Central Asia Metals Share Discussion Threads

[dogwalker] 08/9/2019 07:57

So, in summary, the price of copper is more likely to rise than fall, according to G&R.

[mount teide] 07/9/2019 19:32

Latest research from Goehring & Rozencwajg on the global Copper supply situation over the next 5 years.

Has some very useful information from people who have actually visited the largest new mines under construction, scheduled to enter production by 2025. Well worth a read.


Copper Supply Takes a Hit - Goehring & Rozencwajg Natural Resource Market Commentary

'Over the last three and a half years, we have remained committed copper bulls. On the demand side, a number of important trends have emerged suggesting that copper has the best demand profile of all the base metals.

First, strong Chinese demand growth will continue. Next, investments in renewable energy sources remains incredibly copper-intensive and are set to accelerate. Finally, India (which has the world’s second largest population) has an extremely low level of copper invested in its economy. We believe this is about to change as India enters into a period of accelerated copper consumption that could last for decades.

Each of these copper demand sources are in and of themselves significant, but our research tells us that all three are now taking place simultaneously. This has the potential to overload the global copper market as we progress into the next decade.

Because of Trump-related trade war fears, we are seeing some weakness in Chinese copper demand. For the first five months of 2019, the World Bureau of Metal Statistics (WBMS) indicated Chinese copper demand fell 3.5% year-over-year, however this appears to have abated as Chinese demand rebounded strongly in April and May. Given the recent up-tick in Chinese manufacturing data and steel production, we believe the Chinese economy is not slowing to the degree many bears fear.

At the same time, there have been very large developments regarding copper mine supply that have received little attention. In previous letters, we discussed how copper mines supply would cease to grow, after having surged by over 5% in both 2015 and 2016 as six new mines came on line in Peru and Kazakhstan.

Few new “greenfield221; mines were scheduled to come after 2016, while “brownfield221; mine developments would not be enough to overcome global copper mine depletion.
Since 2016, copper mines supply has indeed been flat. Going forward, the only significant source of new mine supply will come from the development of the Cobre Panama mine where production is now starting to ramp up.

Next year, Cobre Panama is expected to produce 150,000 tonnes of copper and production should ramp to 350,000 tonnes in 2021. In 2022, the company plans to begin a mine expansion and ultimately double production by 2024-2025.

After Cobre Panama ramps up, the next large “greenfield221; project to come on line is the massive Oyu Tolgoi underground block-cave in Mongolia. Copper production from Oyu Tolgoi underground was estimated to reach 75,000 tonnes in 2022, 275,000 tonnes in 2023, and ultimately 425,000 tonnes by 2024.

The next great “greenfield221; project to come on line would be Ivanhoe’s Kamoa-Kakula project in the Democratic Republic of Congo, expected to commence production sometime in 2023. We just visited the Kamoa-Kakula project, and in a moment we will discuss our obser- vations. First, we must discuss the recent problems plaguing Oyu Tolgoi in Mongolia.

I first visited OyuTolgoi back in the summer of 2002, just before the “HugoNorthR21; discovery was made. At the time of my visit, the Oyu Tolgoi mining camp was abuzz with excitement regarding the upcoming drilling targeting a huge magnetic anomaly just to the north of the original deposit.

A huge Soviet Antonov An-225 cargo plane had been contracted to deliver the drill rig to the Ulaanbaatar airport. Drilling was scheduled to commence a few weeks later. Just as the geologists had expected, the drilling program discovered a huge extremely high-grade copper-gold deposit that was named “Hugo North” in honour of Hugo Dummett, the distinguished geologist who worked for the predecessor to Turquoise Hill Resources (TRQ), and had just been killed in a highway accident in 2002.

The “Hugo North” discovery was one of greatest copper discoveries made in the latter half of the 20th century. It is unique in that it is both high grade and large. Assuming 400,000 tonnes of copper production per year, the mine will still be producing 60 years from today.

In July, Turquoise Hill Resources, in conjunction with its operating partner Rio Tine, announced that start-up of the underground block-cave had been delayed for up to two years as the company wrestled with rock geotechnical conditions that were not previously understood. The company announced that design of the underground mine might have to be changed and that the capital needed to complete the project would be 25% to 35% higher than originally expected.

The announcement raised a number of questions that were not answered by the company which suggests the underground start-up might be significantly delayed again. The company has determined that the present mine design is sub-optimal and significant changes will likely be required. However, exactly what the problems are and how they will be resolved remain unknown.

Given the inherent complexities involved with block-cave operations, and the huge amount of underground development work that has already taken place, we would not be surprised if further delays ultimately end up pushing the start-up out much further. Making matters worse, rumors have emerged that the Mongolian Government is unhappy about both the delay and the surge in capital costs.

It was only back in 2015, after a lengthy stoppage in underground development, that the present fiscal agreement between Turquoise Hill, Rio Tinto, and the Mongolian government was reached.

The Mongolian government controls 34% of the Oyu Tolgoi project, but will not receive any payouts until 2041. This is because the loan to fund the purchase of the 34% interest first needs to be repaid. Given the delay and the capital cost increase, the payback period is going to be pushed out even further.

In response to the further delay of any potential dividends, the Mongolian Government has said it might “rip up” its 2015 fiscal agreement. Given the uncertain fiscal conditions, Rio Tinto, the operator of the Oyu Tolgoi project, stopped underground development for two years before the 2015 fiscal agreement was put in place.

If the government were to reopen the 2015 fiscal agreement, another stoppage in underground development would be likely. While at this point we cannot know how serious the Mongolian threats are, it is something we will monitor will great interest. As things stand today, the Oyu Tolgoi underground will not commence before mid-2023.

The net result is that 400,000 tonnes of copper production (or 2% of world mine supply) that was scheduled to hit the market in 2021, may not start until mid-decade. The problems at Oyu Tolgoi highlight the difficulty in growing copper mine supply as we move into the 2020s.

This bring us to Kamoa-Kakula, Ivanhoe Mines’ (IVN) project in the DRC. We visited the project back in the beginning of May. The deposit is clearly world-class. The project economics rank among the best we have seen based on the current resource. Moreover, there is strong reason to believe that new large discoveries will be made across Ivanhoe’s exploration concession immediately to the west of the Kamoa North discovery.

The project sits on the western side of the historical Congo copper belt in an area that geolo- gists never before explored. Consensus geological wisdom held that copper mineralization ended immediately west of the mining village of Katanga and as a result little exploration ever took place.

Ivanhoe reinterpreted the geological theories and their exploration success in this new area has changed the conventional wisdom.

The total capital cost to develop the Kamoa-Kakula deposits is estimated at $1.1 bn while the project will generate an after-tax NPV of $10 bn using a $3.10 copper price. For those unfamiliar with modern mining economics, these figures are basically unheard-of.

Initial production is expected to start at the Kakula mine in 2023 and will eventually ramp up over the next 10 years to almost 475,000 tonnes of annual copper production. Given the high probability that additional new deposits will be discovered, the ultimate copper production from the project might end up being significantly higher.

We believe the biggest risk to the project comes from the DRC government. Since the original Kamoa discovery was made, the DRC government has already changed the mining royalty structure, including the addition of a “super-profits” tax which kicks in when the commodity price rises 25% above the assumed price used in the project’s feasibility study.

Given how governments chronically change mining fiscal terms, we believe there is a strong possibility that the DRC could very well change the terms again, long before the Kamoa-Kakula project comes on line resulting in project delays.

Further negotiations between the project consortium (besides Ivanhoe, two large Chinese SOEs are involved with the project) and the government have still not concluded. We believe the most contentious issue will be the government’s stated intention that IVN build a copper smelter to process the mine’s concentrate. Such a smelter would represent a large additional capital cost for the project.

While the project’s economics are so robust that building a smelter would only slightly diminish the ultimate returns, there are other problems aside from economics. As of today, we do not believe the region’s electrical supply is either large enough or reliable enough to justify a smelter.

While these problems will ultimately be resolved, in the meantime that could present problems for the project’s aggressive start-up date. For a good example of the problems surrounding smelters, just look at what befell Freeport Copper and the Indonesian government as a result of the government’s demand for a new copper smelter to be built in Indonesia.

The Kamoa-Kakula copper project is incredibly robust and we believe there are few (if any) technical issues (like the problems that surround the underground project at Oyu Tolgoi). However, the complexities of dealing with the DRC government could ultimately make the ramp-up of the project by 2023 too optimistic.

Deeply embedded problems have emerged in copper mine supply over the last several years. Increased mine depletion and the lack of large scale “greenfield221; projects top the list. To this, we must now add issues surrounding Oyu Tolgoi. Making matters more complicated, several of the world’s largest copper mines are in the process of transitioning from open-pit to under-ground.

As Grasberg (the world’s second largest copper mine) and Chuquicamata (13th largest copper mine) both go underground, the risk of additional disappointments grows. Given all these issues, we believe it will extremely difficult to see any copper mine supply growth in the next five years.

We think that the copper market will be the best performing base metal as strong demand trends are met by a dearth of mine supply growth. Today, investors are bearish as worries about trade-war dislocations and Chinese copper demand take center stage.

However, the demand and supply trends just discussed will exert themselves over the next several years.

Copper bottomed in January 2016 at $1.95 per pound before rallying to $3.30 over the next 18 months. Given the fear surrounding Chinese growth and trade-related demand impacts, copper prices today have pulled back to $2.60 per pound. We believe the pullback has presented investors with an excellent buying opportunity.'

[garycook] 07/9/2019 03:49

pol123,I think your correct.Lauders could you please sell then LOL.Being serious IMHO CAML will be good when Metals recover.Hoping for over 250 plus in time.

[lauders] 06/9/2019 02:11

Because I hold Gary! Sorry about that.... If I sell it is bound to go up ;-) Let's hope the 17th September interim results bring us joy and change the current lack of interest in CAML expressed by the market!

[pol123] 05/9/2019 21:53

CAML works in a strange way. Think the market will be waiting for the imminent results. Could be a catalyst to move up if results are good (lets hope so)

[garycook] 04/9/2019 16:20

Why is CAML not rising today with the rest of the Miners.Copper,Lead, & Zinc up strongly ?

[3noddy] 03/9/2019 23:12

Interesting article on zinc, (I don’t know if any of it is correct mind you , as the author Steve Stakiw, at one point states that the price of nickel is still in decline!) Here’s a couple of snippets:


02.09.2019

“Counter to zinc’s price weakness is the metric that global refined inventories have dropped to multi-decade lows. Refined zinc inventories in LME warehouses are at a reported 77,000 tonnes, while reported inventories on the Shanghai Futures Exchange are at 89,500 tonnes.

Just how tight are inventories? Total current reported global refined inventories of 250,000 tonnes represents a week of global consumption needs, which is up slightly from lows seen earlier this year, when just five days of supply resided in the metal warehouses. However, these historically low refined inventories have not been able to add much of a catalyst to prices....”


“While galvanizing is expected to remain by far zinc’s primary end use, potential sources for demand include agriculture. The International Zinc Association is a strong proponent of the Zinc Nutrient Initiative and Zinc Saves Kids (along with UNICEF) that has worked to advocate and implement zinc’s use as a micro-nutrient in fertilizers.

The Zinc Nutrient Initiative has started more than 500 trials in eight countries — China, India, Bangladesh, Democratic Republic of the Congo, Malawi, Brazil, Peru and Mexico — where agricultural soils are identified as zinc deficient. Adding zinc to fertilizers has evidenced significant increases in crop yields, as well as boosting nutritional value of the grown product.

Zinc battery technology is another emerging use of the metal that could see future growth. However, it remains early stage, and the battery market can be quite dynamic. Zinc air battery technology has entered commercial application and looks to offer low-cost, recharge options for grid energy storage.”

[lauders] 02/9/2019 14:14

Thanks for the link The Deacon. Have to hope he is correct about Cu's future, but he seems to think like many others in this regards. Hope they aren't all wrong!

[the deacon] 02/9/2019 08:08

https://www.brrmedia.co.uk/broadcasts/5d5d061a85f23e7c1eda6b2a/anglo-pacific-project-tarantinoGood, brief comments from APF as to why they have been looking at copper exposure. Expecting a significant move in copper over the next year or two. Interview above is worth a couple of mins of your time.

[lauders] 27/8/2019 11:21

Thanks Gary. However, always nice to know where these words of wisdom are sourced ;-)

For those interested in the answer to that question:

You can now either believe it or ignore it!

[garycook] 27/8/2019 07:44

Cheap income
Clearly, anyone considering buying a slice of a business involved in the volatile mining industry must go in with their eyes wide open, especially given current concerns over slowing global growth. Nevertheless, my first pick is Central Asia Metals (LSE: CAML).

One big attraction of this copper, zinc and lead-focused firm is that it’s a great source of dividends (in sharp contrast to many of its smaller peers). A mooted 14p per share total return in 2019 equates to a stonking 7.5% yield based on last Friday’s closing price. Normally, I’d be wary of such a sizeable cash return but cover of 1.8 times by profit suggests holders should be able to sleep at night.

The shares are down 30% since April, not helped by the ongoing trade friction between Donald Trump and China. Should a resolution be found in the near future, we could see a bounce. In the meantime, prospective investors will only be paying a little under 8 times earnings to acquire the stock.

[napoleon 14th] 24/8/2019 14:57

PRO_S filtered.

[andyj] 19/8/2019 14:26

I reckon you have never been to China lol.

[masurenguy] 19/8/2019 12:57

RBC Capital Markets released a brokers note this morning with an outperform recommendation and a target price of 290p.

[shortarm] 19/8/2019 11:24

Hmmmnn, your approach seems not to be working?

[sefton1] 19/8/2019 09:45

Beware, ProS2009, previously posting as PapalPower, can be just as untruthful as the Chinese government.

[mount teide] 19/8/2019 09:30

China and the Nation's of SE Asia as consumers of the overwhelming majority of the world's commodity production, want to pay as little as possible for these commodities and the global shipping fleet that delivers them to their ports.

In a digital world it is very difficult to manipulate Ship Manifest, Customs import data and annual port cargo throughout tonnage figures without it being picked up by third parties who will be directly affected financially - the shipbroking and port's industry - shipbroking and port cargo handling fees are levied using this data.

Currently, China and many SE Asian Nations are importing all-time record volumes of many raw industrial commodities such as oil, copper, iron ore, aluminium and nat gas.

[pro_s2009] 19/8/2019 00:17

Trouble is China is communist and they lie. Their figures are all about having "face" and rather like North Korea who tell their people they live in paradise, China loves to tell the world its growing strongly, when actually its not doing so.

Reality v Fantasy

China will never admit its struggling, they would never admit Trump is kicking their ass, they will never show drastically lower figures. They control everything in terms of their statistics.

But anyway, the truth will out in the end. Copper price is a good indicator of Chinese economic activity - if the copper price keeps falling, then so is Chinese economic activity.

[pro_s2009] 18/8/2019 23:08

China is the worlds largest consumer of copper. China is slowing down and also facing tariffs which will accelerate slowdown.

Therefore the slide in copper may reach 1.5 US$ per pound ahead.

[bob_rjp] 18/8/2019 22:53

Well pol123 if there really is going to be a recession then CAML will likely fall a lot more from here. Today I’m only down 15% why wait and make that 30% or 50% or worse ?. i can always buyback in later and if the share is much lower then so much the better. Commodity stocks and miners in particular seem very high risk to me right now, and one that I would prefer to avoid.

[pol123] 18/8/2019 19:32

Could be a bit late in the day to jump ship. Outlook for CU remains strong and CAML will bounce back with CU. Gold could be a false dawn if a trade deal is landed etc also gold stocks have jumped significantly already. Which ever way you turn today, there is risk.

Personally, happy to sit tight knowing the CAML is very well run and will bounce back, as sure as night follows day