Copper: Tempered Price Action Fails to Dent Bull Case for Copper; Juniors Offer Leveraged Exposure to Coming Supply Squeeze

• Copper price was range-bound in 2023 but performed well considering global economic weakness
• Demand for copper remained strong driven by decarbonization and electrification trends
• Supply is tightening as smelters cut production guidance due to lower profits
• Bringing new copper mines online continues to face challenges and takes over 15 years
• Funding and positive drill results provide grounds for optimism for some juniors

In the final episode of “Copper Bottomed” podcast for 2023, Merlin Marr-Johnson provides an overview of recent copper market developments and drilling results announcements from junior miners. With decarbonization and electrification driving sustained copper demand growth against tightening supply dynamics, we maintain a bullish long-term view on copper.

Key Market Developments

Several publications have noted the relatively subdued performance of copper prices this year after initial expectations for substantial gains. The Financial Times described copper as “range-bound” and “brassed off and flat” while Bloomberg highlighted copper’s “small gain” for the year.

In perspective, however, copper has held up well against the backdrop of concerns over slowing global growth, particularly in China’s property sector. Demand has remained resilient across the board with signs of further tightening in the supply outlook. According to Marr-Johnson, producers are again failing to deliver new material while demand stays strong, keeping prices elevated at around $4 per pound.

“Copper prices stay strong even in a year when there's expected to be a downturn...Demand of course still stays strong and the more that governments push on the decarbonization, the electrification of our energy grid, or our lives, the more copper that will be needed.”

Junior Miner Drilling Results

With demand trends still favorable and new mine supply remaining constrained, Marr-Johnson sees opportunities in the junior copper explorer space. He reviewed recent results from over 10 companies, highlighting positive developments relating to funding, drilling progress and grades.

On funding, Gladiator Metals announced it is “fully funded” to expand exploration at its Australian projects while Barksdale Resources raised over $3 million. Meanwhile, Brixton Metals, Tribeca Resources, Benton Resources and Sarabi Gold reported strong intersections from their drilling campaigns.

Brixton’s holes contained over 700 meters at 2% copper while Tribeca’s first hole for its phase two drilling hit 82 meters at 0.41% copper. Benton remains “extremely impressed”, expanding high-grade mineralization with all three latest holes returning over 2% copper. Finally, Sarabi Gold’s joint venture delineated a target of up to 81 million tons at 2.8% copper.

According to Marr-Johnson, such promising early results point to significant upside potential. As he notes regarding Benton’s Great Burnt prospect, “It’s thick, it’s a step out of known mineralization and when I listened to the interview with Matt (Gordon) I really got a better feeling for how the geology has not been followed up on...there is so much more to come from this company”.

While the copper price may have paused for breath after a strong multi-year run, demand fundamentals remain positive. Supply continues to tighten due to falling smelter output and miners fighting to maintain let alone expand production. Government policies aimed at electrification and renewable energy installations will necessitate substantially more copper units. Juniors with funding and early drilling success offer investors potential low-risk exposure to these dynamics over the long term.

Investment Thesis for Copper

• Decarbonization and clean energy transitions make copper indispensable, underpinning structurally growing demand
• Supply is constrained by declining ore grades, lack of investment in new mines and 15-year plus development timeframes
• Prices will need to rise over the medium term to incentivize required supply growth, putting existing lower-cost producers in the sweet spot
• Juniors demonstrating promising initial drill assays provide leveraged exposure to future copper price strength
• Investors should build positions gradually on dips rather than chasing sharp rallies, maintaining a 5-10 year investment horizon

Key Takeaways

• Copper demand growth is structurally supported while bringing new supply online faces increasing challenges
• Select juniors offer leveraged exposure to rising copper prices needed to spur investment in new mines
• Investors should accumulate positions in high-quality names on corrections rather than chase rallies

Company Reviews

Brixton Metals

Brixton Metals is advancing its Thorn high-grade copper project in British Columbia, Canada. Recent drilling has expanded mineralization to cover a 1km x 1km area, with hole 277 intersecting 717 meters at 2% copper. This points to a potentially large mineralized system, albeit at depth and marginally economic grades so far. Management aims to prove up a resource that could support low-cost, large-scale block cave underground mining. Further deep drilling is warranted given the scale of alterations and size of the system. However, we need to see some higher-grade intercepts within the porphyry to improve economics. With $14M cash, Brixton is funded for follow-up work. The current ~$60M market cap offers speculative exposure to a possible Tier-1 asset should grades and scale evolve favorably.

Tribeca Resources

Tribeca’s La Higuera project in Chile shows promising initial signs of a significant copper-gold porphyry system. The first hole of a new phase 2 program hit 82 meters at 0.41% copper, confirming mineralization 50 meters from the prior standout hole 1. Tribeca believes there are over 650 meters of additional strike length to the north that remain untested. The company feels it has only uncovered a fraction of the potential scale of this 1-kilometer long system to date. While the current ~$15M market cap leaves ample upside for further positive results, tight concession boundaries could hamper efforts to delineate the full extent of mineralization to the east.

Benton Resources

Benton continues to deliver encouraging high-grade copper drill results from its Great Burnt prospect in Newfoundland, Canada. The latest holes impressively intersected up to 24 meters at 3% copper near the surface. Significant expansion potential exists up and down plunge and along strike where the system remains wide open. Benton believes historic drilling underestimated the true grade and thickness of this zone. Trading at an inexpensive ~$30M market cap with assays from another 11 holes pending, the company offers outstanding discovery upside. However, metallurgy and recovery rates need clarification before determining if Great Burnt could achieve commercial production levels.

Serabi Gold

Serabi’s early-stage copper exploration joint venture in Brazil has delineated a target of 21-81 million tonnes grading 2.8% to 4% copper. An 81 million-tonne system at 2.8% copper could support a modest standalone operation. However, economic viability close to the low-end target would depend on pragmatic capex assumptions and infrastructure access. Just 7,500 meters of drilling have been completed to date compared to typical budgets of 15,000-20,000 meters to outline initial resources on porphyry systems. Significant follow-up work is required to better define grade, scale and metallurgy. Serabi itself remains focused on gold production to fund ongoing exploration.

Gladiator Metals

Gladiator Metals’ Creswick gold project in Victoria, Australia boasts some high-grade historic drill intercepts. Recent drilling has defined a 1-kilometer strike length of near-surface copper-gold mineralization open in all directions. Highlights include 26 meters at 1.49% copper and 1 meter at 7% copper. The company believes both the copper and gold zones have significant expansion potential as additional assays are still pending. Gladiator is also fully funded for more drilling to delineate a potential open pit resource. However, the complex geology and structurally controlled mineralization could make the continuity of the zones and mining conditions difficult. Trading at an inexpensive A$25M valuation, Gladiator offers speculative exposure to better define what could become a compelling small-scale development opportunity.

MTB Metals

MTB Metals is still at an early exploration stage on its Telegraph copper-gold project within British Columbia’s prolific Golden Triangle district. First drill results delivered encouraging grades and thicknesses comparable to existing alkalic porphyry mines. Highlight intercepts include 107 meters at 0.26% copper equivalent and 0.13% copper plus 0.4 g/t gold. Three additional holes are awaiting assays. However, considerable further drilling would be required to determine if a meaningful resource can be delineated on the project. MTB’s sub-$10M valuation leaves room for substantial rerating on continued promising results. However, reliance on misleading copper equivalent numbers does the company no favors in communicating progress.

Barksdale Resources

Barksdale Resources offers a high-risk, high-reward opportunity to invest alongside South32 in exploring a potentially huge copper system in Arizona. Barksdale is drilling holes over 1.5 kilometres deep to test a large induced polarization anomaly that could reflect a cluster of buried copper deposits. Recent holes have intersected sporadic copper mineralization and hydrothermal alteration zones consistent with being in proximity to such systems. However considerable patience is required to see if significant copper grades are lurking at depth. In the meantime, progress depends on securing a more powerful drill rig. Barksdale’s $35M valuation leaves an upside if they can validate this conceptual play.