More bulls wandering into China’s copper shop as rotation gains pace

Plus, $20m Argonaut Resources offering leveraged exposure to the copper theme and Friedland named on Chalice’s top-20.
2nd October 2020
Barry FitzGerald

There is nothing wrong with a $US1,892/oz ($A2,635) gold price. It’s just that the metal has lost some of its shine of late as investors in the sector fret that circa $US1,900/oz gold could be good as it gets for a while.

As mentioned previously, that has been encouraging a rotation in to base metals, or more particularly, copper, which avoided getting walloped in the recent metals sell-off.

The red metal has returned to $3/lb to be comfortably ahead of its $US2.50/lb average in the June half.

Things in the copper equities space get really interesting around the $US3.20/lb level. And that is where we could be headed.

Morgan Stanley has updated its commodity price forecasts, and the good news is that has lifted price expectations across most of the commodities for 2021.

The upwards revision is a response to expectations around a V-shaped macro-economic recovery (China is already there) fuelling a strong rebound in demand, as well as the reflation trade supporting prices at elevated levels relative to market fundamentals.

“Taking a look at previous inflation cycles, commodity prices have on average seen rallies of 13-47% in the 12-months following a rise in inflation expectations,” Morgan Stanley said.

Like others, Morgan Stanley reckons the big winner from all that is copper.

“We favour copper as the best way to play this theme, forecasting the price to push higher through next year to an average of $3.36/lb.

“While our base case does not factor in a 2011-style bull market, there is potential for the price to push higher still.”

Its bull case is for a $4/lb average in 2021. Now that would be important for the big end of town for the likes of BHP, Rio, OZ Minerals and Sandfire.

But real leverage to copper’s upside resides with the explorers, assuming of course they can match the renewed interest in copper to some high-impact exploration success and/or some near-term development potential.

ARGONAUT RESOURCES NL:

That’s exactly what Adelaide’s Argonaut Resources (ARE) is hoping to serve up.

Trading at 0.8c for a market cap of about $20m after a placement and SPP likely to have pulled in around $5m when all is said and done, Argonaut has both high-impact exploration and a near-term development opportunity to its story.

The high-impact exploration program is centred on the western side of Lake Torrens in South Australia, while its Lumwana West copper-cobalt project in Zambia sits in the advanced category.

That interest is building in its story was reflected in the $2.7m placement component (0.55c a share) of its recent fund raising exercise. It had bids for $7.4m by 11am on the first day.

About $2m of the total in new funding is earmarked for a drilling program at the Murdie project, with the South Australian government kicking in $320,000 in support.

It is big copper country. Argonaut plans to drill five holes on a 100% basis to an average depth of 750m to test five separate residual gravity targets like those that led to the regionally close discovery of the Carrapateena and Oak Dam deposits, owned by OZ and BHP respectively.

The company picked up the Murdie ground from Canadian heavyweight Barrick when it exited Asia-Pacific exploration in 2015 and it has been moving the project through the consent process to drill ever since.

A gravity team is ready to go with drill target defining work and should all go according to plan, drilling could start at the back end of next month. Should the program hit some good stuff, it will be off to the moon for Argonaut.

But there is no guarantee it will hit the good stuff. And exploration around and on Lake Torrens can be tricky.

That was highlighted in what came before in Argonaut’s 30% owned Torrens joint venture with Aeris (70%) to the north of the Murdie project.

A planned 8-10 hole program at the Torrens project pulled up short after technical difficulties drilling through aquifers.

The good news from that is that the targets remain to be properly tested, and there is a whole bunch more that have not been tested at all.

Having said that, since the dramas of the first Torrens program, Aeris has acquired the Cracow gold mine in Queensland. So its ongoing interest in hunting for SA’s next big copper deposit is open to question.

Argonaut is not big enough to taken on the Torrens targets itself as apart from anything else, a new campaign there would again require expensive helicopter assistance on the lake.

But the allure of the Torrens targets in a rising copper market is not going away, so there is a fair chance a big brother with deeper pockets could yet emerge to pick up the running.

Over in Zambia, Argonaut is advancing a scoping study after metallurgical work confirmed a saleable concentrate could be produced from the shallow mineralisation.

A robust exploration target of up to 1.15mt of copper and 24,000t of cobalt exists but a big confirming drilling program would be needed ahead of it entering the feasibility study stage. A big brother there too would be ideal.

CHALICE GOLD MINES:

There has been no stopping Chalice since its Julimar base and platinum group metals discovery in March on Perth’s doorstep.

What was a 16c stock in March is now $2.53 for a market cap of more than $800 million

The stellar rise means that even backers of Chalice’s $30m capital raising in May at $1.05 have more than doubled their money, including, it seems, billionaire mining financier Robert Friedland.

Friedland was a bit miffed with the Australian Financial Review back in May when it revealed he had taken a “sip” of Chalice through the placement.

A statement at the time said the AFR had cited incorrect and anonymous information, adding that Friedland may, at times, acquire and sell securities as a private investor.

With the passage of time, it fell upon Chalice to list its Top 20 shareholders list in its annual report, released earlier this week.

Taking out 12th position with 2.24m shares, or 0.73%, of Chalice was one Robert Martin Friedland.

He knows more than most about nickel and PGM’s thanks to a career that takes in some of the biggest ever metal discoveries of all types (Voisey Bay, Oyu Tolgoi, Kamoa-Kakula and Platreef).

Locally, Friedland is co-chair of Clean TeQ which has just released its updated development plan for its Sunrise nickel-cobalt project in NSW.

Commenting ahead of an investor day on the subject yesterday, the big-thinking Friedland put the shovel-ready project into context around the building supply challenge for the lithium battery-powered electrical vehicle revolution.

“Auto supply chains are coming to realise they are playing a game of nickel and cobalt musical chairs,” Friedland said. “We are halfway through the second verse and the music will eventually stop.

“Sunrise is a long-life, low-cost, development-ready asset which is a template for consistent, sustainable and auditable nickel and cobalt supply. We cannot anticipate how long it will take to have the project funded and in development, but we can be patient with such a strategically important asset, and we are fully committed to ensuring it is developed with partners who understand the value that responsible supply chain integration brings.”

 

Gettty Images: Copper

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