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Emerging Supply Gap in 2nd Half of this Decade Necessitates New Slew of Copper Mine Projects

2021.11.29
Copper’s widespread use in building construction, power generation and transmission makes it a key metal for civil infrastructure renewal….

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This article was originally published by A Head of the Herd

2021.11.29

Copper’s widespread use in building construction, power generation and transmission makes it a key metal for civil infrastructure renewal. Roskill forecasts that the world’s total copper consumption is set to exceed 43 million tonnes by 2035, driven by population and GDP growth, urbanization, and electricity demand.

This decade, with the global push towards vehicle electrification, demand for copper is about to take off, given that a typical EV uses about four times more of the metal as a regular internal combustion engine (ICE) vehicle.

Consulting firm AlixPartners estimates that EVs, which at the moment only represent 2% of the total global vehicle sales, will make up 24% of total sales by 2030. Investments in EVs by 2025 could total $330 billion, it predicts.

Seeking to make half of the new US auto fleet electric by 2030, President Joe Biden has already called for $174 billion in government spending to boost EVs, including $100 billion in consumer incentives.

Such measures are sure to put a strain on the global copper sector, which is already suffering from years of underinvestment dating back to the 2000s, translating to a lack of new mines being developed.

In 20 years, BloombergNEF says copper miners need to double the amount of global copper production just to meet the demand for a 30% penetration rate of electric vehicles — from the current 20Mt a year to 40Mt.

Keep in mind that electrification does not just include cars, but also trucks, trains, delivery vans, construction equipment, and two-wheeled vehicles like e-bikes, motorcycles and scooters; so copper usage is bound to go higher than projected.

Copper, too, is needed for charging stations and renewable energy, particularly in photovoltaic cells used for solar power, and wind turbines.

Data from CRU Group shows copper consumption by green energy sectors globally is set to jump five-fold in the 10 years to 2030.

Overall, to electrify societies’ infrastructure and to achieve a 1.5˚C global warming trajectory, approximately $50 trillion of investment will be needed over the next two decades, according to global energy consultancy Wood Mackenzie.

Source: Wood Mackenzie
Source: Wood Mackenzie

Under WoodMac’s more lenient Accelerated Energy Transition-2 (AET-2) scenario, which is consistent with limiting the rise in global temperatures since pre-industrial times to 2°C, roughly 19Mt of copper will be needed to feed the energy transition over the next 20 years — representing an additional supply increase of 85% (see above).

This is an obvious challenge that today’s producers must overcome, not just now but for the next two decades and beyond.

Supply Lagging Demand

S&P Global Market Intelligence predicts that due to a shortage of projects, supply will lag demand starting in the long term.

While the New York-based analytics firm expects mined copper production to rise to 21.87Mt and 26.14Mt in 2021 and 2025, respectively, from 21.16 Mt in 2020, that would not prevent a supply gap in the post-2025 years.

Production from existing copper mines, including concentrate and solvent extraction-electrowinning, is expected to increase at a CAGR of 1.0% in 2021-25 but fall at a CAGR of 4.7% in 2026-30, driven by declining ore grades and mine closures.

These mines include Glencore’s 33.75%-owned Antamina (BHP 33.75%, Teck Resources 22.5%, Mitsubishi 10%), Codelco‘s Radomiro Tomic and Teck’s Highland Valley.

As a result, production from existing operating mines — not considering those assets that are starting up, project expansions or mine restarts — is projected to fall to 15.90Mt in 2030 from 20.53Mt in 2021.

Diminishing supply from currently operating mines, combined with the projected increase in demand for copper concentrate over 2021-2030, would result in a 3.85Mt production shortfall in 2025, according to S&P Global estimates.

Source: S&P Global Market Intelligence
Source: S&P Global Market Intelligence

The refined copper market will also move into a 279,000-tonne deficit by 2025, from a 142,000-tonne surplus in 2020, S&P Global adds.

From 2026 to 2030, the copper industry will be unable to meet a growing demand for concentrate, even when including uncommitted development-stage projects that could potentially move forward and start up during this period, S&P Global says.

Dwindling copper reserves and lower ore grades at some of the world’s largest mines also mean that a new deposit would just be replacing the existing output, thus not contributing to supply growth at all.

CRU estimates that over 200 copper mines are expected to run out of ore before 2035, with not enough new mines in the pipeline to take their place.

The solution, as simple as it sounds, is to have more copper projects that can be developed into producing mines. S&P Global has identified 14 probable and 26 possible projects in the copper pipeline, though the firm admits it’s unlikely that all will come to fruition.

Therefore, given the copper‘s increasing demand from the EV and the renewable energy revolution, more action from the mining industry is imperative to close the supply gap.

S&P Global estimates that new copper discoveries have fallen by 80% since 2010.

As of now, the global copper cupboard is quite bare. Remember, to even have a chance at net-zero emissions, at least 19Mt of additional metal must be delivered by 2040, the equivalent of one new Escondida mine (1Mt annual production) every year.

While such a feat is difficult to achieve, finding the right investments in projects leading to copper discoveries would help to close the supply gap.

According to CRU, the copper industry needs to spend upwards of $100 billion to erase what it estimates to be a 4.7Mt deficit by 2030.

Prospective Copper Projects

At AOTH, we are paying close attention to several companies that are holding onto highly prospective copper projects.

In Chile, notorious for its world-leading copper production, Pampa Metals Corp. (CSE: PM) (FSE: FIRA) is advancing as many as eight projects right in the heart of northern Chile’s proven copper belts.

The mid-Tertiary porphyry copper belt of northern Chile is currently host to three of the world’s top five copper mining districts: Collahuasi, Chuquicamata and Escondida. The adjacent Paleocene mineral belt also hosts a series of important porphyry copper deposits such as Cerro Colorado, Spence and Sierra Gorda.

Together, the company’s properties cover a total area of 59,000 hectares, making it one of only a few juniors with significant landholdings in the Atacama region that is mostly dominated by major miners.

Still, a large part of the region remains underexplored to this day as roughly half of northern Chile is covered by gravel that was deposited after the formation of the porphyries, which means more mineral deposits are likely concealed underneath.

On the other side of the Andean copper belt in Colombia, Max Resource Corp. (TSXV: MXR) (OTC: MXROF) (Frankfurt: M1D2) may be holding onto what could potentially be a massive sediment-hosted system comparable to some of the world’s best.

Max interprets the sediment-hosted stratabound copper-silver mineralization in the Cesar basin to be analogous to both the Central African Copper Belt, which contains nearly 50% of the copper known to exist in sediment-hosted deposits, and the Polish Kupferschiefer, Europe’s largest copper source.

For over a year, the company has not only been finding high-grade copper zones at its flagship CESAR property but expanding these areas to confirm this hypothesis. To date, five copper discoveries have been made along an 80 km belt, demonstrating its significant regional potential.

Max’s goal is to partner up with a major to begin drilling at CESAR. Interest so far has been strong, with multiple non-disclosure agreements in place to advance the project, including a collaboration agreement with an industry-leading copper producer.

Just this week, the company was granted three key mining concession contracts, for a total of four, for the URU copper zone, one of the discoveries from earlier this year along the 90 km long copper-silver belt.

Europe, too, has an abundance of porphyry copper deposits that can be traced back to the Paleozoic and Late Cretaceous to Miocene ages. The Baltic Shield, in particular, has often drawn comparisons to the Canadian Shield and cratons in South Africa, and is currently one of the most active mining areas on the continent.

Part of the Shield covers most of Scandinavia, where Norden Crown Metals Corp. (TSXV: NOCR) (OTC: NOCRF) (Frankfurt: 03E) is looking to bring back its gloried copper past.

The company recently began exploration drilling at its Burfjord project in northern Norway. The property is located in the Kåfjord copper belt, which is highly prospective for iron oxide-copper-gold (IOCG) and sediment-hosted copper mineral deposits.

Mineralization at Burfjord belongs to the same deposit clan of the northern Fennoscandia region, a key IOCG province globally. Copper mineralization was mined in the Burfjord area during the 19th Century, with over 30 historic mines and prospects developed along the flanks of a prominent 4 km x 6 km anticlinal structure.

The 2021 drill program is designed to continue testing copper-gold grades and continuity of new targets, historical mines and prospects at the Burfjord property.

In Finland, months of drilling success by Palladium One Mining (TSXV:PDM) (FRA:7N11) (OTC:NKORF) on its Läntinen Koillismaa (LK) PGE-Cu-Ni property have culminated in a much-increased resource endowment, further confirming the project’s potential to host a large bulk-tonnage deposit.

At the Haukiaho zone there are significant base metals, with two-thirds of the zone’s value in nickel and copper.

The latest resource estimate of 1.2 million ounces palladium equivalent (PdEq) grading 1.15 g/t, comprises only 3 km of strike length; 2 km of strike extent, immediately east of the Haukiaho resource estimate, contains two significant IP chargeability anomalies with sufficient historical drilling to potentially be upgraded to inferred resources with modest additional drilling.

The remaining 12 km of the Haukiaho trend has not been drill tested, though widely spaced historical drilling provides a high level of confidence for potential additional nickel-copper resources to be delineated, says Palladium One.

Palladium One also continues to outline a high-grade nickel-copper system at its Tyko Ni-Cu-PGE project in Ontario, where a second-phase drill program started in April and a recently announced expansion increases the size of the property by over a fifth.

All 13 holes drilled at the Smoke Lake target intersected magmatic sulfides, with widths ranging from 1 to 15 meters. A second-phase, 2,000m drill program started in April, following up on high-grade hits of 9.9% nickel equivalent (Ni­Eq) over 3.8m. A number of high-grade intersections were reported, all near surface.

Excited as Palladium One is about its nickel results, there are also notable copper and nickel occurrences, in particular the RJ and Tyko zones located about 18 km west of Smoke Lake. Drilling in 2015 returned several intercepts over 1% nickel + copper with a high of about 1.5% Ni + Cu.

The 7,000-hectare mafic-ultramafic Bulldozer intrusion, which has seen virtually no geological mapping nor exploration, also has significant historical copper showings.

Another place well-known for its copper minerals is British Columbia, Canada, home to big copper-gold and copper-molybdenum porphyries, such as Red Chris and Highland Valley. Here, GSP Resource Corp. (TSXV: GSPR) (FRA: 0YD) is currently looking to bring back the past-producing Alwin mine located 18 km from the town of Logan Lake.

The property lies in the vicinity of several large-scale mine operations. It is southwest of the New Afton and Ajax mines, and right next to Teck Resources’ Highland Valley copper operation.

A drilling campaign is set to begin soon at the Alwin project, aimed at testing the bulk tonnage copper potential of unmined mineralization within and surrounding the historical mine.

In the province of Quebec, Renforth Resources’ (CSE: RFR) (OTCQB: RFHRF) (FSE: 9RR) 260-square-kilometer Surimeau property hosts several target areas for gold and industrial metals (nickel, copper, zinc, cobalt, silver) located south of the Cadillac Break, a major regional gold structure.

Summer prospecting on the southwestern part of the Huston target returned 1.9% nickel, 1.3% copper, 1,170 parts per million (ppm) cobalt and 4 grams per tonne silver, from a grab sample taken from strongly foliated diorite.

The little-explored Huston area is located about 18 km northwest of the Victoria West target, where recent drilling, trenching and surface sampling reveal an area of interest that includes about 5 km of strike on the western end of a 20 km magnetic anomaly.

The company interprets this anomaly to be a nickel-bearing ultramafic sequence unit, which occurs alongside, and is intermingled with, VMS-style copper-zinc mineralization.

Renforth management says the spectacular result from Huston (grades above 1% nickel and copper are today considered high grade) is the first documented nickel occurrence in the area.

At its Malartic West property, Renforth plans to follow up channel and grab samples that revealed a copper and silver mineralized system known as the Beaupré copper discovery.

In the northern part of the property this system has been traced over 175 m and remains open. The 53 sqkm project is contiguous to Victoria West and adjacent to the western border of Canadian Malartic, Canada’s largest open-pit gold mine.

Conclusion

“The energy transition starts and ends with metals.” This is a direct quote and call-to-action from WoodMac’s latest energy outlook report. 

Julian Kettle, senior vice president of the firm’s metals and mining division, says “delivering the base metals to meet [net zero 2050] pathways strains project delivery beyond breaking point from people and plant to financing and permitting.”

All in all, base metals capex needs to quadruple to about $2 trillion to achieve an accelerated energy transition.

Copper, which WoodMac emphasizes “sits at the nexus of the energy transition”, stands out particularly. At least 20Mt of additional metal must be mined over the next two decades to place us on track to reach net zero by 2050.

A goal like that is not insurmountable, but it will take major investments in copper exploration, at a scale that has never before been attempted.

Any copper junior with a deposit of significant size and grades will have no problem attracting a major or mid-tier acquirer that can help finance a future copper mine and bring it to commercial production.

Richard (Rick) Mills
aheadoftheherd.com
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Energy & Critical Metals

Tesla Stock Will Be a Self-Driving Winner. Canada Is Just the Start.

As the electric vehicle race has heated up, investors have been waiting anxiously for self-driving technology to progress. Elon Musk has long had his eye…

As the electric vehicle race has heated up, investors have been waiting anxiously for self-driving technology to progress. Elon Musk has long had his eye on this this area of automotive innovation. He initially predicted that the full self-driving (FSD) beta would be available before the end of 2020. At the end of that year, he tweeted that the beta would be “extended to Canada very soon.” Things didn’t exactly go according to plan.

A black Tesla (TSLA) Model S is parked between rows of charging stations.Source: Grisha Bruev / Shutterstock.com

While Tesla’s (NASDAQ:TSLA) history with missing deadlines is well documented, it hasn’t stopped the company’s progress. Now, investors waiting for the Canadian FSD launch may be in luck. Earlier this week, Must tweeted an update that, if accurate, will could boost Tesla stock significantly.

What’s Happening With Tesla Stock

On Jan. 16, Musk responded to the 2020 Twitter thread. When a Canada-based user asked when the FSD beta would be rolled out in Canada, Musk tweeted the following:

We will start rolling out FSD beta in Canada cautiously in next 2 to 4 weeks

— Elon Musk (@elonmusk) January 16, 2022

It’s easy to question how serious Musk is. After all, he’s promised the FSD rollout in Canada already and it hasn’t happened. The fact that he laid out a specific timeline in this tweet, though, indicates that this time may be different.

This comes at a time when Tesla stock could certainly use a boost. Shares began to decline this morning and closed down 3.3%. Declines for the week come in at 10%. It’s safe to say that Tesla’s 2022 isn’t off to a great start.

Why It Matters

Much of the decline that Tesla stock has experienced so far can be chalked up to negative market momentum. That doesn’t change the fact, though, that the company needs a catalyst to help it regain momentum. Some concrete progress on the self-driving front could be exactly what it needs.

If the Canada rollout does indeed happen, it would be opportune for more than one reason. Tesla has recently received some negative press following an update that a driver in a 2019 crash will face felony charges. Why does this matter? Tesla’s Autopilot mode was in use at the time.

While the driver has been charged for the crime, instances like this don’t do much to inspire confidence in hands-off automotive technology. It could have been an isolated incident, but both the automotive and financial communities would like feel better if they saw some reassuring progress from the company associated with this sad story.

Canada’s EV market may not be as large as that of the U.S., but it is growing. The company saw 2021 sales of the Tesla Model Y increase by 137% year over year. Tesla’s Model 3 and Model Y were among the country’s best-selling EVs. What better way to get more consumers interested in buying your cars than by introducing a beta test close to home that promises to revolutionize driving?

If Musk does succeed in rolling out the FSD beta in Canada within the coming weeks, it will generate the type of momentum that will send Tesla stock shooting up. In the months following, the boost in sales will help it stay elevated.

What It Means for Tesla

As is often the case, Musk is unpredictable. EV aficionados have been disappointed by his lofty promises before. Every time Tesla has missed a deadline, though, it has come back just as strong. Recent drone footage suggests that the company is making progress on the Model Y at Giga Austin, though it hasn’t been confirmed.

Rolling out the FSD beta in Canada would be a strategic move, exactly the type Musk loves. This development is worth watching, regardless of when the rollout happens. When it does, Tesla stock will react well.

On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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NKLA Stock Just Hit a New Low, But Nikola Has Plans to Turn Things Around

Despite several signs of life this year, electric truck company Nikola (NASDAQ:NKLA) is still suffering consequences from last year’s bitter controversy….

Despite several signs of life this year, electric truck company Nikola (NASDAQ:NKLA) is still suffering consequences from last year’s bitter controversy. NKLA stock saw its share value reach an all-time low today after dropping more than 5% yesterday. It appears investors are still hesitant over the troubled EV company despite encouraging recent deals.

Image of NKLA logo on phone screenSource: Stephanie L Sanchez / Shutterstock.com

So, what’s going on with Nikola today?

It’s difficult to pinpoint the exact reasoning behind NKLA’s drop. One obvious contender is simply investor sentiment. Last year, Nikola came under fire after allegations that it had made several fictitious claims regarding its technological capabilities. Its founder and then Chief Executive Trevor Milton was arrested, and Nikola recently agreed to pay $125 million in fraud charges. It’s a major mark against Nikola and clearly not something a company can simply walk away from unscathed.

Regardless, Nikola has largely persevered. Nikola has made a number of promising deals to start the new year, including letters of intent from several companies interested in buying or leasing its emission-less trucks. Despite this, Nikola’s share price has failed to hold up its end of the bargain. The company is down nearly 6% today, trending around $8.71 at the time of writing, for a more than 37% decline in the past six months.

What other forces are at play for Nikola?

Investors Remain Speculative of NKLA Stock

Nikola is also likely a victim of impending market conditions against the innovative EV company. Treasury yields saw a sizable jump yesterday, projecting concerns related to impending interest rate hikes. This is a sell-sign for many technology and growth stocks, as it functionally means their future earnings will be discounted. EV startup Nikola is a perfect victim of this latest market indicator.

And it’s truly a shame. Nikola’s hot streak of deals continued just yesterday when the company announced a multi-year deal with another EV company, Proterra (NASDAQ:PTRA). Proterra agreed to supply batteries for Nikola’s semi-trucks, with estimates of prototypes to be delivered starting in Q2 of this year. By all counts, this is good news for the company and reflective of its vigor this year.

But alas, investors are demonstrably dismissive of the news. All eyes will be on Nikola ahead of its February quarterly earnings report to see if its comeback really is happening. But until then, it seems fans of the truck maker will have to hold on through the turbulence to see if there are clear skies ahead.

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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Nio Could Soon Be in Another Electric Tizzy

Electric vehicle (EV) companies are great long-term investments, but investors need to ensure that they manage their short-run value at risk because it…

Electric vehicle (EV) companies are great long-term investments, but investors need to ensure that they manage their short-run value at risk because it tends to be negatively skewed when volatility enters the fray. Nio (NYSE:NIO) performed especially well during the earlier stages of the pandemic for two reasons. First, NIO stock gained because unexpected expansionary monetary policy allowed for growth stocks to surge. Secondly, the market was craving a Tesla (NASDAQ:TSLA) competitor that could possibly emulate TSLA’s impressive bull run.

Source: xiaorui / Shutterstock.com

The broad-based market climate is set to change in 2022, however. With contractionary monetary policy entering the building, I expect many growth investors to scatter. NIO stock is one of the names that could be subject to such an event.

Here’s why.

NIO Stock: Deliveries Could Disappoint Many

According to Morgan Stanley analyst Tim Hsiao, Nio’s deliveries are set to get off to a slow start in January amid Chinese New Year celebrations and tight Covid-19 restrictions. The analyst has the following to say:

“The industry is looking for a pre-holiday boost to rev up weekly sales until later in January, when store traffic/deliveries could fall substantially. This is especially the case given sporadic lock-downs amid resurgence of Covid cases in China. With easing chip shortage, we saw more resilient sales in ICEVs than EVs at the beginning of year, likely due to unleashing of pent-up demand from 2021.”

With this in mind, I believe there will be a cooldown in demand for the rest of 2022 as well. Of course, many investors may be tired of hearing about China’s revised debt policies and its crackdown on big tech. But it’s very relevant in relation to car sales — especially when it involves product switching from ICE vehicles to EVs.

When it comes down to it, the reduction of private-sector leverage and a smoothing in technological development will likely underscore previously estimated real GDP forecasts, potentially damaging Nio’s top-line earnings growth as a result. In turn, that could damage the price of NIO stock.

There’s a Pricing Problem Here

The price-sales (P/S) ratio is an excellent metric to use when valuing a growth company. Why? Because it’s less susceptible to volatility and not easily manipulated by a company’s management team. One would usually compare a stock’s price multiples to its five-year average to justify an overvalued or undervalued call. However, seeing as Nio only listed in 2018, we’ll need to look at a sector comparison and then discuss cyclicality.

Currently, Nio’s P/S ratio is trading at a 7.7 times premium to the industry. That isn’t good news. Rather, it tells us that the market has gotten ahead of itself, which may mean that NIO stock is set for downward mean reversion in the short term. And business cyclicality certainly doesn’t help the cause. As I mentioned before, we’re heading into a contractionary monetary cycle. That usually gives rise to value stocks while stunning growth stocks like NIO.

A final pricing problem to look at is the company’s price-book (P/B) ratio. Right now, Nio’s P/B ratio is also trading at a premium relative to industry peers. The P/B ratio is an important metric to consider with asset-heavy businesses and Nio’s isn’t only overvalued based on a peer analysis. It’s also considerably above the valuation threshold, yet again suggesting downward short-term mean reversion.

What’s Next for NIO Stock?

All things considered, Nio is a great company. However, it could be subject to macroeconomic headwinds going into 2022. Furthermore, NIO stock isn’t priced correctly, with the lingering effects of 2020’s market gunning still present.

NIO stock is trading below its 10-, 50-, 100- and 200-day moving averages, conveying a downward momentum pattern that would take a lot to reverse. I wouldn’t look at shorting the stock, however. Last year, China’s recent hard-line political shift was a catalyst to a significant drawdown. Rather, investors should look to manage risk by shedding some weight from their portfolios or divesting until the stock’s key drivers are back in check.

On the date of publication, Steve Booyens did not hold (either directly or indirectly) any positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Steve Booyens co-founded Pearl Gray Equity and Research in 2020 and has been responsible for equity research and PR ever since. Before founding the firm, Steve spent time working in various finance roles in London and South Africa, and his articles are published on various reputable web pages such as Seeking Alpha, Benzinga, Gurufocus, and Yahoo Finance. Steve’s content for InvestorPlace includes stock recommendations, with occasional articles on crowdfunding, cryptocurrency, and ESG.

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