This week’s increase in the copper price to within a whisker of US$10,000 a tonne, possibly clearing that mark while Australia was closed for Anzac Day, is a perfect example of what happens when demand overpowers supply.
The upward surge in the price of copper has been so widely predicted for so long that some investors might be overlooking its significance as a pointer to what can happen when the developments of new resource projects are delayed or banned.
At its simplest, market forces are meeting environmental protection in a re-run of the classic philosophy puzzle of what happens when an irresistible force meets an immoveable object which, in this case, is higher prices for longer.
Paul Bloxham, chief economist for Australia with HSBC Bank, said copper and wider metals sector was showing green shoots as the global industrial cycle started to turn positive.
“The supply side of many commodities are very constrained, so we’re in this global commodity super squeeze and copper is certainly part of that story,” Bloxham said.
The super squeeze theory matches the increasingly popular “no landing” theory for the global economy for the rest of the year, an argument which says the world has dodged a recessionary “hard landing” and even avoided a “soft landing” to have entered a period of business as usual, or “no landing”.
What no landing really means will become clearer later in the year but it could be that today’s business conditions, including high interest rates, will become the new normal.
In the case of copper, the ignition point for a 20% price increase over the last two months is the loss of supply from the mothballed Cobre Panama mine which was producing about 2% of the world’s copper.
Losing Cobre Panama was followed by production problems at several African mines, a ban on the delivery of Russian copper to the London Metal Exchange, and fresh protests in the U.S. about a major new mine planned for development in Arizona.
Local copper stocks ran out of steam in the days before the Thursday holiday, led by Sandfire which slipped 7c lower to $9.06, ending a rally which started in January when the stock was trading at $6.54.
Flood-hit 29Metals shed 2c this week to 45c, well ahead of its low point of 19c in February with RBC Capital Markets sticking with a sell tip despite a future price forecast of 50c.
Other copper news and price moves this week included:
- Augustus Minerals adding 1c to 4.1c after reporting high grade rock chip samples up to 18% copper being recovered from at its Ti-Tree project in WA.
- Metals Acquisition slipping 21c lower to $20.28 after reporting a planned increase in production from its CSA mine in NSW.
- Orion Minerals rising by 0.1c to 1.9c after reporting high grade copper assays from the latest drilling at its Okeip project in South Africa. The stock touched 2.5c on Tuesday.
- AIC Mines rising by 3.5c to 45c thanks to strong production results from its Eloise mine in Queensland. Shaw and Partners reckons the stock is heading up to 90c, and
- Renegade Exploration steady at 1.2c after a surge on Tuesday to 2c following encouraging drilling result from its Mongoose project in Queensland, using chip samples of up to 19.4% copper to quickly raise an extra $2.3 million through a placement at 1c a share.
Renegade’s successful placement was one of a series of small capital raisings which, on their own, barely attracted attention while collectively they sent a message that investors are redeveloping an appreciation for small, riskier, stocks.
Other capital raisings this week includes:
- Viridis Mining raising $8 million for work on its Colussus Adsorption clay project in Brazil.
- International Graphite pulling in a fresh $3 million for its Springdale graphite project in WA.
- Hawsons Iron raising $3.25 million for its namesake iron ore project in South Australia.
- Ionic Rare Earths raising $5.5 million to fund work on magnet recycling technology.
- Midas Minerals receiving $1.1 million from investors for its gold and lithium projects in WA.
- Waratah Minerals getting binding commitments from investors for $3 million for its Spur copper and gold project in NSW, and
- Lord Resources raising $1.5 million for its Horse Rocks lithium project in WA.
Lord’s success in attracting fresh capital for lithium exploration was perhaps the most interesting of the small raisings because it sent a signal that investor appetite for lithium has not died.
The slow improvement in the lithium market was a feature of a Macquarie Bank report earlier this week which noted “strong demand amid strong supply” with an up-trend in prices for lithium chemicals starting to emerge in China.
The bank’s preferred lithium stocks are Mineral Resources, which this week rose by $1.87 to $68.16 with Macquarie tipping it as a buy with a target price of $70.60. Arcadium (the merged Allkem and Livent), up 20c this week to $6.07, heading up to $10 according to the bank, and Patriot Battery Material, down 1.5c to 75c, but on the way to $2, said Macquarie.
Cygnus Metals also caught the eye of lithium investors, adding 2c to 9.5 after releasing an upbeat exploration report covering its Auclair project in Canada, while Global Lithium slipped 1c lower to 45c despite a strong March quarter report and a Shaw and Partners price tip of $2.20.
Gold, at the midweek mark, was showing signs of weakness after its stellar run to US$2400 an ounce and more, slipping to trade around US$2319/oz just before Anzac Day.
The modest gold-price correction was exactly what RBC Capital Markets had predicted a week ago, with its price forecast of US$2248/oz as the average for this year looking possible.
Most local gold stocks weakened with the price of the metal. Northern Star slipped 36c lower to $14.87. Santana was down 12c at $1.27. Perseus eased back by 4c to $2.23, and West Africa was down 2c at $1.30.
Stocks which swam against the outgoing gold tide included Kingsgate which added 6c to $1.55 after reporting the delivery of a new mobile mining fleet at its Chatree mine in Thailand and Gold Road which added 3c to $1.65 after saying it would not bid for Canada’s Greenstone Mining.
Nickel remained a metal under pressure after the Indonesian Government said it would push ahead with expansion plans despite the price crash which has hurt most producers of the battery and stainless steel metal.
The problem with nickel surfaced in a 14c fall by Chalice Mining to $1.21 after it announced a remodeled mine plan for its Gonneville polymetallic project near Perth in WA with the aim being to undertake more selective mining of the complex orebody rich in nickel and palladium.
Other news and market moves in a short trading week included:
- Boss Energy added 4c to $4.60 after announcing the production of its first drum of uranium at the Honeymoon project in South Australia.
- Base Resources jumped 13c (118%) to 24c after agreeing to a share swap takeover offer from U.S. based uranium company, Energy Fuels.
- Lucapa Diamond Company added 0.5c to 11c after reporting the sale of three exceptionally high quality stones from its part-owned Lulo project in Angola, and
- Australian Rare Earths slipped 0.5c lower to 12c despite reporting the discovery of additional high grade rare earth mineralisation north of its Koppamurra project in South Australia.