‘Dr Copper’: the prospective future of a key commodity

Copper is a crucial indicator in the global market when assessing the performance of an economy. Often referred to as ‘Dr. Copper’ is a critical material used in everything from homebuilding, infrastructure, auto and electronics and medical equipment, to name some common uses.

The price of copper hit a 52-week high of USD 10,729.75 per tonne in March 2022. However, it has seen a significant decline over the past six months. The real estate sector declined, and China’s primarily responsible. China accounts for over half of global consumption, so there should be little surprise on the sharp decline.

But the negative bump is negligible in contrast with Fitch Solutions’ recently forecasting copper prices to average around US$7500/t in the fourth quarter of 2022.

Fitch analysts include global inflation as another significant factor driving down the short-term market.

Copper Mountain Mining Corp (ASX: C6C) is engaged exploration and develop copper mineral deposits. The Canadian-based company currently produces 100 million pounds of copper equivalent per year. Still, it plans to boost production by around 138 million pounds with its Mining operation Ingerbelle mine about to come online.

The upside looks compelling, with the mine producing at an all-in cost of $1.76/lb for 20 years.

Copper Supply And Demand Dynamics Remain Favourable for Copper Prices

Copper production is expected to increase by 3 per cent, coming in around 21.9-22Mt, with demand still elevated around 24Mt. The difference between demand and supply is pushing prices up, and investors are watching closely, anticipating a turnaround. Green shoots from China are the primary indicator investors will look to as they try to gauge the direction of copper prices.

Los Andes Copper CEO R. Michael Jones states the current price goes against the copper trend, which is increasing demand and short supply. As global industries move towards electrification and the global energy supply transitions from fossil fuels, copper prices are likely to rise.

The current deflationary environment and falling liquidity are pivotal in pushing copper prices down. Still, several different copper-producing companies continue to increase production in anticipation of improved market dynamics.

Copper Mountain Mining Corp’s stock is down from its all-time high of AUD 4.55, primarily due to its price retreating on a slowing global sentiment. Still, with prices re-elevating and increased production from the mine during the year’s second half, the stock may be heading for a turnaround.

Watch For a Turnaround in the Second-Half

Copper Mountain Mining Corp faced several operational setbacks, leading to lower production levels during the first half. The copper grade should improve in the upcoming quarters, and the C1 cash cost is projected to be $2.92 (all in sustainable cost), which should help improve both growth and cash flow. Production will also likely recover in the second half as mining operations get back on track. Copper Mountain Mining President & CEO Gil Clausen said, “there were several challenging issues in the second quarter contributing to lower production and higher costs.”

“Most of the impact to production came from lower-grade ore and crushing circuit throughput and mining the last benches of Phase 2 from a lower-grade area and the top cuts of the new North Pit, which was lower-grade and oxidized with some high clay content zones, creating a sticky feed that impacted crushing circuit performance with clogged chutes and crushers plugging. Further, a stripping delay in Phase 4 slowed down the release of higher-grade clean ore.”

The company is currently trading at valuations that are consistent with price-to-earnings, at 13 times. Considering revenue will increase significantly in the coming quarters, that valuation could land closer to single digits. The company expects total production to come in 30 per cent higher YoY and projects an additional 30 per cent growth in 2023, which suggests a bright future for Copper Mountain.

Copper prices are expected to trend upward in the coming quarters as demand continues to surge despite the global macroeconomic headwinds. Although electronics and homebuilding markets have stagnated, China is set to reinvigorate economic production-fueled demand for electric vehicles and renewable energy. Copper’s biggest threat is the global liquidity risk, and that central banks could continue to increase interest rates for another 4-5 months. This could mean despite the inflationary environment, the underpinning of deflationary policy could negatively affect copper prices. ‘Dr. Copper’ will be monitored closely, and should the current negative sentiment not play out, look for a quick turnaround.
   

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