The price of copper is at its healthiest for some time, based on the knowledge that the red metal is absolutely central to the prospect of an energy transition to ‘cleaner’ energy sources, and ‘decarbonisation’ in general. For example, electric vehicles (EVs) need up to four times more copper to build than a normal combustion vehicle. Population growth, rising living standards, and the energy transition will continue to drive copper demand in the decades to come.
It’s been estimated that an additional 6 million tonnes of copper capacity could be needed by 2032 to fill demand; if the world is serious about meeting the ‘Net Zero carbon dioxide emissions’ targets set by governments and big business, we may need to mine all the copper we’ve ever mined, all over again, by 2050.
But the paradoxical situation in the mining world is that there is only a trickle of new copper production being brought into the market. It is becoming more difficult to find high-grade copper.
It’s no surprise that BHP sees its future as increasingly focused on copper, with its Chile and South American operations, and its $9.7 billion acquisition of OZ Minerals last year, adding that company’s Carrapateena and West Musgrave copper projects into the BHP fold, augmenting its massive copper presence in the state, Olympic Dam.
But, with OZ gone, where else on the ASX can an investor interested in copper look?
In the first of two articles on copper, let’s examine the three main independent producers.
- Sandfire Resources (SFR, $8.63)
Market capitalisation: $3.9 billion
12-month total return: 32.6%
3-year total return: 14.5% a year
FY25 Estimated Yield: 0.3%, unfranked
FY25 Estimated P/E ratio: 14 times earnings
Analysts’ consensus target price: $9.39 (Stock Doctor/Refinitiv, 16 analysts)
I think Sandfire Resources is the highest-quality copper exposure on the ASX right now. It has operations in Western Australia, Spain and Botswana. The company got its start in May 2009 when it discovered the De Grussa copper deposit in WA, hitting massive sulphide mineralisation at depth in a region better known for its gold discoveries, leading to one of the most celebrated recent mineral discoveries in WA. Further discoveries followed and mining began at De Grussa in February 2012, starting with open-pit ore, followed by underground mining. The first shipment of copper concentrate came in December 2012, with the mine officially opened in August 2013. By financial-year 2024, Sandfire was profitable and paying its first-ever dividend.
De Grussa and its satellite copper/gold mine Monty have now closed – mining ceased in October 2022, followed by processing in May 2023 – and the project will be rehabilitated over coming decades. But some excellent acquisitions along the way both diversified Sandfire away from its Australian beginnings and transformed it.
First, in 2014, Sandfire bought a stake in the Black Butte Copper Project in the US state of Montana, one of the world’s highest-grade undeveloped copper projects. The company now owns 78% of the project. Permitting for mining at Black Butte was completed in April 2020, and construction began in August 2020, but a successful legal challenge caused construction to stop in April 2022. Sandfire has appealed the ruling and a decision on the case is pending, with resolution of the case to inform the next step of the project. Drilling at Black Butte has continued to deliver high-grade copper hits, as high as 10.7% copper.
Then, in 2019, Sandfire bought MOD Resources Limited, which came with the T3 Project in Botswana, a project now known as Motheo. Development of a copper-silver mine at Motheo was approved in December 2020, with a mining licence granted in July 2021. The first copper concentrate was produced in May 2023, and the mine was officially opened in August 2023.
Meanwhile, Sandfire was planning its biggest deal yet, with the September 2021 announcement of the proposed acquisition of the world-class Minas de Aguas Teñidas (MATSA) mining complex in Spain, for US$1.865 billion ($2.5 billion). The deal was completed in February 2022, Sandfire 100% ownership of MATSA, a long-life Tier 1 asset with three underground mines and a modern 4.7 million-tonnes-a-year (Mtpa) processing facility, located in the world-class Iberian Pyrite Belt in south-western Spain. MATSA has an extensive resource base with significant growth potential.
Fast-forward to the just-completed FY24, and MATSA generated 60.1% of Sandfire’s $935.2 million in revenue, with Motheo providing 36.9%, and De Grussa’s final sales, 3%.
As broker Morgans describes it, Sandfire has “re-shaped into a resilient global business providing a strong option over metals price upside in time.”
During FY24, Sandfire achieved commercial production at Motheo only 45 days after commissioning activities began, and successfully increased processing throughput rates to an annualised 5.4 Mtpa in the fourth quarter, exceeding the operation’s expanded nameplate capacity. Looking ahead, we expect to produce first ore at the new A4 open pit in the December 2024 quarter and achieve production of 59,000 tonnes of copper equivalent (CuEq) in the current financial year. Sandfire says Motheo ran at an underlying operational margin of 57% in the June 2024 half-year, and is Motheo is poised to generate strong free cash flow in FY25.
For FY24, the company showed a 16% increase in sales revenue, to $935 million; a 40% increase in underlying earnings before interest, tax, depreciation and amortisation (EBITDA), to $362 million, and a net loss after tax that improved by $34.6 million in FY24, to a loss of $19.1 million.
Brokers expect a big turnaround in profitability in the current financial year, to a net profit of somewhere around the $260 million mark, on analysts’ consensus, and the first dividend since FY22. Sandfire is going great guns, it is in the right spot commodity-wise, and it should easily be able to extend the life of its operations, through exploration; and hopefully, bring Black Butte into operation. The only problem with Sandfire Resources is that brokers see it as close to fairly valued, after a healthy rise from the depths of $2.87 in April 2020.
- Aeris Resources (AIS, 18 cents)
Market capitalisation: $174 million
12-month total return: –19.7%
3-year total return: –46.9% a year
FY25 Estimated Yield: no dividend expected
FY25 Estimated P/E ratio: 2.3 times earnings
Analysts’ consensus target price: 22.5 cents (Stock Doctor/Refinitiv, four analysts)
Upside: 25%
With Sandfire constrained in the level of capital growth of which analysts think it’s capable, investors should look at Aeris Resources. The flagship asset of the Brisbane-based Aeris is its wholly owned Tritton copper operation, a long-life copper mine in central New South Wales, which commenced production in 2005. It also runs the wholly owned Cracow gold operation, which it bought in July 2020, an established underground gold operation located in central Queensland.
In July 2022, Aeris did a $234 million deal to acquire Round Oak Minerals, owner of the Jaguar and Mt Colin mines. Round Oak brought to the business 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.
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 in July 2023, 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 was disappointed, and the share price has nowhere near recovered.
Then, in September 2023, Aeris decided to place the Jaguar operation on ‘care and maintenance,’ limit cash outflows and preserve the in-ground resource value. The operation remained on care and maintenance through FY24.
In FY24 Tritton produced 19,749 tonnes of copper, from a total of 1.2 million tonnes of ore mined, predominantly from the Tritton, Murrawombie and Avoca Tank underground mines, at an average grade of 1.69% copper. The Cracow operations produced 45,700 ounces of gold in FY24, towards the upper end of production guidance, while Mt Colin produced 6,800 tonnes of copper, below the guidance range. Mt Colin was expected to close in May, but will now operate to October 2024, with new mineralisation identified in the ‘Cave Zone’ and remnant stopes (ore placed back into dug-out shafts, for stability).
Total production for FY24 came in at 27,200 tonnes of copper, 55,300 ounces of gold and 240,400 ounces of silver. Aeris has set copper-equivalent production guidance for FY25 at 40,000 to 48,000 tonnes, in line with the FY24 copper-equivalent production of 42,000 tonnes. Within that figure is 27,000 to 32,000 tonnes of copper, 50,000 to 62,000 ounces of gold and 200,000 to 240,000 ounces of silver. Tritton is expected to produce 21,000 to 25,000 tonnes of copper, while Cracow is expected to produce 40,000 to 49,000 ounces of gold.
Analysts are still wary of the 2023 guidance disappointment, but Aeris could well reward longer-term investors.
- AIC Mines (A1M, 30 cents)
Market capitalisation: $173 million
12-month total performance: –10.4%
Three-year total performance: 7% a year
FY25 Estimated Yield: no dividend expected
FY25 Estimated P/E ratio: 7 times earnings
Analysts’ consensus target price: 65 cents (Stock Doctor/Thomson Reuters, five analysts)
I also like AIC Mines, which looks to be good value in the current environment.
AIC 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.
In FY24, Eloise achieved record production under AIC Mines’ ownership, producing 49,994 tonnes of concentrate, containing 13,412 tonnes of copper and more than 5,000 ounces of gold, with some silver. Sales revenue rose by 44%, to $180.5 million; EBITDA increased by 83%, to $68.1 million; and net profit surged from a $5.8 million loss in FY23 to $7.7 million, or 1.5 cents a share.
AIC has a clear pathway to future growth. In May, the Queensland government granted the company a mining lease for its Jericho deposit, located 4 kilometres southeast of Eloise, which it acquired in January 2024. AIC will develop a new underground mine at Jericho, which it says is a “game changer” for Eloise – providing a pathway to expanding annual production at Eloise to more than 20,000 tonnes of copper and 10,000 ounces of gold in concentrate.
Mining at Jericho will be lower cost than Eloise as it is much shallower, commencing below only 50 metres of cover. The company will expand the Eloise processing plant, which it expects to further reduce operating costs through economies of scale and equipment improvements. AIC is also developing a 3-kilometre underground link drive from Eloise to Jericho.
Analysts see a big boost to AIC’s profitability in FY25, and there looks to be a lot of potential value in the current share price.
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