The red metal – copper – has investors excited all around the world, as a surge in demand is expected to come in the near future on the back of the world’s mooted transition to more sustainable energy sources. Copper is seen as essential to the fields of solar power, wind power, battery storage, and electric vehicles (EVs) and the “electrification” of energy supply. Economists and investors are well aware that copper supply will struggle – to put it mildly – to keep up with expectations of strong long-term demand.
The paradox is that since reaching an all-time high of US$5.02 a pound in March 2022, the copper price has subsided to US$3.82, a slide of 24%. Slower-than-expected GDP growth in China is the major culprit – China buys more than half of the world’s supply of copper every year – but investors are increasingly looking over the immediate horizon at what the situation will look like as long-term demand starts to pick up.
Australian investors have noticed that BHP chief Mike Henry has elevated copper as BHP’s earnings growth driver coming decades: the company believes that it will be central to the great renewable transition out to 2050: that thinking was behind the $9.6 billion absorption of copper miner Oz Minerals in April 2023. If all goes to plan, copper’s contribution to BHP’s earnings could rise from about 20% now to as much as 45%.
In virtually all analyses, copper is headed for a huge supply deficit. Recycling will play a part in meeting growing demand, because copper is easily recycled and reused: about 40% of the world’s copper demand today is met by recycling. But primary supply will also be massively important – particularly high-grade supply. In that context, if we’re talking underground mining, anything over 3% is high-grade (make that 1% for open-pit mining). This is where some of the Australian deposits will arguably start to attract interest.
In February 2023, I looked at Caravel Minerals (CVV), Hillside Minerals (HGO) and AIC Mines (A1M). Here are four more exciting copper plays on the ASX.
- Aeris Resources (AIS, 39 cents)
Market capitalisation: $269 million
12-month total return: –17%
3-year total return: 9.9% a year
Forecast FY24 dividend yield: no dividend expected
Analysts’ consensus price target: 90 cents (Stock Doctor/Refinitiv, four analysts), 82 cents (FN Arena, three analysts)
Aeris Resources did a transformational deal in July 2022 with the $234 million deal to acquire Round Oak Minerals, owner of the Jaguar and Mt Colin mines. Aeris already operated the Tritton copper mine in New South Wales and the Cracow gold mine in Queensland, but Round Oak brought to the table the Jaguar zinc and copper mine in Western Australia, the Mt. Colin copper mine in Queensland and the Stockman poly-metallic (zinc, copper, gold, and silver) development project near Omeo in eastern Victoria, on the site of the historical Wilga mine that closed in 1996.
Round Oak also brought onto the Aeris share register the vendor, renowned investment company Washington H. Soul Pattinson – as the largest (30%) shareholder – and the WHSP chairman Robert Millner onto the Aeris board. That tie-up represents serious investment support.
The net effect was that four years ago, Aeris had only one mine (Tritton), and in July 2022 it became Australia’s newest mid-tier miner, with four wholly owned operating mines and a development project with ten-plus years of ore reserves. And there are potentially large exploration targets (and new mining areas) around all these operations, to extend the mine lives, which currently range from FY24 (Mt. Colin) to FY30 (Tritton), with Stockman forecast to have at least ten years of life from FY25 onward.
Aeris went from producing 18,581 tonnes of copper and 53,920 ounces of gold in FY22 to FY23 guidance for 57,000 tonnes–71,000 tonnes of copper-equivalent.
But earlier this month, Aeris shocked the market by withdrawing its FY23 earnings guidance just weeks before the release of its June quarter activities report. Aeris had already revised its EBITDA (earnings before interest, tax, depreciation and amortisation) guidance for the third time in the financial year: the projected figure started at $140 million–$170 million, was cut to $80 million–$110 million in February at the release of the half-year result, and then to $50 million–$70 million at the March quarter report.
The market does not like that kind of thing at all; and Aeris’ share price is down 29% in 2023 as a result, and a long way short of its August 2021 peak of $1.65.
But that opens up quite a bit of value for investors who back the premise that there is more upside risk than downside risk to the copper price, as the world realises the scale of the copper requirement for the mooted renewable energy transition. An unprecedented scale of mine development will be needed.
Aeris’ all-in sustainable 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 expected to decrease significantly from FY24, potentially enabling the company to push annualised EBITDA up towards $140 million, over a mine-life of eight to ten years. But the market has been burned by the guidance stuff-up in 2023 and will take a while to trust Aeris fully again.
However, on balance, I think Aeris is a really good story, and a great ASX exposure to copper.
- 29 Metals (29M, 77.5 cents)
Market capitalisation: $374 million
12-month total return: –42.9%
3-year total return: n/a (listed July 2021)
Forecast FY24 dividend yield: no dividend expected
Analysts’ consensus price target: $1.80 (Stock Doctor/Refinitiv, 11 analysts), 88.8 cents (FN Arena, four analysts)
29 Metals has been hammered on the share market this year, after huge floods in north-west Queensland in March knocked its Capricorn Copper mine out of business for a while – the mine, 120 kilometres north of Mount Isa, was inundated with 1.5 billion litres of water, road access to the operation was cut, and the mine’s water treatment plant was a write-off.
At this stage, restart activities are expected to commence in the September quarter of this year: 29Metals is targeting between 4,000 tonnes-6,000 tonnes of copper production and between 20,000 ounces-30,000 ounces of silver production from Capricorn between the September quarter and the end of 2023. Shareholders will get a better idea of the progress of the recovery plan progress when the June quarterly report comes out on Tuesday.
Apart from Capricorn Copper, 29 Metals also owns the Golden Grove mine in Western Australia, which produces copper, zinc, lead, gold and silver.
The flood troubles and general copper-price problems have hurt the share price; 29M is down almost 60% in 2023. But both Golden Grove and Capricorn are high-quality operations; Golden Grove is one of the lowest-cost copper mining operations in the world. In FY22 (ended December), 29M produced 73,400 tonnes of copper-equivalent (up 8% on 2021), at an AISC of US$3.64 a pound of copper.
That brought in $721 million of revenue ($516.5 million, or 72%, of it from copper), and operating cash flow that more than doubled to $156 million. With a 14% increase in operating costs, EBITDA decreased from $110 million in 2021 to $66 million, and there was a net loss of $47.2 million (down from a $121 million profit in 2021). The company paid its first dividend, an interim dividend of 2 cents a share, fully franked (there was no final dividend.)
Mine life is more than 10 years at present, with the estimated mineral resource standing at 127.9 million tonnes, with ore reserves at 31 million tonnes. With major exploration potential around both Golden Grove and Capricorn, as well as the company’s Redhill tenement in Chile – which contains an historic mine site with significant known high-grade copper, gold and silver mineralisation – there is plenty of scope to extend reserves and mine-life.
The contained metal in the ore reserves is estimated at 540,000 tonnes of copper, 744,000 tonnes of zinc, 330,000 ounces of gold, 19 million ounces of silver, and 37,000 tonnes of lead.
It could be a bumpy road back to full production for 29 Metals, but the future beyond that looks bright. Investors buying now are taking advantage of a troubled share price. The major caveat here is the wide variation on analysts’ price targets: share market information site Wallmine, where you don’t know how many analysts’ work is being used, has a 12-month price target of $2, while rival site Alpha Spread has $1.18. On balance, the probability of an increase from 77.5 cents looks to be in new buyers’ favour.
- Develop Global (DVP, $3.30)
Market capitalisation: $599 million
12-month total return: 72.8%
3-year total return: 132.8% a year
Forecast FY24 dividend yield: no dividend expected
Analysts’ consensus price target: $4.39 (Stock Doctor/Refinitiv, two analysts), $3.90 (FN Arena, one analyst)
One of the main reasons for the significant buzz around the ASX for Develop Global is its CEO. Bill Beament took goldminer Northern Star Resources from a struggling stock explorer – with a single-digit share price in cents – to the status of the country’s second-largest goldminer, and S&P/ASX 100 index constituent, in a decade, before he exited the company in 2021. Beament oversaw a 1,600-times rise in the market capitalisation of Northern Star. What excites investors is that he used his Northern Star windfall to take up a large stake (about 16%) in Develop Global.
Develop owns the Sulphur Springs zinc and copper project in Western Australia, and the Woodlawn copper-zinc-silver project in New South Wales. Sulphur Springs contains six advanced targets that have returned intersections of market-grade copper and zinc, while Woodlawn is a high-grade zinc-copper-lead-gold-silver project located in the world-class Lachlan Fold belt.
Woodlawn was mined from 1978 to 1998 and was Australia’s second highest-grade zinc equivalent mine at the time. The Woodlawn underground mine and processing plant was developed by Heron Resources who invested $340 million in the project before it was put on care and maintenance in 2020, and Heron was placed in administration in July 2021. DVP bought the project in May 2022 for $30 million.
Develop also holds a 20% stake in the Whim Creek copper-zinc project to the south-west of Port Hedland in WA, where historical mining produced 67,000 tonnes of copper.
At Sulphur Springs, an updated definitive feasibility study (DFS) in June showed a de-risked approach, with the planned open-pit development from the 2018 DFS removed, and a new mine plan based on underground mining first, which reduces the upfront capital required and enables the metallurgically-superior material in the reserve to be accessed earlier.
The mine-life is estimated to be at least eight years, with average annual production for the first four years of 80,800 tonnes of zinc metal and 16,400 tonnes of copper metal, at a zinc concentrate grade of 52% and copper concentrate grade of 23%.
At Woodlawn, there is an underground resource of 7.3 million tonnes at 5.7% zinc, 1.8% copper, 2% lead, 44.9 grams per tonne (g/t) of silver and 0.6 g/t of gold. Develop announced high-grade copper strikes there in April and followed that up in May with intersections of what the company called “exceptionally thick, high-grade copper and zinc mineralisation” – intersections of up to 7.9% copper and 4.2% zinc – outside the underground resource. Develop has described Woodlawn as an “amazing ore body,” and the market is eagerly awaiting more details on the potential restart of production.
The second plank of Develop’s strategy centres on the provision of underground mining services: the company does this work for Bellevue Gold at its Bellevue Gold Project in Western Australia and is looking for other opportunities. In the March 2023 quarter, the contract work brought in $19 million of revenue, up 35%, and Develop expects that revenue will continue to grow as Bellevue ramps-up to production.
DVP looks to be a very promising stock, as the market expects better copper economics past 2024-2025.
- Rex Minerals (RXM, 26 cents)
Market capitalisation: $154 million
12-month total return: 85.7%
3-year total return: 15.2% a year
Forecast FY24 dividend yield: no dividend expected
Analysts’ consensus price target: 40.5 cents (Stock Doctor/Refinitiv, two analysts), 40.5 cents (FN Arena, two analysts)
The fourth stock, Rex Minerals, is developing its Hillside Project, located on the Yorke Peninsula in South Australia, which is considered one of the most substantial undeveloped copper projects in Australia, with an estimated mineral resource of 1.9 million tonnes of copper and 1.5 million ounces of gold.
The updated feasibility study on Hillside was completed in December 2022, and a final investment decision (FID) is expected quite soon (the company talks of mid-2023). Stage 1 has an 11-year projected mine life, while pre-feasibility work completed for Stage 2 indicates that the operation’s lifespan could go past 20 years. The mine will be an open pit, with the copper mineralisation as shallow as 5 metres below the surface. The AISC is projected to be in the range of US$1.66–US$1.83 a pound.
Under Stage 1, the mine is expected to produce 42,000 tonnes of copper and 30,000 ounces of gold each year for the first 11 years of operations, in a development costing about $850 million. The Stage 1 mine plan expects 507,000 tonnes of copper and 436,000 ounces of gold, with the Stage 2 plan adding 525,000 tonnes of copper and 433,000 ounces of gold to that. Beyond that, there is a Stage 3 plan that potentially could add a further 417,000 tonnes of copper and 462,000 ounces of gold, but that must be considered more hypothetical than the first two stages (the mineral resource outline extends even beneath the Stage 3 assumed depth).
Rex also owns a gold prospect at Hog Ranch, in the US state of Nevada: the deposit was previously mined, between 1988 and 1992, and Rex bought it in August 2019. The deposit has a contained gold mineral resource of 2.3 million ounces.
Hog Ranch is a potentially exciting project – but investors should consider it a bonus, with Hillside very much the main game. And analysts think it’s exciting enough on its own!
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