Copper stocks lagging red metal’s strong price, fuelling M&A talk

There has been a lot of discussion in the wake of gold’s rise to record territory that the full benefit of the margin increase for ASX-listed gold stocks was not being fully reflected in their share prices.

The apparent disconnect is still at play, but not to the extent it was earlier in the year. Today’s interest though is the clear disconnect between the copper price and the share prices of ASX-listed copper developers.

The copper price took a hit all right in response to President Trump’s tariff war. But it has been grinding its way back in response to a supply squeeze in China, the biggest consumer of the red metal.

While the squeeze could quickly dissipate as it is due in part to the US market soaking up copper stocks in an effort to beat the potential for the metal to be included in the tariff war, the price is what it is.

LME 3-month copper was last quoted at $US4.27/lb which puts it ahead of the average for the March quarter of $US4.24/lb. But while copper remains at a historically high price, the copper developers have yet to return to their pre-tariff share price levels, by a big margin too.

The highly rated FireFly (ASX:FFM) tells the story. It was a $1.30 stock in early November but is now back at 87c. That’s despite the rebound in copper prices and the story at the company’s Green Bay copper-gold project in Newfoundland getting better by the day.

During the week, the Steve Parsons-led FireFly reported latest drilling had intersected high-grade copper and gold mineralisation more than 200m beyond the current mineral resource at the Ming deposit (24.4Mt at 1.9% CuEq measured & indicated and 34.5Mt at 2.0% CuEq inferred).

Best results from two step-out holes from the resource intersected 12.4m at 6.8% CuEq (3.6% copper and 3.5g/t gold) in one hole and 25.8m at 5.1% CuEq (4.6% copper and 0.5g/t gold) in another hole.

There was also excitement around the news that a down hole electromagnetic geophysical (DHEM) survey completed from the deepest step-out hole had pinged a conductive anomaly that extends more than 700m beyond the current drill extent at Ming.

The excitement was because previous drilling of DHEMs at Ming has proved to be a reliable pathfinder to more high-grade copper-gold mineralisation.

“We are about to add a seventh rig because we have so many opportunities to pursue. There are very few projects which could justify such an aggressive drilling campaign but we have more than enough avenues of growth to warrant this,” Parsons said.

The broad expectation now is that Ming will eventually become a 40,000-50,000tpa copper producer with meaningful gold credits. If it were already there, FireFly’s market cap would likely be a multiple of the current $501m.

It is a situation that might well be exploited by mid-tier copper producers looking for a bolt-on copper-gold acquisition to lock in some growth, remembering that some of them have forked out more than a billion dollars for similar scale productions.

It was stated earlier that FireFly is highly rated. Broker reports on the stock reflect that.

Euroz Hartleys edged its price target on the stock up from $1.94 to $1.96 a share on the exploration news. It noted the stock is trading 42% below the highs of last year, with the share price capitulating like many other copper stocks on the Trump trade.

“We think this presents a compelling entry point – particularly if the copper price can be sustained at these levels,” the broker said.

“At our estimated 3 Mtpa processing rate, there is enough resource here for plus 10 years of mining (on a 50% resource-reserve conversion) producing plus-40,000tpa of copper.”

It said there was compelling upside for those willing to go long on arguably the best undeveloped copper project on the ASX.

RBC maintained its $1.75 price target on the stock. “We continue to believe that 1) the company has enough cash to complete work plans in 2025 2) the project has the ability to front-load the high-grade VMS and 3) the project will eventually operate above 3Mtpa,” it said.

Bellevue:

Bellevue Gold (ASX:BGL) boss Darren Stralow made the trip from Perth to Sydney during the week to present at the Tuesday session of Macquarie’s (it is Bellevue’s financier and long-term shareholder) three-day conference at the Sheraton in Sydney.

Given the mid-April “de-risking” by Bellevue of its balance sheet and namesake gold mine in WA, there was lots for him to talk about.

Amongst it all was a simple message that the operation’s all-in costs (including capital, exploration and corporate) are expected to remain consistent at no more than $42 million a month, or $126m a quarter.

In the revised mine plan, June quarter production has been forecast at 40,000-45,000oz which at spot prices (Bellevue’s near-term hedge book close out helps here), amounts to some $233m at the higher production rate of 45,000oz, or $208m at the lower rate.

That sort of crystalised things for those who caught Stralow’s presentation. An operative at the conference reported back that the discussion afterwards was about how Bellevue could now be seen as a defensive gold stock, on two fronts.

The first front is the free cashflow capability and Bellevue’s implied low FCF multiple compared to its peers highlighted above.

The second front is opaquer and will fall away should Bellevue’s re-rating on its revised mining plan begin to take hold. It is the corporate action front.

Bellevue itself pointed last month to the company’s vulnerability to takeover offers ahead of its revised mine plan delivering the goods.

It said it had recently received unsolicited approaches relating to a potential control transaction but no formal proposal or offer has been received.

So the Bellevue as a defensive gold stock chatter at the conference after Stralow’s presentation was buy the de-risking story with confidence because if it doesn’t lead to a re-rating of the stock in the near-term, a premium takeover bid will be the punter’s exit strategy.

Canaccord analyst Tim McCormack lowered its price target on the stock from $2.20 to $1.50 on May 7.