The Copper Market - Resilient Prices Back Long-Term Demand Outlook

• Copper prices have remained remarkably stable despite recent market volatility. Tightness in supply is supporting prices.
• Several companies presented have made promising early-stage copper discoveries, though grades and scale vary.
• Strong copper demand outlook, especially related to renewable energy and EVs. Supply responding slowly.
• Operating challenges persist with new projects, especially regarding scale, costs, location and metallurgy.
• Overall positive long-term copper case but volatility ahead based on global economic growth and mine development delays.

Resilient Copper Prices Confirm Tight Supply Against Hungry Future Demand

The copper price has held up well in recent weeks despite broader volatility across commodity and financial markets. Prices dipped briefly to $370/lb but have since rebounded to the $380/lb level, showing remarkable stability. This attributed to the overall tightness in copper supply struggling to keep pace with still strong demand. This supply tightness emerges from both depleting reserves at existing operations and challenges bringing new copper deposits into production.

Copper Bottomed with Merlin Marr-Johnson

Promising Early-Stage Discoveries Point to Supply Growth Ahead

Several copper exploration and development companies presented have made encouraging early discoveries of new copper resources. However, details on grade, scale, metallurgy, costs and location vary greatly between them, impacting the viability of future mines. For example, Filo Mining Corp has greatly expanded the envelope of mineralization at its Filo del Sol site, with exceptional grades pointing to a large resource. However, the depths indicate it will likely require challenging block cave mining.

Merlin also highlights American West Metals’ recent maiden resource in Canada, stating “it’s a remarkable asset. It’s way up in Nunavut...they have found shallow, strata-bound copper at good grades close to surface and it looks as if it’s going to grow.” The remote Arctic location could add major cost though. So while exciting potential, the path to production may be difficult.

Electric Vehicles, Renewables Drive Strong Copper Demand Outlook

Demand outlook for copper remains bullish, especially related to electric vehicles, charging infrastructure, and renewable energy installations using copper wiring. Supply is responding very slowly however. Merlin emphasizes that “it is really, really hard to find good grade copper at surface.” Even major mining countries like Chile are struggling to bring new copper online, with Merlin pointing out that “the reviews done by some of the universities in Chile on leaching technological advances...basically said that they don’t really change things very much.”

So while demand appears locked-in, we cannot take for granted that supply will smoothly catch up. New technologies may help at the margins but are not revolutionary. This tension underlies copper’s overall tightness.

The Investment Thesis for Copper

• Strong secular demand outlook from EV and renewable energy adoption
• Existing mines depleting reserves faster than replacements coming online
• Supply highly constrained with lead-times of over 5-10 years for new mines
• Prices demonstrating resilience and room for further upside
• Prospect generators offer best exposure to new discoveries, though risky

In summary, copper’s fundamentals support a constructive long-term outlook tied to global decarbonization trends pressuring available supply. However, volatility may persist in the interim as markets weigh various risks around bringing on new sources of production versus depending on declining output from existing mines. Investors should pick their exposure carefully with an eye toward company specifics, asset quality, and financial stability.

Macro Thematic Analysis

The broader theme underscoring the bullish copper thesis is the globally coordinated policy push towards rapid decarbonization of energy infrastructure, transportation networks, and other carbon-heavy industry sectors. Merlin references that “demand outlook for copper remains bullish, especially related to electric vehicles, charging infrastructure, and renewable energy installations using copper wiring.” This revolution toward electrification and renewable power sources leans heavily on copper as an essential material input. With 2035 targets common for full phase-outs of gasoline passenger vehicles, as one example, huge investments in EV manufacturing capacity and charging stations are underway. But copper supply cannot hope to keep pace without 5-10 years lead time on new mining projects. Merlin emphasized that “it is really, really hard to find good grade copper at surface.” So while demand appears locked-in, we cannot take for granted that supply will smoothly catch up." This tension underlies copper’s overall tightness.

Companies Covered in this Weeks Show

Filo Mining Corp.

Filo Mining is advancing the Filo Del Sol project along the Chile-Argentine border. Recent drilling has expanded the overall mineralized envelope, with exceptional copper equivalent grades pointing to a sizeable resource. The deposit’s depth indicates probable future block cave mining. While challenging, block caving could support large-scale production given sufficient grade and scale. With almost 1.5km mineralization over 0.6% CuEq, Filo Del Sol shows promising initial signs on this front. Led by a strong management team, Filo Mining’s market capitalization now exceeds $2 billion. This size and advanced stage lowers likelihood of dramatic further share upside. But with ongoing exploration still delivering resource growth, Filo offers stability with some optionality.

American West Metals

Australian explorer American West Metals recently published an initial inferred resource for its Storm copper project in Nunavut, Canada. Shallow chalcocite-dominated mineralization shows promising grades averaging over 1% copper near surface. The maiden resource of over 200kt contained copper provides a solid baseline for further growth. The remote Arctic location adds cost risks but also suggests more discoveries possible nearby in an underexplored region. Trading at only a $55M market cap with additional upside potential from the resource and surrounding district, American West offers investors more room for substantial returns compared to more advanced developers. However, early-stage exploration in a difficult location brings meaningful risks.

Arizona Sonoran Copper Company

Arizona Sonoran is working to advance its namesake copper project in Arizona through ongoing metallurgical, mining, and permitting work, in addition to further exploration drilling. Their asset benefits from readily available infrastructure in an established US mining jurisdiction. A recently announced 2024 work plan aims to integrate a proprietary leaching technology into plans in conjunction with a mining partner. The leach technology aims to unlock additional value, but may only provide incremental improvements per findings from external assessments. While more drilling and studies remain ahead, Arizona Sonoran’s location, infrastructure, existing resource, and built-in catalysts offer investors a lower risk way to gain copper exposure in a rising price environment.

T2 Metals

T2 Metals is an early-stage explorer focused on high-grade polymetallic projects containing copper, zinc, gold and silver. They are advancing prospects in the cold lake region of Manitoba, Canada. Recentassay results delivered promising near surface mineralized intercepts as high as 9.3 meters at 3.1% copper equivalent. Historically identified deposits in the area suggest possible resources, but require modern-day confirmation drilling planned this year. Led by an experienced CEO in Mark Saxon, T2 aims to demonstrate significantly improved grades versus past exploration in the district. Although very early-stage and not without risk, T2’s elite grades found thus far combined with the modest $4 million market cap offer speculation-worthy upside potential.

Surge Copper Corp.

Surge Copper holds multiple copper exploration assets in British Colombia, Canada. Recent drilling at its Berg project returned long intercepts but fairly low grades similar to 0.36% copper. They suggest comparisons to currently producing mines in BC also operating on lower grade stockpiles. However, the key difference is those operations benefitted from higher initial grades that financed their capital investment, allowing them to now use lower grades profitably. With estimated pre-production capex for Berg approaching $2 billion, these latest intercepts likely do not provide Surge Copper an economic initial mine plan to attract such investment without substantially better results still ahead.

Copper Fox Metals

Copper Fox is focused on advancing its 100% held Schaft Creek copper-gold-molybdenum-silver project located in northwest British Colombia, Canada. An optimistic PEA paints an impressive picture, projecting an after-tax NPV of $1.3 billion from the defined resource. However, average grades of 0.27% copper and 0.19 g/t gold do not stand out relative to peers. Trading below a $50M market capitalization, public markets are thus far unconvinced of Schaft Creek’s prospects for production on a reasonable timeline. While further studies may help, without a significant boost in grade, attracting the approximately $2 billion in capex required will remain a persistent challenge.

Koryx Copper

Koryx Copper aims to exploit a very large but low-grade 3.3 billion ton copper resource defined at its project in Namibia. Historical estimates pointed to 0.31% copper across the massive bulk tonnage deposit. Recent drilling found copper closer to 0.4-0.5% over meaningful 200m intercepts. They suggest this points to understated grades historically. However, averages require plenty of supporting high-grade areas, which have yet to be shown. Chasing ever lower grades simply continues a trend unlikely to render the project economic near term. Until Corix can deliver multiple intercepts actually exceeding the supposed 0.31% average, celebrations seem premature given an $11M market value already reflecting substantial existing skeptism.

Callinex Mines

Callinex Mines is focused on base and precious metals exploration in Eastern Canada. In pursuing zinc and copper projects, they have reported early-stage copper intercepts like 1% over 9m and 0.13% over 345m. However, their share price and $25M market value ride overwhelmingly on high-grade zinc and silver results from drilling within the Bathurst mining camp and Flin Flon areas. The nascent copper signals come secondary as Callinex searches primarily for new zinc and silver deposits eastern Canada is renowned for. Callinex offers a way to gain exposure to these better understood Canadian metals endowed districts with copper currently more of an ancillary upside sprinkle.

Barksdale Resources

Barksdale Resources has assembled a portfolio of copper projects within Arizona and Mexico, including the Sunnyside project in Arizona and San Antonio project in Mexico. However, copper exploration efforts in Mexico face substantial uncertainty following pronouncements from the Mexican government around banning open pit mining. With Barksdale’s main focus seemingly on an open pit approach at San Antonio, considerable permitting risks cloud the path forward until resolved. Trading modestly below a $25M market cap, unclear jurisdiction combined with early stage exploration remain key investor risks. While drilling success could unlock value, Barksdale’s primary projects face major external questions impacting viability not easily dismissed without clarity from Mexican authorities.

Xanadu Mines

Xanadu Mines is advancing the Kharmagtai copper-gold project within the South Gobi porphyry copper belt of Mongolia. They control a very large land package with identified resources at multiple deposits open for expansion. Recent drilling has targeted extensions of mineralization focused principally on gold zones. Xanadu is essentially a gold exploration company presently, with copper potential retained for the future. But development path uncertainty persists around water availability given the arid project locale. Considering its dominance by gold, any optimism around Kharmagtai rests more on the prospects for gold output someday rather than confidence of copper mines emerging. Reflecting this dynamic, Xanadu’s share price tracks the fortunes of gold prices far more tightly than trends in copper markets.