Thursday, September 28th 2023

Copper Price Firms Up!

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Which firms would benefit from a copper price bull-run?

Benchmark copper prices in London spiked to $6,071.50/t during trading on Monday, their highest price in six weeks according to Reuters. The red metal was spurred on by the news that the US and China had agreed to restart trade talks.

There obviously remains a long way to go before the two global superpowers reach a deal to end their bitter trade disputes. However, the revelation that Trump had offered concessions to China – the world’s biggest copper consumer – at least temporarily eased traders’ concerns around slowing global growth and a fall in base metal demand.

Given that the direction of US/China talks (and in turn, the price of impacted metals) changes so often, it seems ill-advised to read too much into Monday’s copper price spike alone. That being said, even the briefest of rallies serve as a potent reminder of the powerful underlying trends that many expect to push copper higher over the longer term once shorter-term macro concerns pass.

To recap, on the demand side, China appears to be accelerating into a phase of significant infrastructure development. This includes one initiative with the long-term goal of moving up to 200m people from rural areas to lower-tiered cities by 2025. Elsewhere, the country’s ‘belt and road’ initiative aims to create the world’s largest platform for economic cooperation. Specifically, it is expected to comprise a continuous network of highways, railways, ocean routes and ports, with plans to expand over 68 countries and several continents at the cost of $4trn to $8trn. Both of these massive urbanisation efforts will require unprecedented quantities of copper. 

Moving away from China, copper demand is also set to enjoy a boost from the ongoing global move towards renewable energy and electric vehicles. Meanwhile, on the supply side, a sustained downturn in copper prices over recent years is thought to have led to underinvestment in the sector. This could result in a lack of copper supply if demand increases.

If short-term macro concerns can cool for long enough to allow the powerful impact of these long-term supply/demand drivers to feed through to copper prices, then firms operating in the sector will benefit. Here, we look at several examples of such companies on the UK’s junior markets.

Chesterfield Resources

Set up by a consortium of experienced mining investors back in 2017, Chesterfield is a copper-gold exploration and development player. The business operates in Cyprus, an island with a rich mining heritage that was largely abandoned in 1974 following Turkish invasion. Despite much prospectivity in the foothills of the region’s Troodos mountains, little exploration has taken place in the decade since.

Chesterfield has been granted many prospecting permits around Troodos covering abandoned mines, known prospects with exposed mineralisation, and other indicators of nearby massive sulphide systems. The company’s initial focus is to advance its Troodos West project, where it has identified numerous high-priority prospect.

The organisation took a significant step forward earlier this week when it announced that it had completed an IP survey at Troodos West to test a highly-prospective zone of copper/gold mineralisation. The study was conducted on a prospective target called Evlim situated between two abandoned historic mine areas. 

According to Chesterfield, the initial results of the IP are encouraging, indicating a potential western extension of mineralisation at Evlim. This has enabled the identification of a drill target that the firm expects to host copper and gold mineralisation. With Chesterfield planning work to find more deposits undercover or at depth missed by old mining techniques, it will be interesting to see if newsflow can enhance its current £2.9m market cap over the medium-term.

Asiamet Resources

Indonesia-focused resources business Asiamet offers several copper opportunities at different stages of development. The firm’s most advanced asset is its Beruang Kanan Main (BKM) copper deposit, where a PEA completed in 2016 demonstrated the potential for developing a robust, low strip ratio, low capital intensity project. The work also gave the operation an after-tax NPV(10) of $204m, an after-tax IRR of 39pc, and set out 25ktpa copper cathode production over an initial eight years with immediate expansion potential.

BKM took a step forward last month when Asiamet revealed that it has now completed a feasibility study for the project’s development using open pit mining and a solvent extraction-electrowinning copper heap leach. The work confirmed the initial nine-year mine life producing up to 25,000ts of copper cathode per annum identified in its PEA as well as once again highlighting initial capital expenditure of $192m. 

However, some investors were left underwhelmed by the study’s post-tax NPV(8) of $133.5m and its 19.5pc internal rate of return – both of these estimates fall below those outlined in the asset’s PEA. However, it is also worth noting that the firm’s update saw it outline a number of additional value enhancement opportunities with the potential to improve BKM’s valuation by a minimum of $35 million on a risked weighted basis (excluding exploration upside). These are discussed in detail here.

Asiamet will now work towards advancing BKM towards development and production, which has been proposed to take place next year.

Beyond BKM, the firm also owns BKZ a deposit of massive sulphide mineralisation intersected over an area of 300m X 110m and containing various metals. However, the real jewel in the company’s crown is Beutong, its 80pc-owned, extensive porphyry copper-gold system located on an island of Sumatra. The asset comprises three different zones called Beutong East, Beutong West, and Beutong Skarn that collectively contain resources of 509Mt at 0.48pc copper, 0.13g/t gold, 1.28g/t silver, and 120ppm molybdenum.

Asiamet plans to carry out work to expand Beutong’s resource and test the potential for a high-grade core at depth.  It will also investigate early-stage development options after securing the production licence needed to advance the asset to the development stage in January 2018. Beutong’s potential has led many speculators to draw comparisons between the project and SolGold’s flagship Cascabel project and identify it as a potential ‘company-maker’ for Asiamet that could prompt a takeover bid.

Metal Tiger

Metal Tiger aims to deliver high returns for shareholders by investing in high-potential mineral projects with a base, precious, and strategic metals focus. Operationally, the company is complex. However, its focus primarily centres around an area of Botswana called Kalahari Copper Belt (KCB), where it has many strings to its bow.

Firstly, it owns a significant stake in MOD Resources, owner of the T3 copper project. A feasibility study completed in March gave T3 an estimated LOM revenue of $2.3bn and EBITDA of $1.1bn. The work also gave the project a pre-tax NPV of $368m with IRR of 33pc using long term copper prices of US$3.08/lb and an 8pc real discount rate. Metal Tiger sold off its 30pc stake in T3 last year as part of a strategic move to make the project more attractive to financiers under one owner while also allowing it to retain exposure without any funding requirements.

Elsewhere, the business holds a 30pc interest in a JV with MOD called Tshukudu Exploration. Tshukudu owns numerous licences in the KCB where it is completing exploration work as part of a broader growth strategy that aims to build mineral resources in potential T3 satellite deposits systematically.

Finally, Metal Tiger owns a 50pc equity position and 59.8pc effective interest in a Botswana-focused explorer called Kalahari Metals (KML). KML holds interests in 12 exploration licences covering a total area of 8,595km2 in the KCB. These consist of two 100pc-owned exploration licences, five exploration licences subject to a binding earn-in agreement with Triprop Holdings, and five exploration licences held by a business called Kitlanya. Metal Tiger has entered into a binding agreement to purchase 100pc of Kitlanya.

Given its considerable position in MOD, Metal Tiger received a welcome boost towards the end of last month when the organisation received a conditional recommended offer from ASX-listed Sandfire Resources.

The author was remunerated but does not hold shares in any company