Goldman Sachs raises 12 month copper price target to US$10,500/t
Goldman Sachs warned the copper market is now on the cusp of what is expected to be the largest deficit in a decade.
At the moment, nothing seems to be able to stop the rush into copper.
With a poor recent record of major new discoveries combined with the explosion of electric vehicle manufacture and copper’s other electricity applications, the metal is in the box seat.
This was shown by its price hitting a 10-year high last Friday, and with forecasts suggesting that there is still a long climb ahead as buyers scramble for supplies.
At close of trading on Friday, the metal put on another 4% to finish just a whisker below US$9,000 per tonne.
The metal came under heavy buying pressure last week as Chinese traders returned to their desks after the Lunar New Year.
Just hours before, Goldman Sachs had raised its 12-month target to US$10,500/t.
To put that into perspective, copper’s all-time record on the London Metal Exchange occurred in 2011 when it reached US$10,190/t.
Copper prices have made a strong rebound since the depths of Covid panic.
Goldman also sees US$9,200/t in three months, US$9,800/t in six — but in the present boom these figures may be shown as conservative predictions (assuming no major global economic meltdown, of course).
The degree of interest in physical delivery is reflected in the fact that the cash price continues to keep slightly ahead of the three-month one — U$8,946.75/t on Friday to the three-month close at US$8,909.50/t.
Narrow range of copper stock choices
However, there are not all that many primary copper stocks listed on the ASX, meaning that any significant investor head rush over the red metal will mean large sums being funnelled into a small number of companies — quite unlike the gold sector.
Some are gold-copper plays.
These have an inbuilt resilience occasioned by gold’s recent high prices (now fading, as investors rotate out of the yellow metal).
But just as with gold in the latter months of 2020, now seems to be the time for copper hopefuls to strike while the happy times last.
A recent presentation from Hot Chili (ASX: HCH) showed graphically that copper discoveries have been on a steep decline.
In 1997, the world saw 17 major copper discoveries.
In 1995, 2005 and 2007, there were 15 around the globe.
Last year there were two — and none at all in 2017, 2018 or 2019.
In fact, what could be termed the last good year for major copper finds was 2011, when there were six discoveries.
Hot Chili claims its Chilean project has the largest copper resource on the ASX outside the majors, with 1.66 million tonnes of contained copper, along with 1.91 million ounces of gold, 9.86Moz silver and 27,300t of molybdenum.
The tin rattling underway
On Monday, KGL Resources (ASX: KGL) announced it was raising $23.77 million for its Jervois copper project in the Northern Territory.
An institutional placement brought in approximately $12 million, to be followed by a one-for-13 shareholder entitlement offer which is intended to bring in another $11.77 million.
Jervois has a resource of 426,200t of contained copper at 2.03%, along with silver averaging 31.9g/t.
The new funds will pay for mine planning and the completion of the full feasibility study.
Also on Monday, Western Australian copper play Caravel Minerals (ASX: CVV) asked for a trading halt, saying the company was in the process of a capital raising.
At its namesake project, Caravel expects to have its pre-feasibility study finished by the end of 2021; meanwhile drilling, power, environmental, water, geotechnical and metallurgical studies are all in progress.
Caravel’s copper deposits form part of a regional porphyry style copper-molybdenum-gold mineralised belt discovered in a previously unexplored part of the Yilgarn Craton.
The current resource at Caravel totals 662Mt at 0.28% copper for a contained 1.86Mt.
Caravel says the project is amenable to low-cost, open pit bulk mining, with low waste ratio and wide ore zones.
Redbank Copper (ASX: RCP) is also in a trading halt ahead of a capital raise announcement.
The company has 13,000sq km of exploration ground in the Northern Territory’s McArthur Basin and is looking, under new management, to revive its copper operation there.
OZ Minerals dominates the space
OZ Minerals (ASX: OZL) last week announced a 30% profit increase.
In 2020 the company, which has a market capitalisation of $7 billion, produced 97,620t of copper across its three mines: Prominent Hill, Carrapateena and Carajas.
It did so at a minus US$0.035 per pound — an achievement made possible by its 257,987oz of gold by-product, with high gold prices more than covering copper production costs.
Hedging on the copper price
In other copper news, Aeris Resources (ASX: AIS) last week hedged copper with Macquarie Bank which allows the company to participate in the copper price up to US$11,100/t, US$430 above the then current spot price in Australian dollars, with a downside protection of US$10,000/t.
The hedges will cover 4,000t to be delivered through to July 2021.
Aeris has the Tritton copper operation in NSW and a 70% interest in the Torrens copper exploration project in NSW (along with its Cracow gold project in Queensland).