Central Asia Metals Share Discussion Threads

[mount teide] 17/7/2018 11:24

World's Biggest Miners Want More Copper But Nobody's Selling - Bloomberg today

So what the problem? For a start, nobody who owns a copper mine wants to give it up!




'It’s the mining world’s biggest dilemma: everyone’s hunting for copper deals, but even the richest producers just can’t pull the trigger.

The largest miners all say they’re bullish on copper and looking for growth in the metal that’s forecast to be in ever-greater demand as cities expand and electric vehicles gain traction. The industry has deep pockets for deals right now -- Rio Tinto Group may end the year having raised $8.5 billion from asset sales and rivals like BHP Billiton Ltd. and Glencore Plc are churning out massive profits.

So what’s the problem? For a start, nobody who owns a copper mine wants to give it up. Even when Glencore and Anglo American Plc were crippled by debt during the 2015 commodity slump, neither was willing to entertain an offer from Rio for their holdings in the giant Collahuasi deposit in Chile, according to people familiar with those talks, who asked not to be identified.

When it comes to listed companies, there aren’t that many options -- U.S.-based Freeport-McMoRan Inc. and Canada’s First Quantum Minerals Ltd. are among the only copper-focused producers of any real size.

“Any company with half a balance sheet is not going to be selling a copper asset at this point,” said Richard Knights, an analyst at Liberum Capital Markets. “The only place they can extract value is development assets, where they buy and develop themselves.”

Despite the growing cash piles, mining companies and their investors will be wary of pricey deals after much of the industry got burned by overpaying for assets during the last commodities boom.

Still, copper’s appeal may be tough to resist.

“There’s no question” that both Rio and larger rival BHP Billiton would look at big copper deals, said Knights. “They would have to pay up though, that’s where investor support and and management conviction could waiver.’’

And at the smaller end of the market, Lundin Mining Corp. showed Monday that going hostile might be the only way. The company made a $1.1 billion all-cash offer for Nevsun Resources Ltd., the owner of the prized Timok copper-gold deposit in Serbia, after its previous attempts were spurned.

The copper deal drought: ...................'

[mount teide] 17/7/2018 09:22

During the last three months, multi decade record imports of Copper concentrate and other commodities into China have generated a huge increase in demand for dry bulk shipping and the rates shipowners are receiving for their services.

The Baltic Dry Index is a real time barometer of the demand for dry bulk shipping(seaborne commodity carriers) - it has risen 79% since Early April to 1,695.

The BDI is now 482% above the H1/2016 shipping/oil/commodity recession lows - although still some 85% down from the 2008 record high of the last shipping/commodity cycle.

It would seem that while the price of most commodities has softened in H1/2018 after very strong increases in 2016/17, the Chinese have been filling their boots - willing to pay huge increases in shipping costs with the 'savings' made from the pull back in the price of commodities. Presumably, for the Chinese at least in the short term, the savings made from cheaper commodity prices are offsetting the rapidly escalating sea freight costs.

This is typical of the the type of market behaviour that characterises the recovery phase of highly cyclical long term markets like Shipping/Commodities/Oil.

The supply/demand dynamics of the Oil Market over the next 5 years look identical to the industrial metals markets since both have been affected by the same problem - a long recession which produced a huge waterfall reduction in capital expenditure for production development, exploration and planned maintenance over the last 5 years in a desperate attempt to preserve cash.

Despite a partial recovery in pricing over the last two years, both the global oil(outside US shale) and copper industries are yet to show any evidence of a significant increase in capital expenditures from the decade lows.



Oil Demand/Supply - Medium Term - some thoughts:

What has the last 10 years taught us about the likely growth in future demand over the next 10 years in the boom and bust oil industry?

There's little doubt on my part about these 3 assumptions:
A) Demand is growing and will continue to grow in the foreseeable future
B) Demand will control the price dynamics in the foreseeable future (not the US shale or Venezuela/Iraq problems)
C) The march of demand is pretty robust and not particularly sensitive to the price unless it spikes dramatically from a high base level as in late 2007.

Brent was $97 a barrel when the global financial crisis hit in Q4/2007, some nine months later it topped out at $147 before briefly collapsing to circa $40 and then recovering back above $100 in 2010.

Between 2008 and 2015 Brent averaged $95 - yet global consumption grew from to 84.3m bopd to 94.9mbopd - an average annual increase of 1.37m bopd.

Oil Bottomed in early 2016 and has since averaged $58 - from 2016 to 2018 oil consumption increased to 99.3mbopd - an annual average increase of 1.47mbopd.

So, even during a period with high historic average oil prices ($95 during 2008-2015) the growth in consumption hardly varied to that when prices are averaging nearly 40% cheaper(2016 to date).

This is largely due to developing Nations accounting for all of the growth and this is where the very high population Asian Nations dominate, with about seven out of every 10 extra barrels consumed globally. India’s oil demand growth is expected to outpace China by 2020. While electric vehicles are an important growing factor for oil demand, the IEA estimates they will displace only very limited amounts of transportation fuel by 2022.

The supply side of the Oil Industry:

Rystad Energy reports that 2017 was yet another record low year for discovered conventional volumes globally. Less than seven billion barrels of oil equivalent was discovered.

“We haven’t seen anything like this since the 1940s,” says Sonia Mladá Passos, Senior Analyst at Rystad Energy. “The discovered volumes averaged at 550 million barrels of oil equivalent per month. The most worrisome is the fact that the reserve replacement ratio in 2017 reached only 11% (for oil and gas combined) - compared to over 50% in 2012.” According to Rystad’s analysis, 2006 was the last year when reserve replacement ratio reached 100%; largely thanks to the giant onshore gas field Galkynysh in Turkmenistan.

Not only did the total volume of discovered resources decrease – so did the resources per discovered field. An average offshore discovery in 2017 held 100 million barrels of oil equivalent, compared to 150 million boe in 2012. “Low resources per discovered field can influence its commerciality. Under our current base case price scenario, we estimate that over 1 billion boe discovered during 2017 might never be developed”, says Passos.

“While there have been some notable successes this year, we have to face the fact that the low discovered volumes on a global level represent a serious threat to the supply levels down the road,” says Passos. “Global exploration expenditures have decreased year-over-year for three consecutive years now, falling by over 60% from 2014 to 2017. We need to see a turnaround in this trend if a significant supply deficit is to be avoided in the future.”

The dramatic price decline of oil between 2014 and 2016 and the slow recovery that followed resulted in deep cuts in exploration and development throughout the industry.

The International Energy Agency has been waving its arms for some time that this dearth of investment will mean constrained supplies after 2020.

"We are witnessing the start of a second wave of US supply growth, and its size will depend on where prices go,” said Dr Fatih Birol, the IEA’s Executive Director. “But this is no time for complacency. We don’t see a peak in oil demand any time soon. And unless investments globally rebound sharply, a new period of price volatility looms on the horizon.”

Data Sources: IEA, Rystad Energy and Statistics Portal

AIMHO/DYOR

[zebbo] 13/7/2018 22:21

Thanks MT, most informative

Lets hope the trade war does not slow China down to much. However feels like an opportunity to add.
I have not seen any near term copper price forecasts, but have read a few reports forecasting a medium term tightening of the market. Lets hope so.

[mount teide] 13/7/2018 08:23

Zeb - 'When does copper price become an issue for CAML.'

Copper averaged $3.12/lb in H1 2018 - Quoted Data in their CAML model assumed $2.81/lb for 2018 and 13,150 tonnes annual production(it is on target to do 13,750t - 14,000t) - following the H1/2018 performance, the price of copper could average $2.45/lb for the entire H2/2018 and CAML would still come in ahead of budget for 2018 revenue and earnings.


CAML's business performance against it's peers during the 8 years post the 2010 IPO tells its own story about the robustness of its low cost operating model in a severe downturn - since 6 of those years were effectively the deepest and longest recession in the sector in living memory. A recession which brought most of the industry heavyweights to their knees, wiped out many of the smaller operators/explorers and generated a collapse in mine development and exploration capital expenditure that will see the sector in deficit for most of the next five years.


Total Shareholder Returns - CAGR since 2010 CAML IPO - a period during which Copper, Zinc and Lead pricing dropped by 56%, 68% and 60% respectively to decade lows in 2016.

+24.9% - CAML

-0.9% - Antofagasta
-1.1% - Oz Minerals
-1.4% - FTSE 350 Mining
-4.6% - Atalaya
-7.0% - Kaz Minerals
-13.7% - Capstone
-21.0% - Weatherly

[garycook] 13/7/2018 07:48

13 Jul Central Asia Metals PLC Peel Hunt Buy 0.00 365.00 350.00 Reiterates

[blomers] 12/7/2018 17:48

They were still paying divis right through the commodity slump, so the price can go down a lot further before it becomes an issue for the divi. Also diversified into other metals so less reliant on just copper.

[zebbo] 12/7/2018 10:24

When does copper price become an issue for CAML. Not sure what price per ton they budget to for the business model inc divi's etc

[serratia] 11/7/2018 12:52

Click on financials at the top of this page, it shows the yield.

[king suarez] 11/7/2018 11:35

c6.5% or so?

[zebbo] 11/7/2018 10:52

Any idea what the yield is on these at current SP

[gary1966] 11/7/2018 07:25

If that’s the case then they have been working very hard overnight. :-(

[ntv] 11/7/2018 06:37

word is that the chinese are forcing the price of copper and other metals down by selling off trying to force trumps hand over tariffs
also to buy foriegn assets again as they did before
just one big power game

[coxsmn] 10/7/2018 19:10

https://www.thechargingpoint.com/news/articles/uk-will-soon-have-a-huge-push-on-public-electric-car-charging-points/

[cflather2000] 10/7/2018 11:40

Gosh I love a boring business with boring dividends :)

[shanklin] 10/7/2018 10:06

Thank you MT

The current share price seems quite bizarre

[garycook] 10/7/2018 10:02

10 Jul Central Asia Metals PLC Peel Hunt Buy 258.00 365.00 - Reiterates

[mount teide] 10/7/2018 09:57

Martin - 'Net debt 31 December 2017 $138.9m'

Debt free? - much depends on future metal pricing.

Considering the Company's stated position on future dividend payments and assuming mine maintenance capital expenditure and exploration costs remain very low(both reasonable assumptions), and they don't find and buy another mining business priced to their very demanding taste - at the present average metal pricing - i would stab a guess at 2-3 years.

[shanklin] 10/7/2018 09:23

MT,

When please do you expect CAML to be debt free given the level of dividends and exploration?

Plenty of opportunity to buy this morning before the share price started moving upwards

Thank you & Cheers, Martin

[mount teide] 10/7/2018 08:44

Good update - H1 production in line with expectation.

Copper, Lead and Zinc H1/2018 pricing averaged 11.7%, 7.7% and 1.1% respectively above that assumed in Quoted Data's model.

H1 Copper sales were down by circa 750 tonnes compared to H1/2017 but they mention there is 760 tonnes in stock - so that presumably accounts for much of the differential.

If the H2 production performance replicates last year - annual Copper production should come in at 13,750 - 14,000t, with Zinc 1% ahead and Lead 1% behind 2017 annual production. If Zinc and Lead production in H2/2018 replicate H1/2018 - Annual Zinc production will be +2% and Lead -2% to that of 2017.

A well managed, boring, predictable, high dividend paying business - long may it continue.

[melody9999] 10/7/2018 08:34

Given the share price fall its a re-assuring update as production underpins cash generation. 16.5p annual divis or some 6.5% at present.

[shieldbug] 10/7/2018 07:50

Shanklin - Agree cash in bank An odd inclusion - for what its worth from 2017 full results "Cash in the bank as at 31 December 2017 of $45.8 million" - so the cash position is down $5m or so.

[aishah] 10/7/2018 07:42

$CAML H1 2018 operations update - copper production of 6,747t, zinc production of 11,020t and lead production of 14,386t. CAML on track to meet full year output targets for all three metals #mining #copper #zinc

[shanklin] 10/7/2018 07:16

I appreciate its not a trading statement but given they detail "Cash in the bank", it would have been nice to have been told the position on net debt.

Otherwise looks fine to me but WDIK?

[arf dysg] 09/7/2018 16:49

Power pylons carry high-voltage electricity because high voltage means low current (given a requirement for power delivered). Low current means low losses due to resistance of metal. That means you can use thinner wire. One also worries about radiation losses but that's another story.


For cars, one only worries about the metal resistance (and not about radiation), so for power delivery, one could in theory use high voltage and low current. That would result in thinner wires (lower usage of copper), but this needs voltage step-up and step-down conversion as necessary. Voltage conversion devices may be heavy or expensive or simply take up space in the car. It's also one more complication to keep the designers busy and put the cost up.


That's fine for power transmission, but within electric motors, you really do need high current to create the magnetic fields and there's no alternative. ("Ye canna change the laws of physics, Jim!") That means fat wires carrying high current, or many more adjacent thinner wires, resulting in the same total current and the same total useage of copper.


In short, you're going to need lots of copper in an electric car and there's no real alternative.