Its price rise in 2025 has not been as spectacular as gold but there is little doubt that copper has performed well and will continue to do so in the short, near and long-term.
The red metal is what makes the global electrification push possible but questions remain if the industry is up for the supply challenge as demand takes off.
Copper is up by 13.6% to $US4.46/lb in the year to date. It is a historically high price as it is. But there is more to come if the supply challenge is to be met, with BHP no less doubling up on what was already a bullish stance on the metal’s outlook.
In its economic and commodities outlook released with its June year profit report, BHP reiterated that it believes the world is expected to need around 10 million annual tonnes of new mine supply over the next 10 years to meet growing demand from traditional sectors in developing countries, as well as the emerging needs of the digitalisation and energy transition megatrends.
It then highlighted why it is one almighty challenge.
“Lower grades, increased depth and complexity of deposits present technical challenges for primary supply, while growing regulatory, environmental and sustainability commitments usually add to the cost of developing a mine,” BHP said.
“The clear uptrend in capex estimates as project studies have been updated reflects these challenges — a sample of brownfield projects in Latin America suggest a 65% increase in capital intensity since 2010.
“Technological progress can help at the margin to improve the productivity of existing operations, including innovative leaching. However, this inflationary trend may prove stubbornly persistent.”
Then came its punchline, one that explains why it is so keen to expand its copper production, which is as big as they come at more than 2Mtpa, with more growth coming from its South American portfolio and eventually, its South Australian copper unit.
“For future mine supply to be incentivised, we expect prices still need to rise from today’s levels to be sufficiently high to trigger the investment that will be needed,’’ BHP said.
BHP is not alone with that view, something that is reflected in the wave of big premium M & A activity in recent times in the ASX copper space, including BHP’s own $9.6 billion acquisition of OZ Minerals.
ASX copper names that have or are going to disappear because of M & A activity include Rex Minerals (RXM), Xanadu (XAM), New World Resources (NWC) and MAC Copper (MAC). In addition there is a bunch of developers in active “partnering” processes to find a big brother with deep pockets to fund their projects, or to lob a takeover bid.
It means that ASX copper names are becoming depleted. Add that to the copper thematic as outlined by BHP and there is no wonder that there has been a noticeable increase in investor interest – and likely M & A activity – in the remaining names.
CODA:
That rang true in Thursday’s market for Coda (COD) when it put economic numbers around its Elizabeth Creek project, about 100km south of BHP’s Olympic Dam operation in South Australia.
Elizabeth Creek ranks as one of the biggest undeveloped copper projects on the ASX held by a junior. And Coda certainly ranks as a junior with its market cap remaining at a modest level ($22 million) even after its 12.8% or 1c a share price gain to 8.8c on Thursday.
The gain was in response to Coda re-cutting the economic numbers on a development following the decision announced in June on a simplified flowsheet that led to increased copper and silver production while leaving cobalt recovery to further down the track.
Annual estimated steady state production is now 31,000t of copper and 1.4Moz of silver for a total of 454,000t of copper and 20Moz of silver over the initial life of-mine.
Compared with the metrics in the wave of copper M & A activity mentioned above, the production potential is serious stuff, even if it is not yet reflected in the company’s market cap.
That point comes through in the project financials. The estimated pre-tax net present value was $1.29 billion and the internal rate of return was estimated at 39% on the metal assumptions used. Use spot prices and the comparable figures are $1.8 billion and 48% respectively.
Like the ASX names that have disappeared in recent copper M & A activity before it, Coda will either get re-rated by the market in a major way on those sort of figures or it will become the subject of a (hopefully friendly) takeover bid before long.
It’s the sort of copper market we are in.
It’s also a binary outcome scenario Coda boss Chris Stevens alluded to in his commentary on Elizabeth Creek’s economic update.
“The work underpins our strategic vision to get Elizabeth Creek to a construction-ready state with technical and economic studies and approvals in place,” Stevens said.
“There is strong demand for quality copper projects in Tier 1 jurisdictions – and we are continuing to be surprised to the upside with Elizabeth Creek.”
PolarX:
Copper’s price strength has given the big gold producers with a big dose of the red metal in their portfolios a real leg up in the year-to-date. Think Newmont (NEM) and Evolution (EVN).
They have outperformed their non-copper peers because apart from anything else, copper’s price strength has delivered greater earnings as well as allowing them to report lower gold production costs by taking the copper as a by-product credit.
As much as 30-40% of a gold producer’s revenue can come from copper and the market will still treat it as a gold stock for valuation purposes.
Against that backdrop it was interesting to see our biggest Australian-based gold producer, the $27 billion Northern Star, sign up during the week for a potentially big-spending farm-in deal with copper-gold junior PolarX (PXX).
Under the deal, Northern Star could earn up to a 70% interest in PolarX’s Alaska Range project in Alaska which comes with a mineral resource estimate across a couple of lightly touched deposits of a combined 269,000t of copper and 213,000oz of gold.
To get to the full 70% interest, Northern Star would have to spend $US39M ($A60M), with an initial joint venture contribution of $US5M offset by a pre-existing $US2M loan from Northern Star which PolarX no longer has to repay.
PolarX has been an honest toiler at Alaska Range for years but has never had the wherewithal to give the big-time potential of the existing deposits and the untapped potential along a 35km zone of interest the attention it deserves.
That changes in the farm-in deal, remembering Northern Star is of a scale now that it thinks in the Tier 1 space. Clearly it thinks Alaska Range has that sort of potential. The farm-in deal reflects that, as does Northern Star’s presence on PolarX’s share register since 2022.
PolarX shares have moved up from below 1c to 1.6c in Thursday’s market for a market cap of $38m. The company also owns the Humboldt Range gold project in Nevada where an exploration program kicks off in the December quarter.
Time will tell what comes of the Alaska Range joint venture but it is a good outcome for PolarX to keep meaningful exposure to a potential Tier 1 discovery, the value of which would be measured in the billions of dollars.
As mentioned, Northern Star is no stranger to PolarX. It is also no stranger to Alaska as its high-grade Pogo gold mine is some 150km from Alaska Range.
Incidentally, it is worth mentioning that the US is in the process of adding copper to its critical minerals list. It has implications for copper projects when it comes to streamlined permitting and government incentives.
Alaska was of course acquired by the US from the Russian Empire back in 1867.
