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Clean technology investment puts copper demand on fast-forward

Published: 15:46 02 Dec 2020 AEDT

Havilah Resources Ltd - Clean technology investment puts copper demand on fast-forward
Strong market fundamentals are good news for Australian copper hopefuls

The copper market is staring down the barrel of supply deficits as soon as next year as investment in renewables continues to grow, according to broking house Jefferies.

It says copper demand will “significantly exceed” supply starting in 2021, which could lead to substantially higher prices if copper shortages abound.

And we’re already seeing the impacts: the London Metal Exchange copper price closed at US$7,674 on Monday, up 10 per cent on its October levels. It is the first time in more than two years that copper prices have risen to above US$7,000 per tonne.

New tech demand

The demand for copper is being driven, as is the case for battery metals and rare earth elements, by investment in renewable energy and electric vehicles.

Though not typically the first material that comes to mind when talking about clean technology, renewable power systems such as solar and wind are at least five times more copper intensive than conventional power systems like coal and gas.

Further, the average electric vehicle is four times as copper intensive as the average vehicle powered by an internal combusting engine EV charging stations require about 10 kilograms of copper on average.

Supply deficits

Jefferies says the copper market is entering an extended period of supply deficits that “should lead to higher prices and ultimately incentivise investment in new mines”.

“However these projects typically take 7-10 years to build, implying the mechanism to balance the market over the medium term will not be an increase in mine supply but a higher price that leads to demand substitution and an increase in scrap supply.”

Price forecasts raised

The broker has raised its copper price forecasts, which it runs on three different scenarios: a base case, a bull case for renewables and a bear case.

In all three scenarios the price looks set to peak in 2026, under the base scenario at US$4.50 per pound, under the bull scenario at US$5.00, and under the bear scenario at US$3.75. The current price is US$3.29 per pound.

The scenarios are based on predictions of renewable power capacity growth, measured against guidelines set by the Intergovernmental Panel on Climate Change (IPCC) and an assumed global GDP growth of 2 per cent from 2021 onwards.

Upgraded earnings

Jefferies ultimately predicts copper demand in renewable energy to increase to as much as 6.4 million tonnes, if its bull case is proved correct, or 1.9 million tonnes in its base case.

“In all three scenarios, we believe the path of least resistance for the copper price is higher,” it says.

“If our assumptions are correct, the squeeze higher in copper is a question of ‘when’ rather than ‘if’. The risk/reward trade-off in copper mining equities is compelling.”

Jefferies has subsequently upgraded earnings estimates for a number of global copper producers, and it is certainly good news for Australian copper hopefuls.

Havilah “well-positioned”

Havilah Resources Ltd (ASX:HAV) published a note this week saying it is well-positioned to benefit from rising copper prices, thanks to its ownership of 1.3 million tonnes of copper in two advanced projects in north-eastern South Australia.

“Havilah offers investors the best leverage to copper of any ASX listed stock,” it said.

“Havilah is very well-positioned to benefit from the unstoppable green energy trend that is highly dependent on adequate supplies of ESG (environmental, social and governance) complying copper being available over future decades.”

Castillo’s Big One results

Castillo Copper Ltd (ASX:CCZ) (LON:CCZ) (FRA:7OR), which hopes to be a mid-tier copper producer, returned promising results at its Big One Deposit of the Mt Oxide Project in the Mt Isa Copper Belt, with assays returning shallow copper mineralisation of up to 4.14 per cent.

Castillo managing director Simon Paull recently told investors the company’s plan was on track.

“With the copper price near a seven-year high, coupled with favourable global fundamentals, we are delighted with the initial assay results from the Big One Deposit which highlight that our drilling team has intersected shallow copper mineralisation.

Mt Oxide is one of the key pillars in Castillo's strategy with others in Zambia, in northern NSW and near Broken Hill in Far West NSW.

Strong Aeris results

Aeris Resources Ltd (ASX:AIS), an established Australian copper producer, has also released positive drilling results this week from regional prospects at its Tritton copper operations in NSW.

The first two holes at the Anomaly K prospect have intersected massive sulphides and Aeris executive chairman Andre Labuschagne is bullish on the results.

“The discovery of a thick sulphide interval at Anomaly K is consistent with Aeris’ view that there remains significant potential within the Tritton tenement package for the discovery of additional mineralised systems beyond the current known deposits,” he said about the first hole.

“Whilst it is still early days, we are very encouraged that the first drill hole into Anomaly K has intersected mineralisation in the target zone.”

A second hole has also intersected a 3.4-metre zone of massive sulphides.

Alicanto at Greater Falun

Alicanto Minerals Ltd (ASX:AQI) is exploring at the Greater Falun Copper-Gold Project in Sweden and in early November hit chalcopyrite copper at Heden East prospect, intersecting 2.85 metres of massive pyroxene pro-grade skarn with blebs of chalcopyrite and pyrrhotite, including 1.02 metres of 5-10 per cent sulphides, from 69.65 metres downhole.

Alicanto’s landholding at Greater Falun has doubled in 12 months to more than 300 square kilometres and it is now believed to contain at least 12 copper-gold and/or polymetallic skarn systems.

It believes Greater Falun is a district-scale opportunity in a tier-1 location, with historical high-grade and large-tonnage production.

- assisted by Daniel Paproth

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