Investors buy the copper dip in anticipation of price surge and M&A

The copper stocks were in full bloom in late October when the copper price hit record levels of more than $US5/lb in response to supply tightness outside the US, easing trade tensions and growing supply disruptions.

The price has since come back to $US4.85/lb and looks to be holding its ground on speculation that Freeport’s monster Grasberg mine in Indonesia – it accounts for 3% of global production - will take a lot longer than first suggested to recover from September’s deadly mud-rush in to the bowels of the block cave mining operation.

It has to be said that $US4.85/lb is a great price anyway. It is 24% higher than the red metal’s starting point for the (calendar) year and compares with the CY2024 average of $US4.15/lb and the average for the first half of CY2025 of $4.28/lb.

So buying a copper stock this week in a falling broader market was not exactly heroic stuff, particularly as the big copper thematic out there of a demand surge coming from the electrification of everything, including intelligence, has yet to take hold.

On BHP estimates, copper demand could grow by 1Mtpa each and every year to 2035. For a global industry that has been adding 500,000tpa of copper capacity over the last 15 years, it stands as a monumental task.

It’s why all of the big name investment houses are bullish on copper with the likes of Bank of America predicting $US5.13/lb in 2026, $US6.12/lb in 2027 and a peak price of $US6.80/lb by the end of 2027.

BHP’s estimate of copper demand growing by 1Mtpa out to 2025 is the equivalent of a new Escondida mine – the world’s biggest and managed by BHP - being built each and every year. Again, it is not going to happen.

Just how big the looming supply deficit towards the end of the decade will be is anyone’s guess. What is more certain is that the current copper price is at least part of the way to providing the incentive for new mine supply - both big and small - to come forward.

That is providing plenty of encouragement for the junior copper sector on the ASX, something best reflected in the ease with which equity is being raised by those with a decent copper development story to tell.

The combination of buying the dip in a thematic-supported sector meant the copper stocks generally outperformed in Thursday’s market. The copper price steadying after its retreat from record levels obviously helped.

But investors getting behind the limited number of copper stocks on the ASX also had an eye cast to the coming supply crunch and the potential for copper prices to fly-up at some point.

It is the latter point that can be expected to fuel more corporate merger and acquisition activity in the copper sector. Good-sized projects are few and far between and will only become more expensive in a copper price fly-up scenario.

FireFly (FFM):

Expect M & A chatter around Steve Parson’s FireFly (ASX:FFM) to step up following the pending release of an updated mineral resource for its high-grade Green Bay copper-gold project in Newfoundland.

The company has said previously that the update would be released this quarter and here we are, just about half way through the period.

Given the estimate is not far off now there’s no point guessing what it will be. Suffice to say it will likely be a big increase given the recent advice from the company that it was on to an 800m-long core of very high-grade mineralisation (including 43m at 7.6% copper equivalent).

The core remains open along strike and occurs where Green Bay’s volcanogenic massive sulphide mineralisation and the footwall zone-style mineralisation converge. FireFly has said the 800m core stands to significantly impact the coming resource estimate.

Last mentioned here when it was a $1.69 a share on October 27, Firefly was a $1.79 stock in Thursday’s market.

The resource estimate currently stands at 24.4Mt grading 1.9% for 460,000t of copper- equivalent measured and indicated, and a further 34.5Mt grading 2% for 690,000t CuEq of inferred resources.

FireFly was a $70m company when it picked up Green Bay, a former producer that came with some $250m in infrastructure assets. Its exploration success to date has carried it to a market cap of $1.2 billion.

As mentioned above and back on October 27, the growing size and grade of the resource and Green Bay’s tier-1 location means FireFly is a likely takeover candidate in a mining world short of quality copper assets with gold kickers.

Coda:

The depth of investor interest in new copper projects was on display last month when Coda (ASX:COD) pulled in $12.3m from a heavily over-subscribed entitlement issue and a follow-on placement.

The fund raising took cash on hand to about $14m which means the pre-feasibility study in to the development of Coda’s Elizabeth Creek copper-silver project in South Australia is fully funded, with associated drilling to provide near-term newsflow.

An update on the project in August suggested Elizabeth Creek could be good for steady state annual production of 31,000t of copper and 1.4Moz of silver for a total of 454,000t of copper and 20Moz of silver over the initial life of-mine.

The update estimated the pre-tax net present value of the project was $1.81 billion and the internal rate of return was estimated at 48%, based on August 25 spot prices of $US4.40/lb copper and $US39/oz silver.

The company’s current market cap of $36m at 10c a share is clearly underdone on that basis, and when it is compared with existing copper producers, and what has been paid in recent copper M & A.

Delivery of the now fully funded PFS stands as a major re-rating event, not only for Coda as a standalone company, but also for what a corporate buyer would have to stump up to take ownership of the company.

Peel Mining:

Former New World Resources boss Nick Woolrych knows all about the depth of corporate buyers for decent copper assets.

New World – the developer of the 31,000tpa copper equivalent Antler project in Arizona - is no longer with the ASX following a takeover completed in August by private equity group Kinterra.

It was a hotly contested battle, with Kinterra winning the day with a $US160m bid which represented a 168% pre-bid premium.

Woolrych has since moved on to Peel Mining (ASX:PEX) as MD where he is intent on capitalising on what he says is the successful South Cobar explorer’s untapped growth potential.

The company’s current market cap looks underdone given its existing high-grade mineral resources total 22.9Mt grading 2.2% copper equivalent for about 500,000t of copper equivalent across a number of deposits.

More exploration and moving projects in to the development phase is part of Woolrych’s plan. So too is strategic M & A, both in Australia and the US, with Peel itself a potential target for other players in the greater Cobar region, particularly those with operating mills.

For good measure, Woolrych has added a gold leg to the Peel story with drilling underway at the promising Nombinnie gold project, also in NSW.