The small caps with the news flow as the copper ‘party’ starts to gear up
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Predictions of copper prices rebounding rapidly as global economies begin to emerge from coronavirus-induced hibernation and major government spending programs kick in are starting to look bang on the money.
Copper prices sank below $US2.10 ($3.03) a pound in late March as the pandemic took hold around the globe, curtailing economic activity.
But they have risen steadily since then, not only on the expectation of demand growth from infrastructure-heavy stimulus programs but also due to coronavirus-related supply disruptions at mines in South America.
Trafigura Group, one of the world’s largest traders of copper, estimated that the coronavirus crisis had reduced mined copper supply by 400,000 tonnes this year, which is 2 per cent of global annual production of about 20 million tonnes.
Copper stocks at London Metals Exchange-registered warehouses recently dropped below 250,000 tonnes for the first time in seven years, while stocks in Shanghai Futures Exchange warehouses are at their lowest since January 2019.
Against this backdrop, copper notched its fifth consecutive weekly gain last week, rising by almost 1 per cent to $US2.65 a pound, not far off January’s pre-coronavirus high of $US2.88 a pound. It was $US2.64 a pound on Wednesday.
“From a short-term perspective, it looks difficult to point your finger at something that could put a stop to the party,” Saxo Bank analyst Ole Hansen was quoted by Reuters as saying.
All this bodes well for copper juniors, particularly those putting out material announcements in this environment. Stockhead has taken a look at four ASX-listed copper explorers expected to be pumping out the news over coming months.
Having just completed a $3.9m entitlement offer, Hot Chili (ASX:HCH) is poised to deliver what managing director Christian Easterday describes as “probably the biggest catalysts in the history of the company” over the next six months.
The Chile-focused explorer expects to announce a maiden resource for its Cortadera copper-gold discovery and the satellite San Antonio project, from which it has produced a series of world-class intercepts, by the end of July.
There will also be the results of metallurgical testwork on ore samples from Cortadera and San Antonio and then completion of internal scoping studies into a large development combining the two deposits.
By the December quarter, Hot Chili also expects to see first cashflows from the mining and processing of high-grade ore from its Productora copper project under an agreement signed with Chilean government agency ENAMI in June.
At current spot copper and gold prices, the company anticipates the Productora agreement will deliver $1.2-1.5m in annual revenue.
But what Easterday views as the most important in terms of newsflow going forward is the resumption of diamond drilling at Cortadera, which took place two weeks ago after a hiatus due to in-country coronavirus restrictions.
This seven-hole program is focused on significantly expanding the high-grade core of the main porphyry at Cortadera and indications from the first hole are promising.
Last week the company said mineralised porphyry had been observed for more than 300m downhole, with the hole planned to extend for at least another 420m to a total depth of 1,300m.
In setting vesting conditions for performance rights to be granted to the executive and management team, Hot Chili has given some clues as to how it hopes the pending milestones will impact the share price and where the drilling will take the Cortadera resource.
The Class A performance rights will vest if the price of Hot Chili shares exceeds 6c for 15 consecutive trading days or more before July 31, 2023, while the Class B performance rights will vest if the price of Hot Chili shares exceeds 8c for 15 days or more before the same date.
The Class C performance shares will vest if the company announces a JORC-compliant resource for Cortadera and surrounding satellite projects of 750 million tonnes at a grade of 0.5 per cent copper equivalent before July 31, 2023.
Gold Mountain (ASX:GMN) is awaiting assays from diamond drilling at the Monoyal prospect at its Wabag project in Papua New Guinea, where it believes it is in the early stages of discovering a major copper-gold porphyry system.
Logistical complications arising from the coronavirus have caused delays in getting core from the three most recent diamond holes drilled at Monoyal to the assay laboratory in Townsville, but those challenges have been overcome and the results are imminent.
The company has prioritised hole MCD007 over the two drilled earlier (MCD005 and MCD006), based on encouraging visual indications of mineralisation, alteration and fracture density observed in that hole.
The observations suggest that MCD007, which was drilled to a depth of 409.6m, could have intersected the highest levels of copper and/or gold mineralisation at Monoyal so far.
Data from MCD007 and subsequent assays from MCD005 and MCD006 will be combined with other existing data collected from Monoyal and the nearby Mongae prospects and reviewed by porphyry expert Phil Jones, who was appointed by the company as a consultant last week.
Jones has been consultant exploration geologist – project evaluations with Sandfire Resources (ASX:SFR) for the past seven years. He was previously involved in the re-evaluation of the E48 porphyry copper-gold deposit at Northparkes in NSW, an exercise that led to the doubling of the size of the deposit.
Gold Mountain believes that results to date suggest it is drilling on the margins of a large porphyry system and that Jones’ expertise will assist in locating the higher-grade core of the system.
His recommendations are expected to assist with planning and locating the four remaining diamond holes to be drilled as part of the current program and with future exploration activities at Monoyal.
One of the companies responsible for breathing life back into the Victorian exploration scene, Stavely Minerals (ASX:SVY), is powering ahead with resource drilling at its Thursday’s Gossan prospect in the west of the state.
Stavely had been earnestly hunting for a “Cadia-style” deep porphyry copper-gold system before a decision to target a shallow, structurally controlled target led to a breakthrough in September 2019.
The discovery hole, the 50th drilled by Stavely at Thursday’s Gossan, returned 32m at 5.88 per cent copper, 1 gram per tonne (g/t) gold and 58g/t silver from a depth of 62m.
The company now has four rigs in action completing infill and step-out drilling on the Cayley Lode discovery and is more than 50 per cent through the process, with a maiden open-pit resource anticipated by the end of the year.
Underlining the potential that remains to be realised, last week Staveley reported another “monster” intercept – 87m at 1.74 per cent copper, 0.57g/t gold and 20g/t silver from 140m – from the northern portion of the deposit that it considered on par with the discovery hole.
In announcing this hit, the company flagged the prospect of accelerating its drilling program further to define the full extent of the Cayley Lode and the two other mineralised structures identified to date at the project.
This is all perfectly promising in itself, but there is potentially a bigger story to evolve at depth for Stavely.
The discovery has drawn parallels with the Magma deposit in Arizona, which was mined in its upper reaches for 86 years before BHP (ASX:BHP) bought the project in 1996 for $US3.2bn.
Rio Tinto (ASX:RIO) has joined BHP in the Resolution Copper joint venture and plans to mine what is understood to be the source of the metal closer to surface: a deep-seated porphyry intrusion starting at a depth of 1.5km.
Stavely plans to drill two deep holes at Thursday’s Gossan towards the end of the year trying to locate the porphyry source of the near-surface mineralisation.
Following changes at board and management level, Xanadu Mines (ASX:XAM) has recently completed a strategic review and reset the course for its exploration activities in Mongolia.
Led by new chairman Colin Moorhead, a geologist and former senior executive with Newcrest Mining (ASX:NCM), Xanadu has returned its focus to demonstrating that its flagship Kharmagtai project can be considered a tier one copper asset.
For a project to qualify as tier one, Moorhead says you need at least 4 million tonnes of copper equivalent, a modelled net present value of $US1 billion or greater, a bottom quartile cost profile and a mine life of 20 years or more.
He believes Kharmagtai, which contains 2.6 million tonnes (Mt) of copper equivalent in resources (1.9Mt copper and 4.3 million ounces of gold), is well on its way to achieving tier one status but more drilling is required.
Under the renewed strategy – and subject to funding – Xanadu is aiming to complete 18-20km of extensional and step out drilling before the end of the year, a major program in anyone’s books.
This will help to get a handle on the true scope of the Kharmagtai district before definition drilling to grow the resource becomes the focus in 2021.
While Kharmagtai remains the number one priority, Xanadu is also managing the Red Mountain Joint Venture, where Japan’s JOGMEC is funding up to $7.2m of expenditure over four years to earn a 51 per cent interest in the project.
The partners are targeting a significant copper-gold porphyry discovery much like Kharmagtai, with geophysics and geochemistry currently being conducted to define new targets for drilling.
Xanadu also expects to complete about 2km of drilling at Red Mountain this year testing known targets.