Copper Rush Drawing Australian Titans; Australia To Climb the Supply Ladder?

Summary

• Base metals prices are finally showing some promising recovery after a brief plunge, especially copper, with its recent gain of ~ 41.74 per cent.
• The surge in copper prices is now finally providing an impetus to Australian miners to restart their suspended copper operations.
• Australia had bagged the seventh position in the global copper supply chain in 2019; however, the continent holds the second-largest reserve of copper, and with the surge in copper prices, many miners are now coming back on the frontline.
• Furthermore, the copper exploration expenditure is also witnessing some strong gain; however, has slumped in the March quarter, but is considerably up against pcp.

Base metals have been stealing the show from many risky commodities, especially copper, with its impeccable recovery since the onset of the second quarter of the year 2020.

Copper prices have climbed the price ladder swiftly with copper near-month cash contract on the London Metal Exchange surging ~ 41.74 per cent from the level of USD 4,617.5 per tonne (intraday low on 23 March 2020) to the current high of USD 6,545 per tonne (as on 13 July 2020).

In the recent past, COVID-19 outbreak and weather challenges across Peru had impacted production across major mines, leading to a decline of 25 per cent in March 2020, with the first quarter production plunging by 12 per cent. This decline across Peru had a considerable impact on the global mine production, which slipped by 2.5 per cent in March 2020.

• Over the supply disruption in the copper supply chain, the inventory of copper is witnessing a large decline, especially across the warehouses of LME, due to which, copper prices are anticipated to surge over the long run, as many industry experts estimate that the consumption could eventually outpace supply.
• As per the assessment from the Department of Industry, Innovation and Science, copper prices would average USD 5,560 per tonne during the year 2020.
• Furthermore, prices are projected to mark an average uptick of 6.0 per cent per annum to reach USD 6,240 per tonne in 2022

Australia remained the seventh-largest producer of copper with exports of $10 billion in 2019, which are now estimated to surge from 925,000 tonnes in 2019-20 to ~ 966,000 tonnes by 2021-22, leading to an increase in export earnings by 30 per cent from $10 billion (seen in 2018-19) to $13 billion in 2024-25 (as per secondary reports).

• Over the short-run, the export earnings are estimated by DIIS to grow steadily to mark a rise of ~ 3.125 per cent from the level of $9.6 billion (seen in 2019-20) to reach $9.9 million by 2021-22.
• As per the recent exploration expenditure data with DIIS, the copper exploration continued to climb up during the December 2019 quarter with exploration expenditure reaching $125 million, up by 53 per cent against the previous quarter.
• However, the exploration expenditure slightly declined in the March 2020 quarter to stand at $97 million, which though remained down by 22.4 per cent against the previous quarter but remained 46 per cent up against the previous corresponding period.

Copper Rush- The Torch Bearer for ASX-listed Copper Stocks

The falling copper prices have had a serve impact on some of the major operations across Australia with Metals X Limited (ASX:MLX) suspending its Nifty Copper mine while Emerald Resources NL (ASX:EMR) suspending its Golden Grove mine during late 2019.

To Know More, Do Read: Metals X Limited- The Untold Story Behind the Nifty Copper Operations Mining Suspension

The improving copper prices has brought in a ray of hope across Australia, some copper players are back in action. For instance, MLX is completing its scoping study across Nifty Copper mine while identifying a long-pit, providing 10-years open-pit life and 23 million tonnes of sulphide feed.

• As per the Company’s assessment, at the spot price of $8,000 per tonne, the total pre-tax net cash flow from the operation would stand between $285 to $315 million, representing a pre-tax net present value of $105-$125 million with a pre-tax internal rate of return of 32 to 36 per cent.

To Know More, Do Read: Metals X Updates Nifty Resources While Independence Expands EL at Fraser Range

The recovery in copper prices could be an impetus for domestic miners with some of them such as Oz Minerals Limited (ASX:OZL) undertaking ramp-up at the Carrapateena mine in South Australia, which holds an annual production capacity of 65,000 tonnes.

• The surge in copper prices and its forecast over the long run coupled with the recent spike in gold prices could further boost the sentiment concerning some of the mine life extension projects currently underway across the continent.
• The surge in gold prices has also supported the recent exploration activities related to copper as both are generally co-existing minerals. For example, the Telfer gold mine of Newcrest Mining Limited (ASX:NCM) and DeGrussa prospect of Sandfire Resources NL (ASX:SFR) have both uncovered some decent copper intersections recently while DeGrussa produced 9,932 tonnes of contained copper during the first-half of FY2020.
• Furthermore, Havilah Resources Limited (ASX:HAV), which owns and operates the largest undeveloped open-pit copper deposit at the Kalkaroo project announced in March that the Company would sidestep the COVID-19 outbreak turmoil and continue its planned drilling across the Kalkaroo project.

In a nutshell, copper prices are now showing a strong rally post a rebound from its recent low, which in turn, could support the Australian copper production.

Many miners such as Metals X are coming back in action due to the surge in copper prices and the rise in gold prices is also anticipated by the market to support the copper production across the continent, which could further boost Australia’s position in the global copper supply chain.