As a metal, copper has a very promising future. Quite simply, there isn’t enough copper in the world — and the shortage could last until 2030.
The world’s copper shortage is caused by increasingly challenging supply streams in South America, and higher demand pressures. Demand for copper is expected to increase even further over the coming years as countries transition to more renewable forms of energy. Copper has wide-ranging usage, including in electrical equipment and industrial machinery. But because copper conducts electricity so well, it is a critical component in solar and wind energy systems; in addition, the red metal is a major component in electric vehicles (EVs), crucial to electric motors, batteries, inverters, wiring and in charging stations.
But even though copper hit its highest-ever price in March 2022, trading above US$10,400 per tonne ($US5.0395 a pound), it was unable to hang on to that price, as falling demand in China, as economic activity weakened from the country’s COVID restriction, hit the price. Copper remains about 19% below its record high of a year ago, but the longer-term outlook is bullish. Goldman Sachs, for example, expects copper to reach US$11,000 a tonne in 2023 and US$12,000 a tonne in 2024.
Further out in time, copper’s expected major role in the energy transition is projected to put upward pressure on the price. Companies bringing new copper production to the market over the next few years can expect to be looked upon very favourably by the market. In that regard, here are what I think are three outstanding prospects on the ASX.
- Caravel Minerals (CVV, 23 cents)
Market capitalisation: $110 million
12-month total performance: –24.3%
Three-year total performance: 79.4% a year
Analysts’ consensus target price: n/a
Caravel is developing what it bills as Australia’s largest undeveloped copper project, its namesake project in Western Australia. Discovered in 2016, Caravel is the fourth largest copper discovery made in the world in the last decade. Located in the state’s Wheatbelt region, the project hosts a resource put at 1.18 billion tonnes at 0.24% copper and 48 parts per million (ppm) molybdenum, giving 2.84 million tonnes of contained copper, with the company expecting a definitive feasibility study (DFS) this year, a final investment decision (FID) in 2024, followed by the start of construction of the open-pit mine in 2025 and the commencement of production in the second half of 2026. The initial mine life is put at 28 years.
Mining operations will commence at two starter pits at the higher-grade Bindi deposit, which will be developed in five stages, while the planned development of the Dasher deposit includes three stages. The processing plant will have a capacity of 27 million tonnes per annum (Mtpa) and is expected to produce 60,000 tonnes (130 million pounds) of copper concentrates a year. The project will potentially use high-pressure grinding rolls (HPGR), a modern form of grinding technology that is much more energy-efficient than the standard semi-autogenous grinding (SAG) mills that use grinding balls.
The cash cost is estimated at US$1.54 a pound, while the all-in sustaining cost (AISC) of production – a figure that incorporates not only the “cash cost” of production, but all the costs that allow production to be sustained – is estimated at US$2.37 a pound. Those figures stack up well against the prevailing copper price of US$4.06 a pound, especially if surging demand lifts that price.
The pre-feasibility study (PFS) for the project, which was announced in July 2022, was based only on Bindi and Dasher deposits; the company says there is significant upside for further resource growth within its mineralised system, which extends 30 kilometres.
- Hillgrove Resources (HGO, 6.4 cents)
Market capitalisation: $75 million
12-month total performance: –21.4%
Three-year total performance: –19.4% a year
Analysts’ consensus target price: n/a
Hillgrove owns the Kanmantoo copper-gold mine in the south-east of South Australia, which operated from 1971 to 1976 as an open-pit and underground operation, and was subsequently operated by Hillgrove as an open-pit mine between 2011-2019, before the company put into care and maintenance.
The company is positioned well for a re-start, with all permits and infrastructure in place, including a 3.6 Mtpa processing facility, an operational tailings storage facility and two underground portals already established.
A feasibility study released in December 2021 stated that the Kanmantoo underground operations could be brought into production within seven months, at a capital cost of just $26 million. The initial three-year mine plan called for processing 3.3 million tonnes (Mt) of ore, targeting production of 36,000 tonnes of copper and 10,000 ounces of gold.
This would deliver cashflow of about $200m over the first three years.
The company’s drilling program has boosted the resource from about 1 million tonnes in 2019 to 6.9 million tonnes at present, for 75,900 tonnes of contained metal. But this resource figure only includes two of nine known mineralised lodes within the permitted lease (Kavanagh and Nugent): these areas remain open at depth and along strike, so Hillgrove should be able to grow the resource further and push out the mine life.
Hillgrove describes the project as “one of the lowest-capital-intensity projects in the world,” at just US$1,550 per tonne (equal to 70 US cents a pound) of annual copper produced. The company projects an AISC of $6,991 per tonne of copper (US$2.22 a pound), providing very healthy margins at current and projected copper prices. And that’s with a very high likelihood that Hillgrove’s drilling work will only keep growing the resource.
- AIC Mines (A1M, 44 cents)
Market capitalisation: $199 million
12-month total performance: –24.1%
Three-year total performance: 11.4% a year
Analysts’ consensus target price: 70 cents (Stock Doctor/Thomson Reuters, three analysts)
AIC Mines is developing the Eloise mine in North Queensland, which it bought in 2021 for $27 million. Eloise started production in 1996 with 339,000 tonnes of copper and 167,000 ounces of gold being produced at the mine to date.
At present, the Eloise site produces about 11,500 tonnes of copper and 7000 ounces of gold a year, in concentrate, against stated production capacity of approximately 12,500 tonnes of copper and 6,000 ounces of gold. Earlier this month, AIC announced an equity raising and placement to raise $30 million, which will be used to accelerate the staged expansion of Eloise, in which the plan is to increase annual production towards more than 20,000 tonnes of copper and more than 10,000 ounces of gold, in concentrate. At this point, the operation’s AISC is A$5.01 a pound, or US$3.36.
The plan calls for the development of the new Jericho deposit, which the company says will transform Eloise into a cornerstone asset. Jericho is a perfect fit – it has similar host rocks and mineralisation to Eloise, a similar mining method and metallurgy, and is located only 4 kilometres from the Eloise processing plant. The company says the combined Eloise and Jericho resource would be 295,000 tonnes of copper and 210,700 ounces of gold, supporting a ten-years-plus mine life. Jericho has lower mining costs than Eloise – due to shallower ore – and the expected economies of scale would reduce the AISC materially. AIC says Jericho “reduces reliance on the Eloise Deeps, de-risking ore production and the mine plan.”
Engineering and design work on Jericho should be completed in calendar 2023, to provide final capital cost estimates: AIC says comparison with similar expansion projects indicates that the capital cost to expand the Eloise plant would be about $20 million–$25 million, with a construction timeframe of about 12 months; the Jericho underground mine development timeframe would be 12 to 18 months. First ore from the combined project would be processed in early 2025.
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