Around December I did a deep dive into pretty much all of the ASX copper Juniors and the global macro for copper. A few observations I made, in no particular order:
1. There's declining grades in almost all of the large mines and very few new projects coming online (Apart from the obvious problems of years of underinvestment in south america you have mines like Aitik in europe as well suffering from declining grades)
2. The majors have neglected copper for a very long time. BHP flip flopped on it and there's a bit of a rumor at the moment actually that the latest anglo deal was not a real attempt to purchase (but they would have if they could have) but rather an attempt for the CEO to convince his board to get serious on copper before it's too late. Very plausible.
3. Meanwhile the demand side is pretty crazy and only stalled because of post-covid recovery. The longer we get away from covid the less that applies and the long term trends last until 2050. The main trend is India and Africa industrialising, not the EV revolution or AI data centers. The media has it all wrong. Robert friedland also accurately pointed out the second driver, war. War destroys copper and it can't be recycled.
4. The industrialisation trend being the main driver is going to ramp up progressively towards 2030 and then create extreme demand. If even a fraction of this prediction comes true you're looking at a replication of what happened to copper when China started industrialising.
5. Bank and commodity forecasts are worthless. You don't need fancy numbers to figure this out, a bit of common sense immediately makes you observe the following:
- If demand from Industrialisation eventuates, the existing large copper mines cannot supply what is needed. It does not exist.
- Miners are very vocal that in their conversation with financiers, $12,000 USD is pretty much the floor for a "good" project in order to get it over the line (of course a few exceptions but the standard) and for most projects it's more like $15,000
- The recent anglo deal highlighted replacement cost for something like escondida
- BHP themselves have been pretty adverse to greenfields exploration and it's really only been companies like ivanhoe that understand how aggressive majors need to get in order to find new tier 1 deposits. But they're STILL not getting it. They are terrified of failure and because these are 50+ year mines the CEO's often don't care since they won't reap the rewards
- All of the above tied together shows that either we don't get the copper we want, or the price goes up. This recent short squeeze can be solved by redirected cargos on paper, but it's a side show and a distraction that ignores the STRUCTURAL issues with copper.
6. Loads of large mines need to be found. And tons of small/medium ones as well. There is just no way with the above in mind that you will get enough copper for Industrialisation, AI, EV's and War. We can debate about exactly how much, but it's obviously a LOT required. Therefore copper is really a play on India, Africa and the Middle east improving their infrastructure. Which is a pretty good bet to make considering how cashed up some of these countries are now for various reasons. India especially, but also the middle east with their wealth funds.
7. So back to the ASX copper juniors. They suck. Really bad. I took a look at over 50 of them and immediately had to disqualify half due to seriously questionable lifestyle. After that I have trimmed it down for various uninvestable reasons to 19 companies. Out of that 19, most have grade above 1% because grade is king and you just don't find 2, 3% hits like you used to. There are a few decent ones with lower grade that get offset by nice metallurgy or serious gold credits but generally speaking, the 1%+ projects are going to be looked at first.
8. Grade is not the only thing you look for, obviously. The orebody, metallurgy, infastructure and more need to be looked at, but grade makes things more forgiving. Carnaby has very nice grade and this is one of the reasons I like things here. If my cashflow permits, I will be buying every one of those 19 copper juniors since I firmly believe they are ALL going to succeed in this insane copper macro. I figure 1 or 2 might have management do a u turn and ruin a good thing, but most will do very well purely because their projects will have an enviroment that's extremely favorable for a very long time.
9. Also, geopolitics. This is another huge post I can write up if people are interested but resource wars are on and have serious effects on people's investments. I'm in 1 stock (not copper) that has already directly benefited from this to the tune of nearly 100m.
Sorry if this is all a bit over the place but I wanted to paint the picture of why the game has structurally changed and 1% copper is now high grade. It really boils down to the fact you can't find that many investable juniors with 1% to meet supply, while the existing mines just get worse and worse. Kamoa-Kakula is the exception and especially if you want a tier 1 jurisdiction, it gets a lot harder to find stuff even above 2%.
Please let me know if you would like any clarification and I can go into a bit more detail.
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