Trade truce switches investor focus from gold to copper and uranium

There is no doubt that the heat has come out of the gold sector in response to the tariff war détente between the US and China.

Gold got to an all-time high of $US3,500/oz in April but has since fallen away to $US3,125/oz.

While still up massively on the 2024 calendar year average of $US2,390/oz and the CY2023 average of $US1,943/oz, the fall from April’s record levels has pulled the rug on ASX gold stocks. Sector leader Northern Star is off by 20% in the past month.

Gold may yet rise again as China and the world’s central banks continue to stock up on the yellow metal as a reserve asset over US dollars and securities. But then there is the fear that pressure on interest rates from tariff-induced inflation could choke a rebound in prices.

The uncertainty around gold’s near-term direction has clearly triggered a rotation out of the gold stocks back into two of the biggest and most enduring thematics in the resources space – the long-term supply deficits faced by uranium and copper.

Both uranium and copper took price hits when tariff war fears were at their worst. But they have rebounded since, with (spot) uranium climbing 10% from a late March low of $US64.20/lb to $US70.5/lb, and LME copper gaining 5% in the last month to $US4.35/lb.

For the uranium stocks, the uranium price improvement has fuelled monster share price reactions, no doubt amplified by short covering in the leading issues. Boss (BOE) has gained 56% in the last month and Paladin 42%.

As mentioned last week, copper’s price strength, notwithstanding forecasts of a supply surplus next year, has not filtered down in a meaningful way to the copper stocks, which pretty much continue to carry the scars of the broad market sell-off in April.

But like uranium, the thematic that the world will run short of the copper needed in coming years to stay on the electrification-of-everything pathway has not gone away.

Cameco and United Nations:

Canadian uranium giant Cameco and the United Nations have served up reminders in recent days of the supply deficit thematic in the two commodities.

Cameco said that for the world to meet the total fuel requirements of nuclear reactors between now and 2045, the world's utilities still have a lot of uranium to buy.

President and CEO Tim Gitzel told a conference call for Cameco’s March quarter results that the utilities are actually 70% short of their needs through to 2045.

What’s more, Cameco has no idea where about 1.3 billion pounds of the required uranium is going to come from.

For context, the combined market cap of Boss and Paladin of $4.2 billion covers off on about 8 million pounds of annual production.

“With each passing quarter that long-term contracting remains below replacement rate, the uncovered requirements line continues to steepen. Long-term contracts must be in place to support mining economics and underpin ongoing investments in supply,” Gitzel said.

Significantly for ASX uranium stocks, Gitzel noted that utilities had in recent times focussed on securing downstream conversion and enrichment services because of global trade uncertainty before buying natural uranium.

“Looking ahead, we believe a move upstream, to focus on security of uranium supply, is inevitable and unavoidable,” he said.

The assumption from that has got to be that uranium prices are headed higher, much higher.

Meanwhile the United Nations served up a warning that while global copper demand is expected to grow by 40% by 2040, supply isn’t keeping pace.

To meet the demand, it estimated that 80 new mines and $US250 billion in investment is required to meet projected demand by 2030.

But with development timelines pushing out to as much as 25 years, the supply response is going to be lacking in a big way.

“Closing the supply gap will require faster permitting, better technology, stronger partnerships and more diversified trade routes,” the UN said. It might well have added that US$5lb-plus copper prices wouldn’t hurt either.

FireFly:

It was mentioned here last week that despite copper’s relative strength, ASX copper stocks had yet to return to their pre-tariff war levels.

Steve Parson’s FireFly (FFM) was the example as the $1.30 stock in early November last year was trading down at 87c despite the story at its Green Bay copper-gold project in Newfoundland getting better by the day.

As if on cue, FireFly has underscored that latter point by reporting high grade gold-copper-zinc intersections from its first drill program at the historic Rambler Main mine which sits 2km from its Ming mine, another historic mine which is already considered to be good for eventual 40,000-50,000tpa of copper production when it resumes under Firefly ownership.

Assays from the first two holes at Rambler Main returned a 10m intersection grading 6.4% copper equivalent and 12.9m grading 4.3% CuEq. The step-out holes extended the known mineralisation more than 200m beyond the limit of historical mining and the mineralisation remains open down plunge.

Parsons reckons FireFly could have another Ming on its hands.

“It is already clear that Rambler Main shares many key similarities with Ming, including being part of the same VMS system, and the mineralisation remains open down plunge,” he said.

“The results also support our view of the camp-scale potential at Green Bay and therefore the scope to keep growing the mineral resource through resource extensions and discoveries.”

The market responded by closing the stock near steady at 90.5c in Thursday’s market. So while the stock is up from 87c last week, the disconnect with the copper price, let alone the exceptional drilling results point at Rambler Main, continues.

FireFly is not alone in the copper space with the disconnect. A similar situation played out in the gold sector where developers and explorers with decent projects/discoveries were left behind when gold prices took off.

The fix was put in when the gold producers with their swollen cash balances began a round of M & A activity to lock in some sure fire future growth by snapping up select developers and/or explorers.

The longer the current disconnect in the copper space continues the more likely it is that M & A activity will step up for copper developers/explorers. The big end of town is already active on that front.

With a firm eye on what the coming copper supply deficit means for the copper price, the biggest of them all, BHP, acquired Oz Minerals, spent $US2 billion for a half share of the Filo del Sol discovery in the Andes and for good measure, had a crack at acquiring Anglo America.

On each occasion it was effectively taking advantage of the disconnect between market valuations and what the copper price is already showing signs of doing – moving substantially higher to incentivise new discoveries/production.

Following BHP’s lead, there is likely to be a trickle down M & A effect in the smaller ASX copper companies targets before long.

FireFly could well be among those targeted. As the gold M & A step-up has demonstrated, known resources with demonstrated exploration upside become all that more valuable in a rising market. Now it’s the turn of the currently disconnected ASX copper stocks.