While it is still very early days in the new copper cycle and AVB’s strong future as part of it, I share below a couple more bits of information coming from the sidelines of the BMO conference in the US (reminder, this is the conference AVB is attending) and beyond. It will partly explain the interest in the company, the fact that some smart money has come on board AVB in the past month and why the AVB story is only just beginning. In short, due to a number of factors including lack of investment from majors in new mines, it is only going to get better for copper bulls from here.
And while we are just arriving at the starting gate of the next cycle, I’d personally like to take a little time out to pause and say well done and thanks to Kalenn, who has generously shared his research on here and never once waivered in his belief that AVB was the ASX’s next mid tier copper company in the making. Despite having to put up with barbs and all sorts of unsubstantiated commentary thrown at him, he’s stuck with what will always stand by any serious investor, detailed and thorough research.
When you see new research on the company coming out like the Euroz report yesterday that vindicates the spreadsheet Kalenn has generously provided to help give investors an idea of the company’s earnings and growth potential, you realise how lucky we are. Remember, Euroz has a team of analysts and the budget to do the work, Kalenn has done it off his own bat. It is not some pin the tail on the donkey blind belief in a company and its story, I’m aware of the hard work and research that has gone in to years of painstaking research, number crunching and analysis. Besides the price forecasts, I did smile when Euroz made that comment in the report that AVB:
“Avanco has the steepest growth profile over the medium term of all in the peer group including Oz Minerals, Sandfire Resources, Finders Resources and Tiger Resources.” It is something Kalenn has been talking about for the past couple of years at least.
My initial modest investment in AVB some time back now has grown to a healthy position due to Kalenn’s business case and research being able to be completely verified and tested by people I know in the industry. If you are new to AVB, you should do yourself a favour and get a copy. So while we are only just beginning the AVB and copper growth story as part of the early stages of the next cycle, hats off to Kalenn who can now sit back and watch it all play out as planned.
I also want to revisit my post from late December suggesting it was time to buy in for those wanting to invest in AVB. I’d had some feedback from a mining industry person that commodities were turning quicker than ‘experts’ were predicting and he did mention that lack of investment in copper mines and exploration was going to meant that copper might bounce back a year or two earlier than expected. He has proven correct. So I can thank him for helping with my prediction that we had the first quarter of 2017 to get set.
Wed Mar 1, 2017
METALS-China data helps fuel copper's rise to one-week high
* China domestic and export demand pick up
* Fed rate rises would suggest strong U.S. growth
* Supply disruptions support sentiment (Updates prices)
LONDON, March 1 Copper prices rose to their highest in more than a week on Wednesday as manufacturing data from top consumer China showed potential for strong demand, reinforcing worries about shortages due to supply disruptions.
Benchmark copper on the London Metal Exchange ended up 0.7 percent at $6,016 a tonne from an earlier $6,090, its highest since Feb. 21.
Factory activity in China expanded faster than expected in February as domestic and export demand picked up, adding to signs that the global economy is gaining momentum even as fears grow of a surge in trade protectionism.
"Chinese data is definitely a reason to be bullish on industrial metals," Commerzbank analyst Eugen Weinberg said.
"If the Fed goes for more rate hikes (than expected) this year, then it's due to underlying economic dynamics proving to be more positive than expected, which is a good thing."
But prices were capped by a stronger U.S. currency, which when it rises makes dollar-denominated commodities more expensive for non-U.S. firms, potentially weakening demand.
The dollar hit its highest in seven weeks as comments from two influential Federal Reserve policymakers were interpreted to mean that U.S. rates could rise at the March meeting.
However, supply disruptions in Indonesia and Chile are a positive for copper.
Freeport-McMoRan's inability to export copper concentrate since mid-January and a strike at BHP Billiton's Escondida mine in Chile - the world's largest - last month pushed copper to 21-month highs of $6,204 a tonne.
"Potential mine supply disruptions are not the only factors supporting higher prices. The demand backdrop for copper should strengthen this year as well," UBS analysts said in a note.
"We expect global economic growth to accelerate, driven by firmer industrial production. With global economic activity improving, copper demand is likely to expand towards 3.7 percent this year from 3 percent last year.
Copper King Vows to Resist Rushing Projects as Prices Surge
By Danielle Bochove
March 1, 2017, 10:44 AM GMT+11 March 1, 2017, 11:44 PM GMT+11
Codelco’s chairman sees ‘brakes’ restraining rest of industry
- Landerretche says he’ll maintain debt-growth ‘balancing act’
The world’s biggest copper producer has some good news for bulls: it won’t be tempted into speeding up projects as prices rally.
What’s more, Codelco Chairman Oscar Landerretche says a series of natural obstacles facing the industry will also prevent other miners from piling in.
“It’s going to be very difficult for the industry to respond even if it wanted to,” Landerretche said Tuesday in an interview at the BMO Capital Markets mining conference in Florida. “It’s becoming very, very hard to do new projects.”
Existing mine reserves are deteriorating while the industry has yet to experience its own “shale gas moment,” in which technology unlocks supply previously deemed unfeasible, Landerretche said. Meanwhile, the global regulatory environment has become tougher.
At the same conference, BHP Billiton Ltd. Chief Executive Officer Andrew Mackenzie said copper tightness could be exacerbated by a reluctance to invest after years of low prices. That sentiment was echoed by Swedish-Canadian commodities entrepreneur Lukas Lundin, who called the industry “gun shy.”
Supply constraints, coupled with healthy demand -- which he sees increasing 3.5 percent this year compared with a 2 percent projection six months ago -- should support prices of $2.60 to $2.70 a pound this year, Landerretche said. Longer-term, the Santiago-based miner sees copper closer to $3 as the market moves into a deficit, starting with a 100,000 to 200,000-ton shortfall in 2018.
Role Reversal
For most of his time at state-owned Codelco, Landerretche has had to deal with conditions that were less than ideal. The Massachusetts Institute of Technology-trained economist was appointed to Codelco’s board by President Michelle Bachelet in 2014, the second of three years when prices fell.
Landerretche and CEO Nelson Pizarro have overseen cost and budget cuts to cope with the price slump at a time when the state producer was engaged in a record investment program to overhaul its aging deposits after years of under-investment. A multi-year investment plan has been whittled back to $18 billion from $25 billion.
In the past six months, copper futures have risen more than 30 percent and they traded at $2.7580 a pound on Wednesday. A strike at BHP’s Escondida in Chile and a dispute at Freeport-McMoRan Inc.’s Grasberg mine in Indonesia have been restricting shipments at a time when increased infrastructure spending in China and U.S. President Donald Trump’s spending pledges boost the demand outlook.
‘Balancing Act’
Now that prices are rising, Codelco still plans to keep to its current course by advancing a series of initiatives aimed at replacing depleting ore bodies, Landerretche said. Over the next 20 years, production should be flat at 1.6 million to 1.7 million tons a year, he said. Before trimming its project budgets, the company had projected getting to 2 million tons.
“The balancing act has to do with realizing the investments that the company needs to do to continue to be a leader in copper production,” he said. “But we want to do it without increasing our debt.”
Along with cost reductions, the board under Landerretche has worked to ease what had been one of the heaviest debt burdens in the industry. Codelco’s debt now sits at about $14.3 billion, and his intention is to have it stable at that level when his term ends in May 2018.
Codelco would only increase it if the Chilean government failed to fulfill its recapitalization promises, copper prices fell significantly below $3 a pound, or efforts to reduce costs failed, Landerretche said.
Projections are for copper to move up, not down. At the BMO conference, executives including BHP’s Mackenzie and Lundin opened the door to the market posting a small deficit this year, its first in six years.
Prices of the metal, often seen as a guide to the world economy’s health, may climb above $8,000 a ton before the end of the decade amid rising demand, waning output and a lack of investment in new operations, Citigroup Inc. forecasts, from about $6,000 now. BHP sees a deficit emerging in the 2020s, and David Lilley, co-founder of RK Capital Management LLC, this week threw his weight behind bets on a growing shortage.
Last month, Landerretche was the victim of a letter bomb at his residence in Santiago, escaping with minor injuries. The incident -- responsibility for which was claimed by a little known group of environmental extremists -- shook a country where attacks on executives or politicians are rare, and where the murder rate is the second-lowest in the Americas, after Canada.
The attack is still under investigation but it increasingly looks to have been caused by a sophisticated operation, Landerretche said, adding that he believes it is highly improbable it was the work of amateur environmentalists. A logical motive would seem to be Codelco’s efforts to improve corporate governance, Landerretche said.
As part of efforts to reduce debt, Landerretche also spearheaded the latest push to repeal a law requiring Codelco to give 10 percent of its sales to the military. Asked if the mail bomb could have been in response to that, he declined to speculate, but said Codelco will continue the process of ensuring it represents the best interests of the Chilean people by resisting pressure from special interests.
“When I’m talking about special interests, I mean all sorts,” he said. “We’re talking about businessmen that have contracts with us, we’re talking about labor leaders, we’re talking about communities, we’re talking about institutions that believe they own the company.
