Copper Prices Are Surging - Will You Be Investing? 🤔

Copper prices have surged since last year due to concerns about shortages of copper concentrate following the closure of First Quantum's Cobre mine in Panama. Analysts noted the loss of a million tonnes of supply and highlighted the energy transition demand amid underinvestment in new mines. The reversal of short positions on Chinese demand also contributed to copper's gains.

As the copper price rally continues, copper surged to $10,000 a ton last week, driven by expectations of increased demand from green industries. The rise, fueled by global manufacturing activity and supply tightness, has prompted optimism among traders and investors like BlackRock and Trafigura Group.

With the need for millions of tons of copper for electric vehicles and renewable energy, prices could rise further, possibly reaching $12,000 a ton to incentivise new mine investments. Despite bullish futures markets, physical trading signals caution with fading premiums and ample supply, though BHP Group's proposed takeover of Anglo American highlights the allure of copper assets.

Factors worsening the supply-demand gap include:

• Energy Transition: Renewable energy and EV adoption increase copper demand for infrastructure.
• Urbanization: Emerging economies' rapid urbanisation requires copper-reliant infrastructure.
• Technological Advancement: 5G networks, IoT devices, and other tech escalate copper needs.

In the near future, the demand for copper is expected to soar from technologies and development, including electric vehicles, renewable energy, and expanded power grids, while major mines become scarcer and costlier to develop. BHP Group's bid for Anglo American highlights miners' preference to acquire competitors rather than invest in new projects due to high construction costs. According to Colin Hamilton from BMO Capital Markets, the anticipated increase in supply in response to higher prices has yet to materialise.

On a side note, there are reports that BHP Group is mulling over a better bid for Anglo-American after its initial $39 billion offer was turned down. BHP declined to comment on the rumours, while Anglo-American hasn't responded yet.

As major mines become scarcer and more expensive, smaller exploration companies could capitalise on untapped reserves in regions like South Africa.

At its Okiep project in the Northern Cape, Orion Minerals' high-grade copper find is a significant step toward production from the former Gold Fields asset. A recent trading suspension on the JSE preceded a 31.58% surge in shares to R0.25 after the discovery. The company's diamond drilling at Flat Mine East revealed "outstanding initial results," confirming the highest-grade intercept ever reported at the site and shaping Orion's early production strategy. Plans for further drilling totalling 5,800m aim to validate historical findings and gather geotechnical data. 

Copper 360 shipped the first copper concentrate from the Northern Cape in 21 years, with record grades exceeding 30%. The Nama Copper plant produced 136 tonnes of concentrate, aiming for over 1,000 tonnes monthly in three months. MFP 1 plant starts production in July 2024 with a 1,400-tonne capacity, while the SX/EW plant aims to increase copper cathode production to 100 tonnes monthly next quarter.

Other copper explorers available on EasyEquities that could possibly offer exposure to the copper market include Hot Chili, a copper mining company aiming to build shareholder value through the growth and development of its Costa Fuego Copper Project in northern Chile. Sandfire Resources is another copper mining and exploration company with exploration projects in Australia, Botswana, Spain, and the U.S. Freeport-McMoRan, a prominent American mining company, operates the Grasberg mine in Indonesia, the world's second-largest copper mine. 

Standard Bank's Copper-Linker Exchange Traded Note offers investors cost-effective exposure to copper prices through a total return index, incorporating near-dated USD copper futures, USD interest rates, and the USD/ZAR exchange rate.

Portfolio manager at Valent Asset Management, Jay Tatum, stated, “Copper is transitioning from an investment story that made a lot of promises to one where some of those promises are starting to be delivered on — rising copper intensity across the economy, supply-side challenges, concentrate tightness, and restocking effect after a long manufacturing slowdown.”

Conclusion

Prices can't climb forever. When they're high, it encourages more copper production, which can eventually help ease prices. Where this copper comes from matters for investors - it's about being in the right place to meet the growing demand.

On the other hand, mining companies' share prices tend to move relative to the commodity they're mainly focused on. Unlike large mining companies, explorers tend to be more volatile, which could also result in short-term gains for shareholders amid commodity price volatility.

When it comes to explorers, it’s crucial to take into account the juniors' cash burn rate (how fast a company burns cash), how long before production begins, and the price when mining commences. 

As countries return to work to ensure food security while working on the energy transition: there are potential opportunities in the electric vehicle (EV), energy supply, and fertilizer sectors.

At COP28, the President of the French Republic and US Special Envoy for Climate revealed that the Declaration to Triple Nuclear Energy by 2050 was joined by more than 20 nations. 

Exelon is the US’ largest electric delivery company, serving as the electric and natural gas company in several large population centers in the country.