Cross post with
@MaccajohnSynchronicity?
Courtesy of it who should not be named on HC.
BHP is a super bull on copper’s outlook.
Apart from the OZ tilt, this week’s commodity outlook report accompanying BHP’s FY2022 said as much.
BHP said a “durable inducement pricing regime’’ is expected to emerge from the mid–to–late 2020s for copper, with a “take–off” in demand from renewable power generation, the electrification of light duty transport, and the infrastructure that supports them both, expected to be a key feature of industry dynamics.
“Looking even further out, long–term demand from traditional end–uses is expected to be solid, while broad exposure to the electrification mega–trend offers attractive upside. Grade decline, resource depletion, water constraints, the increased depth and complexity of known development options and a scarcity of high–quality future development opportunities are likely to result in the higher prices needed to attract sufficient investment to balance the market,’’ BHP said.
Sounds like a good reason to try your hand with an $8.3bn bid for a company like OZ that expects to more than double its annual copper equivalent production in coming years (it gives nickel and gold a copper value) to 344,000t.
What about the copper juniors?
Down in Garimpeiro’s end of the market, picking up copper explorers at mid-July’s distressed levels was the preferred response to the longer term copper thematic. If he had focussed on the copper producers like OZ, he would be up by more than one-third.
Still, Garimpeiro reckons leverage to the upside in copper continues to rest with the juniors. Sunstone Metals (ASX:STN) was mentioned in mid-July when it was trading at 4.2c. It has since recovered to 4.8c for a 14.2% gain.
Lefroy Exploration (ASX:LEX) was also mentioned. It was trading at 29c at the time and this week it was at 27c. Highly anticipated results from the drilling of 1km deep hole at its Burns copper-gold project can’t be far off now.
New World Resources (ASX:NWC) was the last of the copper juniors mentioned in mid-July. It was trading at 3.1c and has since moved to 3.4c.
Sunstone, Lefroy and New World share price charts
From that rundown, the idea that the copper space had been oversold in mid-July holds true. So Garimpeiro is expanding his watch list by adding Caravel Minerals (ASX:CVV).
It is trading at 24c which is up from its mid-July low of 14c. When the copper price was running hot in March it was 35c. All of that goes to the company’s extreme leverage to the copper price because of its low-grade but large scale copper project two hours north of Perth.
A recent pre-feasibility study defined a project capable of producing 62,000 tonnes of copper annually for an initial mine life of 28 years at a cash cost of $US1.72/lb. Its long-life and tier 1 location are big ticks in a world increasingly worried about just where future supplies of copper are going to come from.
Over the years I have been surprised by the SP of CVV. Mainly the surprise ups that seem to come almost out of nowhere to make it rise step wise from 4-60c odd Then almost as quickly slide inexorably down to the mid teens. IMO not a huge amount has changed over this period.
A scoping study in 2019 revealed the potential but than ran foul of bureaucracy although the content wasn't incorrect IN SOME AREAS.
Since then CVV may have been effectively in the Orphan period between discovery and production. Given the low grade it is not unsurprising this has proved to be a long period which may or may not see a mine develop for an ever increasing Capex.
- Bindi and Dasher potential has been confirmed by significant drilling. IMO not unexpected.
- Additional targets are becoming clearer with a few surprises at Bindi that IMO don't materially impact the SP at present. Good to see as the 4 bel
- Logistics and Capex are being firmed up - as stated for several years.
- Copper price and future demand have fluctuated with an upward trend dominant.
- Board members have put their own cash into the company - usually a good sign.
- Exploration potential in SW WA has come out of the companies own data base. Mt Williams Ni/Cu/Pge target is one that sits in bureaucratic limbo but could be a real game changer if ever CVV is granted tenure.
- At meetings the board hints of corporate activity or off take partners. Obviously commercially sensitive so they won't go into details but so far nothing has been announced.
- BHP's move on OZL caused garimpero to add CVV to the list above.
- IMO CVV are arguably more advanced than the other three - especially STN and LEX - which have large potential need more drilling to firm up resources to(?) or beyond inferred (DYOR on status of resources ).
- OZL's interest in Kalkaroo for $205M is another indication that there is movement at the station. Kalkaroo has slightly better Cu grade plus Au credits but may ultimately be smaller and slightly more remote than Bindi (not a significant factor near Broken Hill and infrastructure). Would be a reasonable fit for OZL's SA Cu operations IMO or they wouldn't have made the offer. Does BHP attribute any value to the deal? Unlikely to register as even pocket change perhaps.....It isn't but very minor in the scheme of things for the majors.
Has CVV turned the corner?
I certainly hope so, but Capex and "prejudice" about its low grades make for stiff head winds.
A corporate move/JV or major cash input from an off take partner have been my fingers crossed hope for a long time.
If it happens then the SP will likely go up.
(20min delay)