It is not often the activity of criminals provides an investment idea, but when they start stealing copper wire from power stations, or from building sites, then you know it’s time to brush up on copper miners.
Kingston in South Australia, a coastal centre more famous for Larry the big lobster, hit the headlines a few days ago when copper wiring was stolen from a nearby power station, plunging the town into the dark.
What encouraged the thieves to risk their lives stealing copper from an active power station was the simple enticement of being able to sell it for a handsome profit thanks to a record copper price.
More copper thefts can be expected because copper is hanging on to a price of more than US$4.50 a pound, and could go as high as US$5.50/lb over the next three months, according to the latest price tip from Citi, a leading investment bank.
Strong demand drives record prices
Strong demand from traditional copper-consuming sectors such as construction, electronics and transport are combining with new copper-heavy industries such as electric vehicles and renewable energy to elevate copper from its title of Dr Copper, as a predictor of economic growth, to King Copper, as the metal everyone wants (including crooks).
But like the thieves of Kingston, it might a case of investors striking while the copper’s hot because after the next rise, a slide is expected as a wall of supply rushes to catch the record price.
UBS, another investment bank, likes copper as an investment theme being driven up by strong demand, supply disruptions, lack of exploration success in finding big orebodies and low inventories.
Unfortunately, there is always a flipside to every good news story and with copper the issue identified by UBS is that “everyone wants to build a copper mine” and that means supply will recover, as will consumers substituting copper with aluminium in some uses.
So, if the next three months are likely to see the price of copper surge higher (Citi) now might be the time to have a position in the metal before rising supply satisfies demand (UBS).
Big end of copper town
The top end of the mining world is stuffed full of copper producers because it is the world’s most important industrial metal with a deep market.
BHP Group (ASX: BHP), Rio Tinto (ASX: RIO), Anglo American, Glencore, Freeport and the rest of the monster miners are up to the armpits in copper – along with other metals which blurs the role of copper in their profits.
Australian mid-tier copper producers have also been enjoying good times. OZ Minerals (ASX: OZL) has risen by 140% to $25.17 over the last 12-months, and Sandfire (ASX: SFR) is up 40% but with market values of $8.3 billion and $1.27 billion respectively they do not qualify as small caps.
Potential in the smaller cap space
There are, however, plenty of explorers and small producers which offer near-pure exposure to the copper story, including:
Venturex Resources (ASX: VXR) is very much a “follow the man” situation. The company is the new corporate vehicle for Bill Beament, the creator and former driving force behind the Australian gold sector’s great success Northern Star (ASX: NST), which ran from $0.02 to $16 over a decade.
This time around Beament wants to build a company that he controls, rather than serve as a salaried executive with another variation being copper rather than gold – though it is also worth remembering that the two metals often occur together.
Beament’s plan is to take the reins of Venturex on 1 July with the relatively small Sulphur Springs project in WA’s Pilbara region as the initial focus, but with ambitions of getting much bigger through discovery and deals – perhaps a repeat of Northern Star.
Since Beament announced his shift to Venturex in February, as well as taking a 30% stake in the stock, it has rocketed up by 750% from $0.09 to $0.78, but at that latest price the company is only capitalised at a modest $330 million, a country mile short of Northern Star’s $12.8 billion.
Aeris (ASX: AIS) was once a copper star when trading as Straits Resources and working the Tritton mine in central NSW.
Older investors might remember, longingly, when Straits was a $5 stock in 2011, which was the last time copper traded as high as $US4.50/lb, before a long slide down to $US2/lb – a drop which was instrumental in Straits falling to around $0.50, and then all the way to $0.03 at this time last year.
Reborn as Aeris the key asset remains Tritton which is generating handy profits, but which is also at the centre of an exploration program.
The program is starting to reveal highly encouraging signs of bigger and better nearby copper deposits.
The discovery of the Constellation structure just before Christmas last year put a spring in the Aeris’ share price which last week hit a 12-month high of $0.21.
Apart from high grades, such as 38m assaying 3.72% copper reported last week, Constellation is shallow (starting at 8m) and only 40km from the Tritton processing plant.
A company that tends to float under the radar is Caravel Minerals (ASX: CVV) with its namesake bulk tonnage copper project in WA.
Caravel maintains its namesake project is one of Australia’s largest undeveloped copper deposits with a resource of 662Mt at 0.28% copper for 1.86Mt of contained metal.
A pre-feasibility study is underway which is due for completion later this year along with a resource upgrade.
Of note, is that large institutional investor Paradice bought up $7 million in Caravel shares in a $7.5 million equity raising last month.
The investor is known for longer-term strategy of purchasing intrinsically undervalued stocks trading at “substantial discounts” within he small and mid-tier spaces.
In the past 12 months, Caravel’s share price has boomed more than 2,000% from around $0.025 last June to $0.54.
Inca Minerals (ASX: ICG) – the name is a clue to the company’s focus on South American assets, but the real interest in Inca today is a promising discovery in the Northern Territory.
Work so far has been largely limited to “rock kicking” which is one way of describing the collection of chip samples from outcropping rocks, but those samples have yielded tantalising assays of more than 9% copper and 3 grams per tonne of gold.
The location, 450km northeast of Alice Springs is also a point of encouragement because it is a region with a rich history of copper (and gold).
News flow from the Jean Elson discovery and the Frewena East project is expected to pick up over the next few months, helping continue a share price move which has seen the stock double from $0.07 to $0.14 over the last four months, a price which values the company at $54 million.
Coda Minerals (ASX: COD) is a star performer on the market this week after a highly encouraging drill result from its Emmie Bluff Deeps project in South Australia’s “copper elephant” country which is home to BHP’s giant Olympic Dam mine and OZ Minerals Prominent Hill.
The first deep hole at the project intersected a whopping 200m of IOCG (iron oxide copper gold) mineralisation with assays yet to be processed, but a result good enough to more than double Coda’s share from which jumped from $0.36 to $0.88, a price which values the stock at a still untaxing $60 million.
Much more drilling is required by Coda, but the latest result is a spectacular justification for decades of work by explorers on a project once known as Mt Gunson and an asset on a number of companies including Chinese control WA iron ore producer Gindalbie Metals.
The Chinese company behind Gindalbie, Angang Steel, retained a 14% stake in Coda after it was floated off last year.
Other juniors to watch
Other small copper explorer stocks worth an entry in an investor’s black book of stocks to watch include:
Encounter Resources (ASX: ENR), which has among its assets a promising joint venture with BHP in the Northern Territory.
Peel Mining (ASX: PEX), which has made what looks to be a high-grade discovery at its Wirlong project in NSW.
Stavely Minerals (ASX: SVY) which has reported a series of outstanding copper and gold assays from its Thursday’s Gossan project in Victoria.
QMines (ASX: QML), which recently listed on the ASX is currently drilling the Mt Chalmers copper and gold project in Queensland.