a low carbon world
and the acquisition of an interest in Sierra Gorda will increase our exposure to the commodities important to that transition,” South32 CEO Graham Kerr said.
“Copper is a critical metal in the decarbonisation of the world’s energy networks and has strong long-term market fundamentals.
“Adding Sierra Gorda further improves our portfolio and is expected to immediately lift Group margins and earnings, supporting future shareholder returns while retaining strength and flexibility in our Balance Sheet.
“The transaction expands our operating and development presence in the Americas and provides exposure to along-life asset with a large resource base.
“The operation has existing opportunities to unlock further upside
through improved production efficiency, resource expansion and exploration.”