Copper fizzing at the bungs as supply-demand outlook tightens

Barry FitzGerald

Growing confidence in the Chinese economy, forecasts of an electric vehicle boom and a tightening supply outlook have sent the copper price to a two-year high with forecasts of more to come. Plus, Oklo shares get a wriggle on as first assays dribble in from its Mali gold project.

There is nothing quite like a spike in the copper price to lift the mood in the mining space.

And with the red metal’s price putting on 10 per cent in the past month to its highest level since May 2015, its impact on the market mood has been plain to see, with big share price gains being notched up by the producers.

Copper’s feel good capability goes to its bellwether status on the health of the global economy. If demand/pricing for the key industrial metal is on the improve, so too is the global economy.

Copper’s rise in the past month from $US2.60 to $US2.85 a pound can be pinned to evidence of an emerging cohesive economic recovery in the world’s major economies and in recent days, thoughts that China’s environmental crackdown on “dirty” scrap supplies will add to demand for refined metal.

That’s all very good but the reality is that copper – its current price is a full US65c a pound above its average for 2016 – has been fizzing at the bungs for a major upwards price move – it got to $US4.60 a pound in 2011 – since early this year.

Ivanhoe’s Robert Friedland has long been a copper bull and he has stepped up the rhetoric in recent times in response to the explosion in demand coming from the electrification of the world’s most populous nations of China and India, all at a time when the electric vehicle revolution is taking hold.

His assessment of where copper is headed is a personal favourite. “You’re going to need a telescope to see the copper price in 2021,” Friedland told a Hong Kong conference back in April this year.

A bit of hyperbole perhaps. But then there was this week’s copper comments from Freeport-McMoRan, owner of the mighty Grasberg copper/gold mine in Indonesia.

Freeport boss Richard Adkerson told investors on an earnings call that $US4 a pound copper was on the cards.

“You’re going to see a period of time where there’s going to be a shortage of copper, and you’re not going to see the price (just) go to $US3,” he told investors.

“We just need to look over our shoulders and we can see at times we had copper at $US4, and we’re heading for a world of where that is, I believe, on the cards.”

Again, perhaps a bit of hyperbole involved there. So we’ll leave it to Rio Tinto, a partner in Grasberg, to give the measured view on where copper demand and prices are headed.

Rio reckons that copper’s long-term fundamentals are positive, with further demand growth to come from the emerging markets as they set about extending and upgrading their power grids and as urbanisation on a massive scale drives increased infrastructure investment and greater consumer spending.

Against that rosy outlook, the ability of supply to keep up with demand will be challenged as old mines battle declining grades, or get mined out all together. Then there is the increasingly difficult task to get new mine developments up and running for a whole bunch of non-economic reasons.

Rio expects mine supply of copper to plateau before the end of the decade. Assume even modest growth in demand and it sees a substantial supply gap emerging at the time, an inflection point for copper prices if there ever was one.

Rio and its old foe BHP stand to do very well out of the higher copper price. So too will Sandfire and OZ Minerals, and the couple of other ASX-listed copper producers.

But today’s interest is what it will mean for the copper explorers. And on that score, it can be argued that the benefits of the flush of excitement surrounding copper as the metal moves deeper in to deficit territory is already starting to show.

Avalon (ASX:AVI) was one to benefit. It’s just pulled in $3.3 million from an oversubscribed share purchase plan and placement at 1.4c a share. It was trading on Thursday at 1.9c.

The funds are earmarked to step up exploration at the Bramaderos copper-gold project in Ecuador, with the first targets likely to be tested with the drill bit before the end of the year.

As mentioned here previously, Ecuador is hotter than hot as a copper exploration destiny following the success of Nick Mather’s Brisbane-based but London AIM listed SolGold at its Cascabel copper-gold discovery in the north of the country.

Newcrest beat BHP to the punch in gaining a foothold on SolGold’s register and it is left to Bloomberg to report this week that BHP has decided the next best thing to do is open shop in the country and commit upwards of $100m to finding a Cascabel itself.

The lineage of Avalon’s Bramaderos can be traced to SolGold, with Avalon’s chief executive Malcolm Norris having been CEO of SolGold when it moved into Cascabel courtesy of deal with Canada’s Cornerstone Capital, the group from which Avalon is earning its Bramaderos interest.

Copper’s rebound also has implications for what was Avalon’s mainstay until Bramaderos came along, its Viscaria copper project near the century-old iron ore mining town of Kiruna in Sweden.

Avalon is working on bringing back the former producer as a 20,000-25,000 tonne a year copper producer from a $US135m development that would be capable of throwing off some $US50m in annual EBITA - at $US3 a pound. Not long ago, $US3 a pound was seen by some as a pipe dream. Not now.

Oklo serves up some African joy

Tanzania’s shock new mining laws haven’t done the band of Aussie explorers operating in East and West Africa any favours.

But remembering that Africa is made up of 54 countries –at last count - there is good reason to think that the fall out on explorers operating outside of Tanzania will clear in time.

And besides, sometimes exploration results kind of demand that the particular company involved be treated as a special case.

Mali gold explorer Oklo Resources (OKU) is one of those. Mentioned here as one to watch back in May when it was trading at 24c, Oklo has since motored on to 31c on the strength of first results from a new drilling program at its Seko discovery within its Dandoko project area in western Mali.

Dandoko/Seko lies 30km east of B2Gold’s 5.1 million-ounce Fekola project and 50km to the south-east of Randgold’s 12.5m ounce Loulo gold mine. And the latest program at Seko is all about seeing if it too can be thought of in seriously big terms.

Somewhat unexpectedly, assay results from a pre-collar hole to get through the deeply weathered system and start a diamond hole returned 65.6m from 85m to the end of the pre-collar which graded 2.2 grams of gold a tonne. A good start for sure.

Diamond core from 150.6m - 220.8m (end of hole) is awaiting assay, as are assays from all the other holes drilled in the current campaign. They are to be reported as they come to hand so the news flow from Oklo is going to be strong.


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