2024 expected to be stronger year for most copper miners

By Peter Kennedy

In spite of recent price fluctuations and concerns about demand recovery in China, the long-term outlook for copper looks bright.

Analysts say that’s partly because the red metal is expected to play a central role in facilitating the global transition to renewable energy and electrification.

Copper has four key properties that make it ideal for the clean energy transition, including conductivity, ductility, efficiency and recyclability. Copper is recyclable and can be used repeatedly without any loss in performance. The red metal also has the highest electrical conductivity rating of all non-precious metals. Its ductility means copper can easily be shaped into pipes, wires and sheets.

These properties make copper essential for energy storage, electrical propulsion, (e.g. electric vehicles), and renewable energy. It is worth noting that electric vehicles can require up to four times as much copper as gasoline vehicles.

Goldman Sachs predicts that copper demand for low-carbon technologies will grow to 5.4 million tonnes by 2030, up from one million tonnes in 2021. “Meanwhile, the number of operating mines and proposed projects are not meeting projected demand and the supply scenario looks quite constrained over the medium term,’’ Goldman said.

On March 18, 2024, the price of copper hit US$4.11 a pound, its highest level since April 2023, as investors focused on risks to supply at mines and smelters, along with a generally more positive global economic outlook. The rally came after copper had been trading in a relatively narrow band for the previous three months.

The copper market remains very tight, Goldman Sachs Group Inc. said in a report. “The combination of record low copper stocks, our expectation of peak mine supply next year, rapid green demand growth, and low-price elasticity of both supply and demand will, in our view lead to copper scarcity pricing in 2025,’’ said analysts led by Lina Thomas said.

However, by March 22, 2024, the price fell back from the 11-month high to US$4.00 a pound as the dollar rose and investors shifted their focus back to the muted demand recovery in China, the biggest consumer of the metal.  Published reports said demand optimism had faded amid signs that the recovery in China during its peak construction season is falling short of expectations. Inventories remain elevated, while premiums for spot cargoes have fallen.  “Seasonal demand in China is generally lagging as high prices slow new orders for copper products, First Futures Co., said in a note.  The stronger dollar is also hurting commodities priced in the greenback. The yuan has dropped to a four-month low as Beijing may be happy to see more depreciation to help lift exports and support the economy.

Still, in a recent investment report, Scotiabank said that overall, it expects 2024 to be a stronger year for most copper miners.

“We anticipate the copper miners (excluding First Quantum Minerals Ltd.  due to the recent forced closure of the Cobre Panama mine in Panama) to post strong average year over year production growth of 24% driven by the ramp up of new capacity from Antofagasta Plc (Los Pelambres expansion), Capstone Copper Corp. [CS–TSX] (Mantoverde sulphides), Ero Copper Corp. [ERO-TSX, NYSE] (Tacuma), Ivanhoe Mines Ltd. [IVN-TSX, IVPAF-OTC] (Kamoa-Kakula Phase 11/111), Teck Resources Ltd. (TECK.B-TSX, TECK.A-TSX, TECK-NYSE) (QB2) and Vale SA [VALE-NYSE] (Salobo 111), with Lundin Mining Corp. [LUN-TSX; LUMI-Sweden] benefitting from a full year of recent acquisition (Caserones). HudBay Minerals Inc.  [HBM-TSX, NYSE] recently acquired Copper Mountain and will have mined higher-grade Pampacancha ore for a full-year,” Scotiabank said.

“We forecast the copper miners guiding to average cash costs of US$1.62 a pound in 2024, down 4% from an estimated US$1.70 a pound in 2023.”

Meanwhile, Arizona Metals Corp. [AMC-TSX, AZMCF-OTCQX] is proposing to create two new companies that will give investors new windows on the company’s two major assets in Arizona. The first spinout company, named Sugarloaf Gold Corp. will contain the Sugarloaf Peak Gold Project, which is estimated to contain an historic estimate of 1.5 million ounces of gold.

The second spinout company, Arizona Royalties Corp., will hold a 2.0% royalty on the company’s flagship Kay Mine Deposit as well as a 2.0% NSR royalty on all future mineral production from any new discoveries from ongoing exploration at the Kay Mine Project.

The company believes that positive outlook for both gold and copper means this is a good time to separate the flagship copper-gold-zinc-silver VMS Kay Mine from its gold-only Sugarloaf asset. Company officials take the view that based on the value of Kay alone Arizona Metals shares a significantly undervalued. On April 3, 2024, the shares were priced at $2.34 and traded in a 52-week range of $4.55 and $1.63, leaving the company with a market cap of $265 million based on 118.8 million shares outstanding.

It is expected that Arizona Metals will retain a 19.9% ownership in the shares of both Sugarloaf Gold and Arizona Royalties, while the remaining shares are distributed to the shareholders of Arizona Metals on a pro rata basis. Initially, both new companies will be reporting issuers. These are vehicles which provide continuous public disclosure but are not yet listed on an Exchange. Arizona Metals will look to list Sugarloaf Gold and Arizona Royalties on a public exchange as soon as market conditions allow.

The company’s primary asset is the Kay Mine, a high-grade copper-gold-zinc deposit located about one hour north of Pheonix that is also situated in a 100-kilometre trend that hosts 60 past-producing VMS deposits, most of which were last in operation during the 1970s. The majority of the company’s budget has been allocated to the Kay mine in the last few years.

In 1982, Exxon Minerals produced an internal proven and probable reserve of 6.4 million tons at a grade of 2.2% copper, 2.8 g/t gold, 3.0% zinc and 55 g/t silver. Arizona Metals has already completed 85,000 metres of drilling at the Kay Deposit and another 13,000 metres at the Central and West Targets. The Kay Mine Deposit is the company’s primary asset.

Arizona Metals is currently drilling another 30,000 metres of drilling in a bid to define a preliminary resource at the Kay Deposit by the end of 2024. The company said recent drill results offer reason for optimism, including 98.3 metres g/t gold equivalent (AuEq) in hole KM-22-60 and 125 metres at 3.2% copper equivalent (CuEq). With more than $30 million in cash, the company is fully funded for this effort and expects to continue releasing drill results as soon as they are available.

Arizona’s Sugarloaf Peak Gold project is a near-surface open pit target located on 4,400 acres of BLM claims in La Paz County, Arizona, about 8.0 kilometres from the town of Quartzsite. It contains a historic estimate of 1.5 million ounces grading 0.5 g/t gold to a depth of 70 metres.

The deposit is open for expansion in all directions and recent metallurgical testing has demonstrated the potential for excellent recoveries in both oxide and sulphide mineralization.

Meanwhile, the company said it intends to make modest cash injections, roughly $100,000 each, into both Sugarloaf Gold Corp. and Arizona Royalties in order to provide 12 to 18 months of working capital for both spinouts. These funds will be used to pay ongoing regulatory, legal and accounting fees that are needed to maintain operations and reporting obligations as reporting issuers. None of that money will be used for salaries or consulting fees.

It is anticipated that an information circular will be mailed out to Arizona Metals shareholders in May 2024. The meeting to allow shareholders to vote on the planned spinouts is expected to be held at the AGM in June 2024.

THIS IS NOT A RECOMMENDATION TO BUY OR SELL ANY SECURITY.