Talk of imminent copper shortage dominates global metals conference

Despite all the economic gloom around the place, copper has worked its way back to more than $US4/lb.

It’s a big performance when it is remembered that the red metal averaged $US3.57/lb in the second (December) half last year after having sunk as low $US3.18/lb in the first half.

The price remains well short of the record $US4.87/lb briefly achieved in early March last year before succumbing to recession fears because of the start to inflation-fighting interest rate rises.

This week’s reclaiming of $US4/lb has been attributed to a lower US dollar in response to Federal Reserve chair Jerome Powell toning down previous hawkish comments on future interest rate rises.

But there is more than that to copper reclaiming $US4/lb, remembering that it is a historically high level regardless of last year’s $US4.87/lb peak.

China’s re-opening from COVID is a major factor in copper’s rebound. And disruptions to production at a number of mines across Latin America is another factor.

But more than that is a key message that emerged from the recent BMO Metals, Mining and Critical Markets conference in Florida, which is attended by all the big miners.

The message was that there is a real shortage of copper. That has shown up in warehouse data where stockpiles are down to days of consumption rather than weeks, all at a time when the world’s copper-intensive decarbonisation through electrification is growing hand over fist.

On top of that, the capex commitment to new mines is at a 20-year low and the industry’s cost base is under pressure from falling grades and deepening mines.

The long-term fix to the growing supply challenge is higher prices. Whether the push through $US4/lb heralds the start of bull run in copper remains to be seen.

Most observers have in fact been suggesting prices could weaken in the next couple of years as some new mines reach full production. But there is broad agreement that at the very least, prices will take off in the back half of the decade as the long-run supply challenge takes hold.

But that is not what came out of the BMO conference. The view there was that a long-run deficit in supply is forming now and it could take $USUS4.50/lb to $US6.80/lb copper prices to fix it.

Copper juniors:

A copper price of more than $US4/lb should be lighting up the ASX copper space. It hasn’t happened yet, although BHP’s $9.5 billion takeover bid for OZ Minerals has stirred up interest.

Today’s interest is in the copper juniors which offer pure leverage to the copper thematic and which by rights, should already be on the march in response to copper clearing $US4/lb.

Two qualifying names are Caravel (CVV), trading at 21c for a market cap of $100.6m, and Coda (COD), trading at 25.5c for a market cap of $36 million.

Caravel:

Caravel’s namesake copper project between the towns of Calingiri and Wongan Hills some two hours north-east of Perth is one of the world’s top-10 copper discoveries of the past 10 years.

It is big all right – 1.18 billion tonnes grading 0.24% copper with some moly for 2.84Mt of contained copper.

The grade is on the low-side of things but as examples in the North American market demonstrate, these low-grade and bulk tonnage projects can be highly profitable, particularly in a $US4/lb copper market. Being two hours from Perth, with access to grid power, also helps the project’s cause.

An updated PFS released last September pointed to a multi-decade project producing upwards of 60,000t of copper annually with all-in sustaining costs of $US2.37/lb.

Based on a $US4/lb copper price, the project’s NPV (7% discount rate) was put at $1.5 billion. Lift the base copper price by 15% and the NPV grows to $2.55 billion. Talk about leverage.

Capital cost was put at $1.58 billion (including mining equipment and the mine’s pre-strip). That’s a big ask for a company with a $100m market cap but then again, there are not too many projects out there ready to meet the copper supply challenge.

On that score, the company’s reading of all of the copper forecasting experts out there is that the world needs an additional 4-10Mt of copper production by 2030. That’s the equivalent to 20-50 new mines the size of BHP’s Olympic Dam mine in South Australia.

It is a seemingly impossible task which goes to the need for incentive pricing for copper at prices well north of $US4/lb.

The company is aiming to make a final investment decision on the project late in 2024, with first production possible in 2026.

CODA:

The modestly capitalised Coda is about to put its hand up for some attention in a $US4/lb copper market with the expected release next month of a scoping study into its Emmie Bluff copper-cobalt project in SA.

The sedimentary or Zambian-style deposit currently stands at 1.1Mt of copper equivalent, with exploration upside, across three deposits (one destined to an underground operation and two in the open-pit category).

An earlier mining study pointed to a 17-year mine life, with total ore mined of 26Mt at a handy grade of 1.86% copper equivalent from the main Emmie Bluff deposit.

Coda has also been busy exploring downstream processing options for the project to value-add to the concentrate production.

It said earlier this week that late last year it came across a non-oxidative leaching process called NONOX which is used in South Africa’s platinum industry and in nickel ore processing in Europe.

“This process is considered optimal as it provides maximum value uplift for achieving highly saleable cobalt end-product while removing capital items required to upgrade copper-concentrate to copper cathode and silver dore on site,” Coda said.

Sounds promising but NONOX’s applicability to Emmie Bluff has to first be confirmed.

The Emmie Bluff resource sits at a depth of about 400m. Another 400m below that sits something of a wildcard for the Coda - the Emmie Bluff IOCG target.

IOCG mineralisation underpins the region’s big copper mines (all of which are about be owned by BHP through its takeover of Oz).

The Emmie Bluff IOCG target ranks as an early-stage discovery with some nice copper hits reported. Its big-time potential remains to be fully tested.

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