MoneyTalks: These fundies are loving copper, and it's putting money in their pockets

MoneyTalks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to hear what’s hot, their top picks, and what they’re looking out for.

Today we check out the latest copper moves from Victor Smorgon Group’s Peter Edwards and Joseph Sitch.

A punt on copper has proven fateful for fund managers at the Victor Smorgon Group, who say their Global Multi-Strategy Fund has delivered a return of 22.6% so far this financial year.

By contrast, the ASX 200 has run just 9% higher since last June, with VSG claiming a 40.6% annualised return since its fund’s launch in January 2019.

Gold has also helped out. Record gold prices saw their Gold Fund lift 6.2% in April and 47.7% since inception in May 2020.

In its quarterly review, Victor Smorgan Group Global Multi-Strategy Find co-CIOs Peter Edwards and Joseph Sitch say they lifted their exposure to their decarbonisation sub-portfolio from 11% at the end of December to 12.5% at the end of March to hook into the copper thematic.

They’ve been rewarded … so far … with prices shooting upwards to US$10,889/t on the LME on Monday – an all time high – and New York futures catching record levels in excess of US$5/lb as a short squeeze adds fuel to a fire started by supply disruptions in Latin America.

“The GMF’s view is that the price of copper will continue to appreciate,” Edwards and Sitch said.

“To take advantage of this, the GMF is allocating capital to the Decarbonisation sub-portfolio which invests in large, low-cost copper producers with mining operations located in tier 1 jurisdictions such as North America and Australia, which are run by competent management teams and are well financed.”

Longer term Edwards and Sitch think copper is a strong option to play the decarbonisation thematic.

“The supply side of the copper market is unique relative to other metals that are exposed to the decarbonisation thematic. Copper mines typically achieve profitability through scale, they are the largest mines across the commodity complex,” they said.

“High grade (+3.0% copper) mines are rare, therefore most of the production comes from large, diversified miners.

“Copper has been mined globally for many thousands of years, and the ‘easy’ copper deposits have long since been exhausted. The current uncertain macroeconomic situation we are in has reduced capital spending in the copper mining sector due to inflationary cost pressures and increased financing costs.

“This is at a time when demand for copper continues to remain elevated. The GMF believes that there will be a shortage of copper due to the difficulty of bringing new supply online. Constrained supply coupled with increasing levels of demand creates a scenario that should lead to an appreciation of the copper price.”

Where have the experts set out their stall?

So where have Edwards and Sitch looked to play this?

Their big gains came from increasing their exposure to two names new to the ASX copper market – Metals Acquisition (ASX:MAC) and Capstone Copper Corp (ASX:CSC).

New York and Australian listed MAC has come to life in recent months after a $325 million IPO to pursue a secondary listing Down Under, which followed its US$1.1 billion acquisition of Glencore’s CSA mine in Cobar.

CSA is super high grade, but old and deep, with MAC’s plan to drill harder and add reserves – something its started by increasing the project’s reserve life from ~5 to 11 years – and improving operational performance to lift output to historic levels of ~50,000tpa from 2026.

“Beyond the view that constrained copper supply and persistent copper demand will lead to an appreciation in the price of copper, there are several stock-specific catalysts that we believe will drive an appreciation in the MAC share price,” Edwards and Sitch said.

“The CSA mine is a turnaround story – over two site visits in 2023, the GMF team became confident that new management were rapidly improving operating outcomes at CSA, producing more copper in concentrate, reducing costs, and extending mine life.

“MAC has a unique strategy in the sector. The company intends to grow via the acquisition of assets that can be operated more efficiently than the previous owners.”

TSX-listed Capstone boasts operations in Chile, Arizona and Mexico, and is planning to produce at a runrate of 260,000tpa once its flagship Mantoverde mine in Chile hits an upgraded capacity of 120,000tpa from the second half of this year.

A feasibility study on the adjoining Santo Domingo project, expected to produce around 200,o00tpa, is due this year.

Developers

Victor Smorgon Group also holds positions in base metals stocks via its Developing Mining sub-portfolio.

One of those is BMC Minerals, an unlisted company based in the UK.

Its Kudz Ze Kayah project is in the Yukon Territory in Canada, where its ABM deposit contains a polymetallic reserve of 15.7Mt at 5.8% zinc, 138g/t silver, 0.9% copper, 1.3g/t gold and 1.7% lead, equivalent to 18.2% zinc.

“The company has been working to achieve final permitting, which involves receiving a positive decision to proceed with developing the project from the Canadian government,” Edwards and Sitch said.

“BMC was recently given the green light from the Canadian government for the Kudz Ze Kayah project to proceed. The company now has a clear pathway to final investment decision, which is expected in early 2025.

“The remainder of 2024 will be spent working towards water and mining licenses, pre-project development, exploration activities, and project financing. The GMF expects that the company will progress the project further in 2024, which bodes well for the GMF’s initial investment.”

It also has a position in Italian zinc stock Altamin (ASX:AZI), which owns the Gorno zinc project in Northern Italy.

Down 43% over the past year, Altamin has struggled along with many other pre-development materials stocks in the last 12 months, especially given a testing dive in battery metals prices casting a shadow over the Lazio geothermal lithium project.

Gorno is a restart project, which was mined until 1980 by state-owned company SAMIM. it contains 7.8Mt of resources at a grade of 6.8% zinc, 1.8% lead and 32g/t silver.

“GMF team members travelled to Gorno during the quarter to meet with the Altamin Board and management team on site,” Edwards and Sitch said in their March quarter review.

“The trip re-iterated our positive view on the asset. The existing underground infrastructure provides for excellent exploration potential and reduced cost on re-start of the mining operation. The orebody is extensive and appears likely to extend in several directions, the existing resource underscores the potential for a long life of mine.

“The next steps include focussing on progressing permitting, and completion of the necessary engineering work required to submit the mining permit application. This includes baseline environmental monitoring and impact assessment, and mitigation of environmental impacts.”

The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.