After more than doubling over the span of less than 12 months and reaching an all-time high at $4.89/lb last May, copper has cooled off and spent the last eight months oscillating between $4.00 and $4.80. 

Copper (May 2020 - February 2022)  

The stage is set for copper to break-out to new all-time highs above $5.00/lb. A combination of powerful macro factors could help propel a rally to price levels that were previously unthinkable:

  • Strong demand growth fueled by copper’s special role in electric vehicle manufacturing (165 pounds of copper is required for each new EV), and the electrification of the global power grid. Global copper demand is expected to rise by more than 40% by 2030 
  • China central bank easing to quell property sector turmoil and mounting debt defaults. Historically, copper has performed well during periods of monetary policy easing in China. 
  • Global infrastructure building programs that will require an enormous amount of copper. 
  • Copper inventories are at historic lows and need to be replenished.  
  • According to estimates from the CRU Group, the copper mining industry will need to spend upwards of $100 billion in order to close what could be an annual supply deficit of 4.7 million metric tons by 2030.  To put that into context, that is more copper production than the 10 largest copper mines in the world.  
  • New discoveries are falling far short of what will be needed to meet surging copper over the next decade, and production from the world’s largest copper mines continues to dwindle as head grades decline: In addition, there is significant potential for supply disruptions. 
  • Much of the world’s copper production comes from countries with unfavorable political regimes (Chile, Ecuador, and Peru) and unstable governments (DRC). Chile and Peru in particular have taken a major lurch to the left as each country elected socialist leaders in 2021 - these new governments are looking to push forward legislation that could raise taxes on mining companies and add delays to the building of new copper mining projects. 

The bull case for copper isn’t a hard one to make. So how does one play it? 

Most people probably aren’t going to take Robert Friedland’s advice and build a new house out of copper bricks. Instead, the most sensible way to profit from the rise of copper is to assemble a portfolio of copper mining stocks at different stages of the mining life cycle. For example, one could create a portfolio that is 60% weighted to producers (lower risk), 20%-30% weighted to developers (medium risk), and 10%-20% weighted to explorers (high risk). 

One year ago, I wrote an article titled “5 Ways To Play The Copper Bull Market” in which I selected one producer (Freeport McMoRan), one fledgling producer (Ivanhoe Mines), one developer (Excelsior Mining), and two explorers (Libero Copper, and Bitterroot Resources). Freeport and Ivanhoe have risen significantly (50%+) since that article was published. Libero is essentially unchanged in the last year, while Bitterroot is down roughly 20% and Excelsior is down ~50%.  Each company has its own story and various reasons for its share price performance in the last year. However, copper explorers and developers have vastly underperformed producers since copper surged above $4/lb and nearly reached $5/lb in early 2021. 

This underperformance by copper junior miners can at least be partially explained by where we are in this copper bull market cycle. If we think back to the last copper bull market run that took place from 2009 to 2011, some of the biggest moves in copper juniors took place at the end of 2010 and early 2011. Copper reached $4.45/lb in December 2010 and essentially spent the next seven months oscillating above $4.00/lb, before breaking down in August/September 2011. 

Copper (October 2008 - December 2012)

Whether we like it or not, the highest risk junior explorers/developers tend to stage their biggest upside moves in the final stage of a commodity bull market cycle. This was certainly the case during the 2009-2011 copper bull run when many copper junior miners experienced 500%+ share price increases between November 2010 and April 2011, while copper largely moved sideways during the same six month period. 

One of my most memorable junior mining investment stories was a purchase of a company called Copper Fox Metals in March 2009 at the Global Financial Crisis bear market lows. When I put in the order to buy CUU.V shares at $.06  I figured that this stock simply couldn’t get any cheaper and that this was a classic example of “buying when there is blood in the streets, even if it’s your own”. 

As it turned out, the March 2009 purchase of Copper Fox shares was one of the best investment decisions I have made in my life. 

CUU.V (September 2008 - April 2011) 

From its March 2009 low at $.055 to its April 2011 peak at $2.75 per share, Copper Fox shares rose more than 4500%!

In March 2009, with share prices down 90%+ across the board, investors were overwhelmingly pessimistic and could not see any value in a multi-billion pound porphyry copper deposit in Canada. By April 2011, the pendulum had fully swung to the opposite side and investors were overwhelmingly optimistic on metals and miners. 

Fear among market participants is the highest when the opportunity for future gains is the greatest, and on the flip side investors love to buy market tops when everyone is in bullish agreement that prices can only continue going higher. 

The situation today feels like it did in mid-2010 when the copper price corrected nearly 20%, triggering a correction across the copper mining sector that saw some share prices fall as much as 50%. From the mid-2010 correction lows to mid-2011 the copper mining sector experienced one of the greatest bull runs in history. We could be on the verge of a similar sector-wide rally in the copper mining sector. 

As a follow-up to my post one year ago, I have selected four copper miners that I believe offer attractive risk/reward propositions. Two are producers and two are explorers with projects that already have 43-101 compliant resources on their respective flagship projects. 

Ivanhoe Mines (TSX:IVN) was on last year’s list and it has certainly delivered for shareholders in the last year. Ivanhoe’s flagship Kamoa-Kakula Mine in the DRC has rapidly advanced to commercial production. In 2021, Kamoa-Kakula produced 105,884 tonnes of copper-in-concentrate, a number that the company expects to increase more than 3x in 2022. Ivanhoe’s $1.37 cash cost per pound of copper produced is among the lowest quartile of copper producers globally. 

Ivanhoe’s US$10.5 billion market cap is certainly an impressive valuation for an African copper producer with a single operating mine. However, Kamoa-Kakula is probably the single best copper asset globally in terms of grade (5.9% Cu), scale (7.6 million tonnes of ore processed per annum once phase 2 is complete in mid-2022), and profitability (total cash cost of $1.23/lb of copper). World class assets deserve world class valuations. 

In addition, Kamoa-Kakula is only one part of the Ivanhoe story. The company’s Platreef Project in South Africa is a “World Scale” palladium/rhodium/platinum/gold/nickel/copper mining project (did you catch that suite of metals?) that is slated to produce more than 24,000 tonnes of nickel and 1,100,000 ounces of palladium, rhodium, platinum, and gold per year. That’s US$2.5 billion worth of annual metals production at today’s prices. The prices of these critical electric minerals that the world needs for a net-zero future could be significantly higher by the time Platreef moves into production in 2024. 

Platreef is a behemoth ore body that contains 59 million ounces of platinum, palladium and rhodium plus gold (3PE+Au) in indicated resources and a further 94 million ounces inferred using a 1 g/t 3PE+Au cut-off grade. Once Platreef is in production (set for first production in 2024) it could support Ivanhoe’s current market cap by itself, giving shareholders Kamoa-Kakula for ‘free’. 

Ivanhoe’s Kipushi Copper/Zinc Mine (with M&I resources grading an eye popping 34.9% zinc) and Western Foreland’s Project (100% owned exploration licenses adjacent to Kamoa-Kakula) are the icing on an already sweet cake for Ivanhoe shareholders. 

By 2028, Kamoa-Kakula is expected to enter phase 5 of its development plan and Kamoa-Kakula will be the world’s 2nd largest copper mine with an annual production rate of 19 million tonnes of high-grade copper ore. By 2028, with the combination of Platreef and Kamoa-Kakula, Ivanhoe could be one of the largest and most profitable mining companies on the planet. 

Canadian copper producer Copper Mountain Mining (TSX:CMMC) doesn’t have the eye-popping grades that Ivanhoe has at Kamoa-Kakula, however, the company has strong profitability at its Copper Mountain Mine in southern British Columbia and an attractive pipeline of exploration and development assets. CMMC’s flagship Copper Mountain Mine (75% owned by CMMC) produces 100 million pounds of copper per year at an all-in cost of US$1.90/lb of copper. 

Copper Mountain is a conventional open pit, truck and shovel mining operation. CMMC recently completed a plant upgrade to 45,000 tonnes per day. The plant utilizes a conventional crushing, grinding and flotation circuit to produce copper concentrates with gold and silver credits. 

A second mill expansion to 65,000 tonnes per day is also planned (forecast to be complete by the end of 2023), which is expected to further increase average annual production to 139 million pounds of copper-equivalent and reduce C1 cash costs to US$1.19/lb of copper (first ten years of a 21 year mine life). 

In addition, CMMC’s New Ingerbelle Deposit will expand the life of mine to 31 years as well as doubling gold production to 50,000-75,000 ounces per year and silver production to 300,000 ounces per year. The combination of New Ingerbelle coming online and the planned mill expansion to 65,000 tonnes per day raises Copper Mountain’s NPV-8 to US$1.0 billion using a $3.15 copper price, $1700 gold, and $22 silver price. 

Copper Mountain’s current market cap is US$625 million. This means that there is significant rerate potential from three different catalysts:

  • Mill expansion to 65k tonnes per day (2024) and New Ingerbelle Deposit coming online (2023). 
  • Rising metals prices (copper is 40%+ higher than the price used in the company’s 2020 technical report). 
  • CMMC’s Australia Projects (Eva and Cameron) could essentially create ‘two Copper Mountains’ on two different continents. 

CMMC’s Eva Copper Project in Queensland, Australia is a similar conventional open pit copper deposit with a conventional crush, grind, flotation circuit. Eva is forecast to produce 100 million pounds of copper and 14,000 ounces of gold per year with start-up in late 2024. The lifting of covid restrictions in Australia will give CMMC a greenlight to begin construction at Eva in mid-2022. 

The vision is for CMMC to become a multi-mine operator that is able to plow free cash flow from its mining operations into generating organic growth through exploration across its extensive 210,000 hectare highly prospective land package in the Mount Isa area of Queensland, Australia. 

As I see it today, CMMC’s Canadian operations fully justify its current market valuation, leaving the company’s Australian assets as pure upside. 

Ivanhoe and Copper Mountain have existing production and plans to increase production over the coming years. In addition, both companies have strong potential to be operating multiple mining operations a few years from now. Ivanhoe has the best copper discovery of the last couple of decades in Kamoa-Kakula and it also doesn’t hurt that the greatest mining promoter of the last 50 years is its Chairman and a large shareholder. Copper Mountain has a proven mining operation with the near term potential for significant expansion, both at its southern BC mine and at its Australian project (Eva). 

These are high quality mining companies, and in the wide spectrum of risk assessment in the mining sector I would put them in the lower risk category. A 20%-30% drop in these stocks would not be uncommon (due to metals price fluctuations or short term operational challenges), however, a 60%-70% decline would be a highly unexpected event given the lower cost nature of each company’s operations.

Now we move from producers to much higher risk explorers/developers. The next two companies are higher risk/higher reward propositions where in a best case scenario you could experience a 20x-30x share price rise from current levels. However, you could also see a 50%+ decline due to any number of factors. The lack of cash flow generation naturally makes companies at the exploration stage much more susceptible to wild share price fluctuations as they come back to the market again and again in order to fund exploration and G&A overhead. 

If the copper market is about to launch above $5/lb then the stocks that will offer the most upside torque are likely to be explorers/developers with sub-$30 million market caps. These stocks could rally 5x or 10x as generalist investors pile into copper miners and economic studies are reworked using much higher metals prices. 

Copper Mountain has an average copper grade of .23% (roughly .30% copper-equivalent grade when factoring in gold/silver credits) and gold/silver credits help to make it a very profitable mining operation. Another British Columbia copper mining operation, Teck’s Highland Valley Mine (the largest mine in Western Canada), also has an average copper head grade of .27%. Both Copper Mountain and Highland Valley are highly profitable mines due to the straightforward mining techniques (conventional open pit) employed to extract tens of thousands of pounds of ore from these deposits every day. 

Libero Copper & Gold (TSX-V:LBC, OTC: LBCMF) is focused on advancing the Mocoa Copper/Molybdenum project in the Putumayo region of Colombia. Mocoa hosts a pit constrained resource that contains 636 million tonnes of 0.45% copper-equivalent ore at a cut-off grade of 0.25% copper equivalent containing 4.6 billion pounds of copper and 511 million pounds of molybdenum. This is a very large deposit and Libero is committed to making it even bigger!

Libero recently closed a C$8.3 million financing at $.50 per share. Some of the proceeds of the financing will be used to carry out a minimum of 5,000 meters of drilling in a phase 1 drill program over the next couple of months. In addition, Libero is busy building and upgrading roads/trails and building a camp at Mocoa. Soil sampling and mapping are also being carried out in tandem with the drill program. 

Libero has big ambitions for Mocoa and the company acknowledges that this project is so large that it will require hundreds of thousands of meters of drilling by the time it’s all said and done. The company is beginning with one KD-1000 drill rig, but will eventually scale up to two rigs later this year. Libero intends to complete roughly 13,500 meters of resource expansion drilling at Mocoa this year, slowly adding drilling capacity with more drills as local drill crews are trained.  They estimate building to a total of 8 drills.  

The first order of business in phase 1 drilling will be to fill in a ‘Blank Zone’ between two higher grade areas in the deposit. In addition, Libero intends to step-out to the east where the deposit is completely open. Five holes that will be roughly 1,000 meters each will give Libero a lot of information to work with, and help to inform the next phase of drilling where Libero will use one drill rig for resource definition and the second rig for resource expansion drilling. 

Libero has a portfolio of copper projects across the Americas (Esperanza in Argentina, Mocoa in Colombia, and Big Red/Big Bulk in Canada). However, if we focus on valuing Libero solely on Mocoa, at its current market valuation (US$25 million market cap) Libero’s 4.6 billion pounds of copper at Mocoa are valued at less than $.01 per pound. And that’s not even including the 511 million pounds of molybdenum (worth more than US$10 billion at today’s prices) in the resource at Mocoa. 

This is such a huge undervaluation that it’s hard to believe it’s real. It is real and the market is pricing Libero as if Mocoa is dead and is not aware that drilling has started. I believe the market is making a big mistake and Libero CEO Ian Harris is incredibly excited by the opportunity that exists at Mocoa. Harris, a mining engineer and fluent Spanish speaker, is living in Colombia with his wife who is Colombian.  Don’t forget that Harris was previously SVP and Country Manager of Corriente Resources that took the Mirador project forward.  A project that went on to be the first large scale and first open pit copper mine in the history of Ecuador, in the same Jurassic porphyry belt.   I had the opportunity to speak with him last week and his enthusiasm was palpable. He is committed to doing things the right way and being a responsible and respectful neighbor to the people who live in the area around Mocoa. 

Colombia has a pro-mining government and Libero has been working closely with the regional governor’s agency within Putumayo. Libero has received strong local and government support to date as the company has made it clear that Mocoa is a Colombian Project that will largely employ Colombians and take great care to respect the environment. Libero is beginning the first reforestation projects in the township of Mocoa, the first one of its kind. Libero is working with the National University of Colombia, in addition to the Institute of Technology of Putumayo on the reforestation projects. 

Libero understands the importance of local outreach well before activities and including everyone in the dialogue of advancing Mocoa to a producing mine that helps to supply the copper that the world will need over the next few decades.  I believe that this is based off the experience, and lessons learned of what eventually worked in Ecuador.

The receipt of drill permits for Libero’s San Juan, Argentina project, Esperanza, could also be a major catalyst for the stock in the first half of this year. Upon receipt of drill permits (expected in Q1 2022) Libero will commence a 5,000 meter drill program focused on the large 2.0-kilometer by 1.2-kilometer surface alteration footprint and stepping-out from the discovery hole that intercepted 387 meters of 0.78% copper equivalent from surface through the end of hole.

Libero not only offers tremendous torque to the copper bull market, it also has multiple ways to generate shareholder value organically through drilling success at Esperanza and Mocoa. Based upon geochem data, geophysical surveys, and historical drill results I view successful phase 1 drill programs at both projects to be high probability outcomes. 

The final copper mining stock that we will discuss in this article is Universal Copper (TSX-V:UNV, OTC:ECMXF). Universal is focused on the Poplar Copper Project in British Columbia, Canada for which it has an option to acquire a 100% interest. Poplar is one of the most advanced pre-production copper projects in the Province of British Columbia with a current 43-101 resource. Poplar hosts an indicated resource of 152.3 million tonnes grading 0.32% copper, 0.009% molybdenum, 0.09 g/t gold, and 2.58 g/t silver plus an inferred resource of 139.3 million tonnes grading 0.29% copper, 0.005% molybdenum, 0.07 g/t gold, and 4.95 g/t silver.

The indicated resource alone contains more than 1.09 billion pounds of copper, when the inferred resource is included the total copper contained in the deposit adds up to almost exactly 2 billion pounds. 750,000 ounces of gold, 25,000,000 ounces of silver, and 45 million pounds of molybdenum offer a sweet icing on top of Poplar’s copper cake. 

If we think back to Copper Mountain and its .23% copper and .10 g/t gold grades, or Teck’s Highland Valley Mine and its .27% copper grades, then Poplar’s grades measure up nicely. In addition, one of the key characteristics that help to make Copper Mountain and Highland Valley such profitable mining operations also exists at Poplar; the deposit is relatively flat lying and amenable to conventional open-pit mining techniques. 

Universal recently increased its land position by completing the acquisition of BA Copper Corporation, which holds 4,631 hectares contiguous to the southwest corner of Poplar. These new claims have increased the size of the project to over 61,600 hectares while making the Poplar Copper Project contiguous to Surge Copper’s copper deposits. Surge has recently had excellent exploration success, including several high-grade copper intersections (46 meters of 1.7% Cu-equivalent and 126 meters of .85% Cu-equivalent) at multiple Breccia Zones at its Ootsa Property adjacent to Universal’s Poplar Copper Project. 

Universal has 12 high-priority targets at Poplar and the company intends to conduct a field program designed to evaluate and rank the targets for drilling testing in the 2nd half of this year.

On January 25th, Universal announced the results from its 2021 diamond drilling program at Poplar. The results included 432.8 meters at 0.57% copper equivalent in hole 21-PC-131, this hole filled in a gap between higher grade areas of the deposit in addition to expanding the mineralized zone to depth.  This type of grade improvement bodes well for upgrading the resource and will only make the project more attractive.  

Universal's 2021 drill results from Poplar (hole 21-PC-131) are among the best copper drill intercepts of 2021. Universal is planning to step-out to the west and extend the mineralized zones to depth with a 3,000 meter drill program beginning in Q2 of this year. 

In addition, Universal has identified a high-priority drill target 11 kilometers to the southwest of Poplar that is called Copper Pond. Copper Pond hosts favorable mineralization (andesite and bulkley feldspar and diorite) and alteration consistent with a distal porphyry environment. In addition, the geophysics (Aerotem TMI) displays circular magnetic features that suggest magmatic centers characteristic of a copper-moly porphyry system. 

Perhaps most importantly, Poplar is located in a historic mining region, 35 kilometers from the Huckleberry Mine and 42 kilometers from Equity Silver Mine, where low snowfalls will allow year-round work. The road accessible property is bisected by a 138 Kva Hydro electric line and lies 88 kilometers from the railhead at Houston and 400 kilometers from the deep-water port at Prince Rupert by rail.

So far market participants haven’t paid much attention to Universal Copper. The lack of attention creates an ideal situation in which a copper chart breakout above $5/lb in combination with an active year of exploration drilling at Poplar could create a 10x in UNV shares from its current tiny $5 million market cap (at $.085 share price). A two billion pound 43-101 copper resource in a virtually ideal location for mining could easily warrant a $50 million market cap by itself. All of the resource expansion opportunities and exploration targets across the Poplar Project offer a lot of blue sky in an already undervalued company. 

Disclosure: Author owns shares of Ivanhoe Mines, Copper Mountain Mining, Libero Copper & Gold, and Universal Copper at the time of publishing and may choose to buy or sell at any time without notice.  Author has been compensated for marketing services by Universal Copper Ltd. 

Disclaimer

The article is for informational purposes only and is neither a solicitation for the purchase of securities nor an offer of securities. Readers of the article are expressly cautioned to seek the advice of a registered investment advisor and other professional advisors, as applicable, regarding the appropriateness of investing in any securities or any investment strategies, including those discussed above. Libero Copper & Gold Corp. is a high-risk venture stock and not suitable for most investors. Consult Libero Copper & Gold Corp’s SEDAR profiles for important risk disclosures.

EnergyandGold has been compensated to cover Libero Copper & Gold Corp. and so some information may be biased. EnergyandGold.com, EnergyandGold Publishing LTD, its writers and principals are not registered investment advisors and advice you to do your own due diligence with a licensed investment advisor prior to making any investment decisions.

This article contains certain forward-looking information and forward-looking statements within the meaning of applicable securities legislation (collectively “forward-looking statements”). Certain information contained herein constitutes “forward-looking information” under Canadian securities legislation. Generally, forward-looking information can be identified by the use of forward-looking terminology such as “expects”, “believes”, “aims to”, “plans to” or “intends to” or variations of such words and phrases or statements that certain actions, events or results “will” occur. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made and they are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed by such forward-looking statements or forward-looking information, standard transaction risks; impact of the transaction on the parties; and risks relating to financings; regulatory approvals; foreign country operations and volatile share prices. Although management of the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements or forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Actual results may differ materially from those currently anticipated in such statements. The views expressed in this publication and on the EnergyandGold website do not necessarily reflect the views of Energy and Gold Publishing LTD, publisher of EnergyandGold.com. Accordingly, readers should not place undue reliance on forward-looking statements and forward looking information. The Company does not undertake to update any forward-looking statements or forward-looking information that are incorporated by reference herein, except as required by applicable securities laws. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.