Large mining companies and juniors set to profit as copper crosses ten-year high, shows little sign of stopping

The price of copper hit its highest level since 2011 this week, as the impact of the global response and the resumption of the coronavirus crisis continued to unfold across the broader economic environment.

As it stands, supply is just about keeping up with demand, but with strikes in the major producing country, Chile, expected to disrupt ports and therefore exports, there is a will overseas. in the markets generally to secure the products in the event of compression.

Demand is of course rooted in the economic activity of the two global economic giants: the United States and China. The Chinese economy is now firmly back on the exhilarating growth trajectory it had consistently charted in the years leading up to the coronavirus crisis, consequently sucking up huge amounts of copper as infrastructure growth continues, and cabling copper for new homes and offices remains a high priority. .

In the United States, economic growth has been more modest in recent decades. Nonetheless, President Biden’s $ 1.9 billion infrastructure program has boosted the metals markets as a whole, with copper being a major beneficiary. And while it is the most important, the US stimulus package is just one of many that have been passed by the governments of the world’s major economic powers over the past 12 months.

In short, there is more money to spend on making things. And nowadays, making things invariably involves the use of copper. Add to that the likelihood of an exponential increase in copper consumption by global automakers as electrification accelerates, and all the hallmarks of a copper bull market are in place.

This is not new, of course. The writing has been on the wall for some time.

Earlier this month, for example, a study by Goldman Sachs noted that further strength in copper markets was likely, even though the price gains had already been large enough. Goldman has analyzed the market in the context of several of the largest copper miners including BHP (LON: BHP), Glencore (LON: GLEN), Rio Tinto (LON: RIO), Freeport McMoRan (NYSE: FCX) and OZ Minerals (ASX: OZL), noting that while the short-term rise in stimulus funds is already making their way through the system, there will be more in the longer term as the world shifts to the next level. green.

“While the copper stocks we are hedging,” Goldman wrote, “have risen 34% versus commodity over the past 12 months, we still believe there is still potential for stocks to re-price more. high as we rapidly approach peak copper supply, as supported by accelerating green demand. Within our global coverage, we favor equities with attractive copper assets, both short-term to longer-term growth potential and undemanding valuations. “

Goldman notably favors Freeport, First Quantum (TSE: FM), Lundin, BHP, Anglo American (LON: AAL) and Glencore. Out of 12 large copper companies analyzed, only one – Boliden – noted a “sale”. All others were either “buy” or “neutral”.

Goldman believes that the green revolution is likely to create “a record supply deficit by 2030”, while on the supply side, few new major projects are emerging.

“Given the long-cycle nature of copper,” the broker added, “supply may not be readily available to meet demand by the second half of the decade.”

It is this kind of thinking that underpins the current strength of market prices, and will likely continue to do so.

It also helps stimulate a rush for new money in copper exploration at the smaller end of the market. In Australia, much of the activity takes place in the hot copper district of the moment, the Lachlan Fold Belt, where companies like Kincora Copper (CVE: KCC) are trying to replicate the earlier successes of now established middleman Alkane. Resources (ASX: ALK).

Elsewhere, companies like Asiamet (LON: ARS), Arc Minerals (LON: ARCM), Strategic Minerals (LON: SML), Hot Chili (ASX: HCH), Mineral and Financial (LON: MAFL) and Power Metal Resources should benefit to varying degrees of the continued surge in copper prices.

Given that Goldman Sachs estimates that copper could reach US $ 15,000 per tonne by 2025, it is no surprise that people are neither cramming into copper companies nor that the markets are open for business when it comes to copper. funding.

In this regard, Asiamet is perhaps one of the more interesting companies to watch out for. It is set to update a previously completed feasibility study on its BKM project in Indonesia, and expects to complete funding for the project shortly thereafter.

The conditions it can obtain and the interest it can create will be closely watched by the rising generation of new copper developers. The signs at this point are clearly encouraging.


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