by Barry Fitzgerald this morning about HMX
The copper price has been under the hammer of late, what with the US debt ceiling saga, sluggish growth in China and the ongoing debate of whether the inflation fight will tip the world in to a full-blown recession.
The metal is down some 25% from its peak of more than $US5/lb in March 2022. But it has to be said that for the vast majority of the world’s copper producers, the current price of $US3.58/lb is a great price.
It also has to be said that all the issues mentioned above are transitory. Global decarbonisation is not, and copper is key to making it happen.
A lack of discoveries, falling grades at existing mines and slower approval processes means there is a real fear that the challenge of increasing supply to make decarbonisation possible is insurmountable.
It is why BHP reckons the stage is set for a “take-off” in the copper market from about 2025, and why Goldman Sachs has copper at $US4.80/lb in the near-term, and $US6.80/lb in the long-term.
Having said all that, copper’s fall from plus-$US4/lb prices has knocked the stuffing out of the copper stocks, with BHP also being hit by iron ore’s fall below $US100/t.
Believers in the idea that copper is just taxiing on the runway ahead of taking-off in response to decarbonisation demands can’t believe their luck as value has returned.
It goes for the producers, what’s left of them on the ASX anyway, as much as it does for the explorers. Among the juniors, it is the those with a resource already under their belt, and high leverage exploration programs ahead, that are being nibbled at by value-hunting investors.
The Mount Isa region-focussed Hammer Metals (HMX) is an example. It is now trading at 7c for a $57 million market after getting tickled a little higher on a high-grade copper hit with rare earth elements at its Hardway prospect (57m at 1% copper).
It was a nice hit and will be followed up. It goes to one of the key value drivers for the company within its Mount Isa assets – exploration success.
There are another two value drivers – its existing resource base and its exposure to regional consolidation moves and possible merger and acquisition activity.
Hammer recently upgraded its resource base to 530,000t of copper equivalent of which the Kalman deposit is the mainstay. In an industry desperately seeking additional copper units ahead of the metal’s mid-decade take-off, Kalman has street cred.
Near enough to 300,000t of copper grading about 1% is in an open-cut position, with exploration upside remaining, makes Kalman something special within the junior space.
Hammer boss Dan Thomas makes the point that Sandfire, where he previously spent 5 years on the payroll, paid $166m to acquire 340,000t of copper in Botswana – admittedly in the reserve category – when it acquired the Motheo project in 2019 (it started production this week).
He told the recent Resources Rising Stars conference on the Gold Coast that Kalman, which has been on the books in a smaller form since 2010, hasn’t been generating excitement for investors with an exploration bent.
“But in terms of value creation, it should,” he said.
Hammer is also exposed to the region’s exploration upside across a number of prospects, including its South Hope prospect across the fence line from Carnaby’s (ASX:CNB) Mount Hope project.
High-grade hits by Carnaby (35m at 4.2% copper with gold recently) have propelled Carnaby’s market cap to $192m. Meanwhile, Hammer has kicked off a drilling program at its prospects Mount Hope region prospects which sit on tenements surrounding Carnaby’s Mount Hope tenement.
“It doesn’t take a rocket scientist to see the potential there for the consolidation of the assets,” Thomas suggested.
On the broader regional consolidation and M & A activity, it is noteworthy that seven notable deals have been cut in the region in the past 18 months. It goes to the scramble for more copper units ahead of the metal’s mid-decade take-off.