Todd River’s copper discovery perfect timing as red metal fever takes hold
OZ Minerals chief talks up copper fundamentals as new demand runs into stagnant supply pipeline; Plus Rex Minerals seeks $5m to reinvigorate Hillside
8th June 2018
For a little while there it looked as if copper was going to give up its US$3 handle on global trade fears, a stronger US dollar, and something to do with Italy.
But here we are a week into June and the red metal has rallied 6% to $US3.25/lb. Short-covering on fears that BHP’s Escondida mine in Chile, the world’s number one producer, could be hit by strike action are being offered up as the main factor.
Maybe so. But a longer term take on the market suggests that copper’s ability to comfortably hold above US$3/lb has more to do with bullish fundamental supply/demand factors – which have not changed.
Strike action at Escondida might juice things up for a while, or be a dampener if, in fact, there is no strike. It’s much better for the investor to look through the daily noise to the bigger picture of copper moving into deficit supply in the coming years.
OZ Minerals chief executive Andrew Cole was on hand yesterday at the Melbourne Mining Club to give his view of the copper market in light of its recent run-up – one that has carried the metal to a 3-month high.
He too is firmly in the camp of there being no change in the fundamentals for copper. “I personally don’t think the fundamentals have changed in years,” he said. “The supply/demand curves . . . have not changed year-on-year.’’
“(But) what is changing is that we are getting much closer to the gap between supply coming through, and the demand. That gap – depending on whether you follow Wood Mackenzie or CRU – is imminent,’’ Cole told the assembled throng.
“The fundamentals are strong for two primary reasons. One is that finding new copper mines is expensive, and it’s hard. And this sector has under-invested in copper exploration for a very long time.’’
He said the problem was that there isn’t a ready-made portfolio of new copper projects ready to be built by the industry. “There just isn’t one.’’
OZ itself has the Carrapateena copper-gold mine development underway in South Australia and a bid on the table for ASX-listed Brazilian copper producer/developer Avanco (ASX: AVB). It also has expansion/extension opportunities at its current mainstay operation in SA, Prominent Hill, and the yet-to-be built Carrapateena.
Cole said the second reason for copper’s strong fundamentals was that demand was increasingly being driven by new technologies, not just its traditional linkage to things like infrastructure build-outs and housing starts.
“I think we are going to see that continue to increase,” Cole said.
All that is great stuff for OZ, which has more than a million tonnes of copper under its belt, with more to come from exploration/development in SA, its West Musgrave joint venture with Cassini in Western Australia, and the IOCG-rich Carajas ground that success in the Avanco bid will deliver (the offer was declared unconditional and the offer price final yesterday with OZ sitting at 46.6%).
Copper’s strong fundamentals have been reflected in OZ’s share price. It is up by 34% in the last six months.
But today’s real interest in the copper thematic is down amongst the explorers and would-be developers. It is where the oversized leverage to strong copper prices can reside.
Todd River Resources
A little thing called Todd River Resources (ASX: TRT) had a taste of all that yesterday on the release of a thick and seemingly high-grade copper-zinc intersection from its Mount Hardy project, 300km north-west of Alice Springs.
Mount Hardy was discovered in the 1920s and numerous surface scratching operations continued in the 1970s.
It has been crying out for some modern-day geophysical targeting, something Todd got cracking on after its spin-off from TNG (ASX: TNG), which is now solely-focused on its Mount Peake vanadium-titanium-iron project, also in the Northern Territory.
Todd has got its reward, with drilling at the EM1 geophysical target returning a 24m intersection from 185.5m to 209.5m which has yet to have been assayed, but which portable XRF scanning suggested was nice and rich.
The scanner indicated 2% copper and 2.4% zinc in the 24m intersection, with three narrower but higher zones. The lower zone had some of the higher grade material, the best of which was 3.5m at 6.8% copper and 7.9% lead.
That is something to get excited about. And the market did for a while, taking the 10c stock up to 13.5c before selling by some original subscribers took it back to where it started.
That doesn’t matter much given that, at 10c, Todd has a market cap of a little more than $6m. What does matter is that assay results from the lab confirm the high-grade nature of the 24m intersection, and what it turns up in follow-up holes.
There is some real confidence in the follow-up holes as the mineralisation that has been encountered corresponds with the interpreted position of the targeted down-hole EM “plate.”
High-grade exploration hits are few and far between in the copper space nowadays, and it has to be said that the super strong zinc price hasn’t hurt the market’s appetite for decent hits of the galvanising metal either.
Todd has both in its latest hole.
Rex Minerals summed up copper’s strong supply/demand fundamentals neatly in a presentation in support of its $5 million capital raising to give its Hillside copper/gold project on South Australia’s Yorke Peninsula new momentum.
“Demand will require a mine the size of Escondida developed each year for the next 10 years,’’ Rex said. That’s not going to happen but Rex (RXM) is offering up Hillside as part of the solution in a $US3/lb-plus copper world.
Hillside stands as Australia’s biggest undeveloped open-cit copper resource (2m tonnes of copper and 1.4moz of gold), with previous work pointing to annual average output of 35,000t of copper and 24,000oz of gold at an all-in cash cost of $US1.88/lb.
But that came with a big capex ask that Rex found a bridge too far in a sub-US$3/lb market. The idea now is to use the $5 million capital raising to further de-risk the project, including a Chinese study into lowering capital costs.
The fund raising is at 11c-a-share, compared with Rex’s last sale price of 17c. So it’s more dilutionary than would be ideal. But there is no point sitting on its hands.
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