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Copper in the spotlight following BHP-Anglo negotiations

4 June 2024 15:22
ASX: CCZ

Last week saw BHP’s final attempt to acquire fellow miner Anglo American fail, after six long weeks of negotiating including two offer price hikes.

One of the main reasons the deal broke down was because BHP only desired Anglo’s copper operation, wanting them to move away from platinum and iron ore and sell itself as a copper producer.

The BHP-Anglo negotiations have shined a light on copper scarcity, with big miners hesitant to invest heavily in new mines due to peak demand concerns and stringent regulations.

Copper surging

Copper prices have surged over 20% for the year-to-date, driven by widespread demand across various sectors.

The energy transition is a major factor, with copper being vital for renewable energy infrastructure and electric vehicles (EVs). Global power grid capacity must double by 2050, needing an additional 427 million metric tonnes of copper.

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Figure 1: 12 month graph of the Copper price (USD/Lbs). Source: Trading Economics

EVs use up to four times more copper than gas-powered cars, and demand is strong internationally, especially in China and India, where both nations are expanding their electric and renewable energy infrastructures.

Artificial intelligence data centre’s requiring copper and grid expansion also contribute to increasing copper demand.

Supply squeeze

However, supply constraints loom. Analysts now predict a copper deficit as early as 2024, with Goldman Sachs forecasting a 5Mt shortfall by 2030. Mining companies face long lead times to increase production, positioning current producers advantageously.

A combination of technological, geopolitical, and economic factors have paved the way for the start of a commodities bull market that could see copper prices hit highs of US$12,000 a tonne and gold prices hit US$2,700 an ounce by the end of 2024.

Goldman Sachs suggests the bull market will be driven by a combination of disinvestment, decarbonisation, de-risking, data centres, and defence spending.

Acquisitions the best route into copper

Copper investment has been weakening for the past decade thanks to declining grades, increasing depths of available resources, increasing distances from processing facilities, and the increasing costs of labour, energy, and water making things less cost effective.

On top of all this, the expected shortages remain projections for now and the copper market is currently in a surplus.

Even though the International Copper Study Group (ICSG) recently downgraded their copper surplus projection, the global copper market is currently facing a surplus of 162,000 metric tonnes in 2024.

The BHP-Anglo deal is proving that the best path for companies to grow their copper revenue is through acquisition, and those companies sitting on wealthy copper deposits are the ones set to benefit. This could prove fruitful for small cap mining companies.

Castillo look to expand resource at Big One Deposit

Castillo Copper (ASX:CCZ) has recently ramped up work at the Big One Deposit, driven by the recent copper price surge and projected supply shortages.

The Big One Deposit stands out as a significant asset in proximity to holdings of major industry players like Anglo American. It is situated near the major mining town of Mt Isa, a renowned copper hotspot.

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Figure 2: Line locations transversing Big One Deposit.

The Project’s potential is underscored by historical data and high-grade results from three drilling campaigns conducted between 2020 and 2021.

The Big One Deposit boasts a JORC 2012 compliant Mineral Resource Estimate of 2.1Mt @ 1.1% Cu for 21,886t of contained metal. Historical drill data has verified grades up to 28.40% Cu from <50m in supergene ore at the Deposit.

If the forecasts of a copper supply shortage turn out to be true, these copper deposits may turn out to be a gold mine.

CCZ’s Australian Security Exchange-listed share price is currently trading at $0.008 (3:00 pm UTC+ 8 hours).

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