ASX copper's Louis Vuitton OZ is off the market. Time for some thrift shopping. Pic: Russ Rohde/Image Source via Getty Images
Mining
BHP’s (ASX:BHP) $9.6 billion deal to acquire OZ Minerals (ASX:OZL) solves plenty of problems for The Big Australian.
It gives the miner optionality when it comes to considering what will be a multi-billion dollar revamp of its Olympic Dam mine in South Australia. It immediately adds over 100,000t/pa to its production profile in key future-facing commodity copper. And OZL provides a new long-term source of feed for its battery-focused Nickel West business in WA ,through the $1.7b West Musgrave project.
Pending an independent expert’s report, the $28.25 represents a major windfall for the canny long-term OZ investors, who will vote in March/April next year on a cash payout.
That’ll be around eight times higher than the value of their shares were circa 2014.
But does it create a problem for ASX investors.
Copper is both a precious commodity and a tricky business. Suddenly, the ASX minus OZL looks a little bare in the copper cupboard.
BHP’s win is also the loss of the one copper stock virtually every fund manager recommends for the portfolio.
The problem could be compounded if the next biggest copper mid-tier, Sandfire Resources (ASX:SFR) is also taken out, a growing possibility with the company now internationally focused, 36% down on its 2018 highs and without long-term MD Karl Simich.
Canaccord head of mining research Reg Spencer says there are only a handful of producing copper plays on the ASX, making the OZ deal a minor pickle for those who have a bullish view on the red metal.
They’ll be saying goodbye to a steady stream of dividends enjoyed over several years, though a potential $1.75 payout to clear OZ’s franking credits pre-merger could provide a sugar hit.
But, then again, OZ’s exit stage left could be good news for junior copper stocks as well.
“Given the fact that BHP has just taken out our largest independent copper producer, there’s a lot of smaller earlier stage copper names, which could be interesting in a rising copper price environment,” Spencer said.
“(Outside of OZ and Sandfire) then you’re left with 29Metals (ASX:29M), then you’re left with AIC Mines (ASX:A1C), and then there’s daylight.
“You’ve got a number of earlier stage explorers or project developers that have got small resources with high grades. You’ve got some of these big bulk tonnage things like Caravel (ASX:CVV) or Rex (ASX:RXM).
“There’s not a lot to choose from in the production space, so this is why we’re quite interested in these earlier stage copper names in the absence of a mid cap copper sector, plus a tailwind on the copper price.
“That’s just a fabulous ingredient for some equity out performance at the smaller end of the market.”
Copper prices have been subdued, though still at strong commercial levels, for much of 2022 thanks to a slowdown in China’s economy.
Having reached highs in excess of US$10,700/t twice last year, copper metal has settled in the US$7500-8500/t range for much of the second half, with LME copper for three-month delivery fetching US$8393.50/t on December 22.
At the same time supplies have been tighter than Santa dropping down an old-time chimney, with physical premiums hitting near record levels this year, while a political crisis in Peru — the world’s second largest producer — and dispute between Panama and its resident copper producer First Quantum has clouded next year’s supply outlook.
Along with a favourable set up for gold, Spencer says it is the commodity he is most excited about over the next 12-24 months thanks to growing demand from renewables, electrification and electric vehicles.
“Copper is an absolutely critical and essential ingredient in the energy transition,” he said.
“Every aspect of that energy transition will require copper, whether it’s from solar panels to electric vehicles, to new batteries, and so on and so forth.
“If we’re right about where demand could go with copper, there is every likelihood that we could see supply deficits in the copper market within the next couple of years.
“When you combine that with your classic supply side impacts, like what you’re seeing in Panama at the moment, like what you’re seeing in Peru, like what you’re seeing in Chile, then that in itself provides an interesting set up for copper because most investors and most market observers expect the copper market to have been surplus next year.
“So there’s a very, very strong medium to long term outlook on copper.”
BHP and Rio Tinto (ASX:RIO) are two of the largest copper producers in the world.
But they are not copper price plays since their earnings are so weighted to iron ore it is normally the only commodity that really moves the dial.
South32 (ASX:S32) similarly owns a stake in the large Sierra Gorda copper mine in Chile, but it is just one of a handful of base metals deposits which drive revenue into the ASX 50 company.
Evolution Mining (ASX:EVN) and Newcrest (ASX:NCM) have growing copper exposure but are really gold miners who use the copper credits to reduce their all in sustaining costs.
For pure play copper exposure, outside of the names listed above, there are a handful of places to look.
Mick McMullen’s US-listed SPAC Metals Acquisition Corp, which recently completed the purchase of Glencore’s 50,000tpa CSA mine in Cobar and counts former Northern Star and current Develop (ASX:DVP) boss Bill Beament as an advisor, is expected to pursue an ASX listing.
DVP itself owns the Woodlawn zinc-copper mine in NSW and the Sulphur Springs copper and zinc mine in WA’s Pilbara, but is also a nascent mining services contractor currently operating its first contract at Bellevue Gold’s (ASX:BGL) Bellevue gold mine.
Aeris Resources (ASX:AIS) has had a tough 2022 as it battled cost escalation at its Tritton copper mine in New South Wales. But it is expected to dramatically ramp up its base metals offering in 2022 after purchasing Soul Patts’ (ASX:SOL) Round Oak Minerals business as of July 1. The addition of the zinc rich Jaguar mine in WA and Mt Colin copper mine in Queensland will transform its copper guidance from 18,600t in FY22 to 32,000-40,000t in FY23.
On a copper equivalent basis AIS expects to produce 57,000-71,000t of metal in FY23.
As far as higher grade deposits are concerned, two of the more promising ones are in Arizona in the United States, where Charles Bass’ Eagle Mountain Mining (ASX:EM2) and Antler mine owner New World Resources (ASX:NWC) are drilling.
A resource upgrade in October took Eagle Mountain’s Oracle Ridge mine to 16.5Mt at 1.45% copper, 15.1g/t silver and 0.19g/t gold for 240,000t of contained copper, 8Moz of silver and 102,000oz of gold at a 1% copper cut-off, while New World increased its resource estimate at Antler to 11.4Mt at 2.1% copper, 5% zinc, 0.9% lead, 32.9g/t silver and 0.36g/t gold or 11.4Mt at 4.1% CuEq.
An updated scoping study is due at Antler early next year ahead of a PFS.
Going further down the roster, Austral Resources (ASX:AR1) owns the Anthill mine in Queensland, where it expects to produce around 10,000t of copper cathode in FY23 and has Glencore in its corner as an offtake partner.
In the exploration space there is Alma Metals (ASX:ALM) and Alvo Metals (ASX:ALV), not to be confused.
One owns the large Briggs porphyry in Queensland, an increasingly popular copper domain with plenty of M & A activity flying around, while the other is chasing high grade copper VMS prospects in Brazil.
TSX and ASX co-listed Kincora Copper (ASX:KCC) boasts a land position in the East Lachlan Fold Belt in New South Wales, near folks like Aeris, Helix Resources (ASX:HLX) and Peel Mining (ASX:PEX).
Farther flung and more exotic options can be found in Xanadu Mines (ASX:XAM), which recently signed an investment deal with Chinese gold giant Zijin subject to Chinese foreign investment approval which could see the major take an eventual 50% stake in Xanadu’s majority portion of the Kharmagtai project in Mongolia, not far from Rio’s massive Oyu Tolgoi mine, and Cobre Minerals (ASX:CBE), which popped uncontrollably in August on hints of copper mineralisation at its Ngami project in Botswana near Sandfire’s Motheo development.
It later found some control when investors weren’t as impressed with its actual assay results, but is still up 105% year to date and 825% over the past six months.
Over in Chile, Hot Chili (ASX:HCH) is continuing to progress work on its Costa Fuego mine, one of the few undeveloped low altitude deposits in the world’s largest copper jurisdiction.
Containing two major deposits just 14km apart — Productora and Cortadera — 50km from port, HCH has one of the largest untouched resources in the world with indicated resources of 725Mt grading 0.47% CuEq (copper equivalent), containing 2.8 Mt Cu, 2.6 Moz Au, 4.2 Moz Ag, and 67 kt Mo and inferred resources of 202Mt grading 0.36% CuEq containing 0.6 Mt Cu, 1.2 Moz Au, 5.6 Moz Ag and 13 kt Mo, at a cut–off grade of 0.25% CuEq.
The big boys have certainly taken notice, with Glencore picking up a 9.99% stake in a placement last year and 40% of offtake for the mine’s first eight years of operations.
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At Stockhead, we tell it like it is. While Hot Chili, Caravel Minerals, Peel Mining, Eagle Mountain Mining, New World Resources and Alma Metals are Stockhead advertisers, they did not sponsor this article.
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