Investors Poised to Benefit from Growing Copper Demand & Supply Constraints

• Copper demand is expected to increase significantly due to economic growth and the clean energy transition
• Supply challenges include declining grades, deeper mines, and underinvestment in exploration
• Experts predict a major supply gap, with some estimates suggesting 8x current production may be needed
• Junior explorers like Chakana Copper and Pan Global Resources are working to find new copper deposits
• Factors like jurisdiction, grade, and development timeline are key for successful copper projects

The Case for Copper: A Critical Metal for the Future

Copper stands at the forefront of the global transition to clean energy and sustainable technologies. As the world grapples with climate change and the need for decarbonization, copper's unique properties make it an indispensable material for electrification, renewable energy systems, and energy-efficient technologies. This article examines the compelling case for investing in copper, drawing insights from industry experts and exploring the dynamics shaping the copper market.

Copper Explorers Aiming to Fill the Growing Supply Gap - Panel Discussion with David Kelley, Chakana Copper & Tim Moody, Pan Global Resources

Supply & Demand Fundamentals

The copper market is poised for significant growth, driven by traditional industrial demand and emerging technologies.

David Kelley, President and CEO of Chakana Copper, highlights the long-standing predictions of a supply gap: "There's always been in the last 15 years a prediction of a supply gap, just based on normal market conditions." This baseline demand, rooted in copper's widespread use in construction, infrastructure, and manufacturing, provides a solid foundation for the market.

However, the clean energy revolution is set to accelerate copper demand dramatically. Kelley notes, "When you add to that the clean energy revolution and all the demand that puts on top of it, it exacerbates that." The scale of this additional demand is staggering, with Kelley citing estimates that suggest:

"In the future, to meet future demand, it will take eight times the amount of copper mining that exists today."

Tim Moody, President and CEO of Pan Global Resources, provides further context on the demand outlook: "If you also believe what many are saying about copper consumption doubling in the next 25 years, that's double the copper consumption of what we've consumed in all history up until now." This translates to "about a million tons of extra copper being added every year," equivalent to adding the production of the world's largest copper mine, Escondida, annually.

Supply Challenges

While demand projections paint a bullish picture for copper, the supply side faces significant challenges.

Both Kelley and Moody point to several factors complicating copper production:

Declining grades: Existing mines produce lower-grade ore, requiring more material to be processed for the same copper output.

Increasing depth: As surface deposits are depleted, mining operations must go deeper, increasing costs and technical complexity.

Underinvestment in exploration: There have been few significant new copper discoveries in recent decades, potentially leading to a shortage of new projects in the pipeline.

Permitting and development timelines: Bringing new mines into production is taking longer due to regulatory processes and social license considerations.

Moody summarizes the situation: "Mines are getting deeper, they're getting lower grade, they're getting - let's say the technical risk is increasing with that as well. And sometimes the jurisdictional issues are not getting easier either."

The Market Response

The copper market is likely to respond to these supply-demand dynamics through price appreciation. As Moody explains, "Where's it going to come from? How's the world going to react? The easiest way is for the copper price to go up so that perhaps what is marginal today becomes more feasible to mine."

This price response is crucial for incentivizing new production and exploration. However, the industry faces a race against time even with higher prices.

As Kelley notes, "If copper hit 10 bucks tomorrow, we're still 10 years too late to get anywhere near the kind of demand that's coming down the line."

The Role of Junior Explorers

In this context, junior exploration companies play a vital role in discovering and developing new copper resources. Both Chakana Copper and Pan Global Resources are actively exploring for copper deposits, aiming to contribute to future supply.

Kelley emphasizes the importance of this work: "There's a real demand for companies to be out there doing the work that we're doing, even though you may not think that by looking at our share prices. But that too will come around. There will be a resurgence in interest in investing in natural resources."

Moody echoes this sentiment, highlighting the potential for near-term production from new discoveries: "Having something that could be brought into production in the relatively near term is a big advantage. We can ride on the coattails of a rising, hopefully accelerating copper price over five to 10 years."

Jurisdiction & Project Characteristics

For investors considering copper exploration companies, several factors are crucial:

Jurisdiction: The political and regulatory environment can significantly impact project development. Moody emphasizes operating in mining-friendly jurisdictions: "Jurisdiction is important. The more you can de-risk an investment position for investors, I think the better it is."

Grade: High-grade deposits can be economically viable even at lower copper prices. Kelley notes, "The nice thing about grade is you don't have to have peaking metal prices to make your project look good."

Development timeline: Projects that can be brought into production quickly have an advantage. Moody points out that in some jurisdictions, "Mines have been permitted from the first drill hole to mining permit being granted within under four years."

Exploration potential: Companies with large land positions and multiple target types offer more opportunities for discovery. Kelley describes Chakana's approach: "We're swinging for the fence. We are being very, very bold in our exploration.

Funding & Market Conditions

Junior explorers face challenges in raising capital despite the strong fundamentals for copper. Both Kelley and Moody acknowledge the current difficulties in the mining finance landscape. However, they also note that there is interest from major mining companies and potential for innovative funding approaches.

Kelley suggests that major mining companies could play a larger role in supporting exploration: "There needs to be a lot more of that, and I think the companies that are best positioned to help right now are the major mining companies through deals, programs like this, that type of thing."

Moody points to emerging funding sources in Europe:

"They're establishing a couple of billion-dollar funds aimed at providing the critical raw materials initiatives."

Conclusion

The copper market presents a compelling investment case, driven by strong demand fundamentals and supply-side challenges. As the world transitions to clean energy and electrification, copper's role becomes increasingly critical. Junior exploration companies are at the forefront of efforts to discover and develop new copper resources, offering investors exposure to this growing market.

While risks remain, including market volatility and the inherent uncertainties of mineral exploration, the long-term outlook for copper appears robust. As Kelley summarizes, "Commodities will become more valuable in the future. It's inevitable; they're nonrenewable resources."

For investors considering exposure to the copper market, a diversified approach that includes established producers and promising junior explorers may offer the best balance of risk and reward. As always, thorough due diligence and understanding the risks associated with mineral exploration and development are essential.

The Investment Thesis for Chakana Copper & Pan Global Resources

• Both companies have made significant copper discoveries and are actively exploring high-potential targets
• Chakana Copper offers exposure to a high-grade copper-gold-silver project in Peru with multiple mineralization styles
• Pan Global Resources is exploring a mining-friendly jurisdiction in Spain with the potential for near-term production
• Both companies have experienced management teams with track records of discovery

The copper market is poised for significant growth, driven by increasing demand from traditional industries and the clean energy transition. Supply challenges, including declining grades and underinvestment in exploration, will likely support higher copper prices in the coming years. Junior exploration companies like Chakana Copper and Pan Global Resources are crucial in discovering new copper resources to meet future demand. While investing in mineral exploration carries inherent risks, the long-term fundamentals for copper remain strong. Investors should carefully consider their risk tolerance and conduct thorough due diligence when evaluating copper exploration companies as part of a diversified investment strategy.