The run-up in the copper price to more than $US4/lb is providing a welcome distraction from the woes of the nickel, lithium and maybe iron ore sectors on the ASX.
The push through $US4/lb still leaves the red metal well short of its all-time high of $US4.85/lb in early 2021.
But the current price ($US4.07/lb) does represent an 11-month high, and all ASX copper boats from explorers to producers are accordingly floating higher.
Fresh from last year’s $9.6 billion acquisition of South Australian copper producer OZ Minerals, BHP no less gave a strong hint last month that copper was poised for good times ahead.
BHP believes that more than twice the amount of copper consumed in the last 30 years will be required in the next 30 years if there is any hope that the electrification of everything to meet net zero by 2050 is to be achieved.
But it had also long-thought the market would be well supplied until the back third of the decade. In February it changed its view in a big way.
BHP now thinks the supply deficit could well come much earlier, and be more “pronounced” than it had been thinking.
Add to that the recent need for Chinese copper smelters to curtail production because of the tight supply in copper concentrates in response to a myriad of supply side issues, and copper’s move to more than $4/lb comes as no surprise.
There could be more to come too according to the big investment banks. Goldman Sachs is tipping $US4.53/lb inside of 12 months, and Citi this week upgraded its price deck to $US4.15/lb in CY2024 and $US4.65/lb in CY2025.
Should BHP’s forecast of a potential pronounced supply deficit within five years hold true, the market will front the situation by pushing copper to higher levels still.
It is that outlook that as mentioned earlier, is lifting all copper stocks. The best performed of them are taking the bullish outlook and creating additional upside through project enhancements.
FireFly Metals (ASX:FFM) is in that category. Last year it acquired the high-grade Green Bay copper-gold project on the shuttered Baie Verte peninsula in Newfoundland, Canada, for a knockdown price of $65 million in staged payments.
The knockdown price reflected past difficulties under the previous under-capitalised owner which spent $250m getting the project into production. Under the leadership of Steve Parsons of Bellevue (ASX:BGL) fame, FireFly is working on a bigger and better Green Bay when it is returned to production.
Drilling results released during the week demonstrated that the current resource (811,000t of copper equivalent) will continue to grow in support of a decision to return the operation to production, with analysts suggesting the potential for annual output of as much as 60,000tpa.
FireFly shares have performed strongly recently, rising 7c in Thursday’s market to 71.5c for a diluted market cap of $280 million. That is a fraction of the market caps of companies with similar (or lesser) production profiles, albeit they are in production.
Local analysts got to see the project up nice and close with a visit earlier this month.
Euroz Hartleys was on the trip and came back with a $1 a share price target (up from 70c) while fellow traveller Canaccord was higher still at $1.40 a share (up from $1.35).
Neither share price targets relied on copper price doing something special from here on. But copper might well do so.
Uranium:
The question being asked is whether value has returned to the ASX uranium stocks in the wake of the sell-off in response to the recent 20% fall in (spot) uranium prices.
The answer would seem to be yes. The uranium price remains at 16-year highs, with the year-on-year price gain as strong as could be hoped for at 72%.
The recent price retreat from $US107/lb to $US86/lb has been put down to a buyers’ strike at three-digit prices and profit taking by hedge funds that had ridden the price up from last year’s lower level.
There has also been disappointment among the uranium bulls that the prosect of sharply lower output forecasts for the next couple of years from Canada’s Cameco and Kazakhstan’s Kazatomprom did not eventuate as they had hoped.
Even so, the big thematic that the world is increasingly turning to uranium to decarbonise energy has not gone away. Nor has the situation where the world’s current nuclear fleet consumes 190Mlbs annually compared with mine production of 140Mlbs.
Kazatomprom summed up the supply challenge ahead nicely, telling investors last week that even with expansions at existing mines and new mine start-ups in the mid-2020s, there will not be sufficient uranium to cover requirements post-2030.
“In the current pricing environment another Kazatomprom will be needed to cover market needs.,” it said.
That really means something as Kazatomprom currently supplies 40% of the world’s uranium (20% on an equity accounted basis). It would be like saying another three Saudi Arabia’s will be needed to cover oil demand post-2030.
And then there is the breakdown of relations between Niger and the US, with Niger’s junta saying the US military and intelligence apparatus was no longer welcome in the country. Niger supplies 7.5% of world supply, most of it going to France.
While the uranium thematic remains in place, ASX uranium stocks can best make headway ahead of a three-digit uranium price returning by enhancing their offering.
Boss Energy (ASX:BOE) has done just that by announcing that drilling at its 30% owned Alta Mesa uranium project in the US (first production from a re-started operation planned for mid-year ahead of ramping up to 1.5Mlbs annually) was yielding thicker intersections at higher grades.
The results suggest the potential for increased production over a longer operational life, with the Alta Mesa interest being in addition to Boss’ re-start of its Honeymoon project in South Australia where the first drum of yellowcake is not far off now.
Macquarie has a $6 a share 12-month price target on the stock. That compares with $4.98 a share in Thursday’s market and the company’s high of $6.11 on February 2 before the uranium started losing ground.
ASM & Meteoric:
Talking about things critical/strategic, the US has flagged its interest in ponying up with $US850m ($A$1.28 billion) in debt funding to make projects held by two ASX companies a reality.
The underlying theme with both is to reduce China’s grip on magnet rare earths supply, along with other critical metals.
Announced on the same day, Australian Strategic Materials (ASX:ASM) said it had received a non-binding and conditional letter of interest (LoI) from the Export Bank of the United States (EXIM) for a debt funding package of up to $US600m, while Meteoric said the same for up to $US250m.
Accepting the non-binding nature of the LoIs, the market was happed to push ASM 20.5% higher to $1.43 in Thursday’s market while Meteoric’s closed the day flat at 24c.
The reason for the difference in the market’s response is likely due to the big difference between the estimated capital cost of ASM’s $1.67 billion Dubbo rare earths-zirconium-niobium-hafnium project in NSW, and that of Meteoric’s as yet unpriced Caldeira rare earths project in Brazil.
Even with ASM also having a letter of support for $A200m from Export Finance of Australia for Dubbo, there is a sizeable funding hole to fill. On the other hand, Caldeira’s development in to a world-scale rare earth’s producer would likely cost, or be around. the $US250 EXIM has flagged its interest in providing.
Actually, Foster Stockbroking reckons the debt provision indication from EXIM could potentially cover all of the post final investment (FID) decision funding needs for Caldeira.
“On our numbers we estimate funding for Caldeira post-FID to be US$230M – comprising project capex and working capital – suggesting that the maximum of the facility could potentially cover it all.’’
“It is not hard to see why EXIM has entered into the LoI when one considers Caldeira’s prominent attributes. These include standout metallurgy engendering low technical risk, and both low capex and opex. Also the project’s location in Brazil makes it a naturally proximate source of rare earth for potential US offtakers,’’ Foster said.
It has a 42c price target on the stock which is in keeping with the broad sweep of 40c-plus valuations on the stock in the market.
So while it was nice to see ASM rewarded with 20% price lift in response to the EXIM news, Meteoric missed out on its EXIM boost for no good reason, initially at least anyway.