Copper producers feel the Trump bump
Copper prices, which have been in steady decline since 2011, thanks to China’s slowing economic growth, have been on a tear lately, lifting both the stock prices for B.C. copper mining companies and the hopes of developers with new copper projects in the pipeline.
A 30% increase in copper prices between October 24 and November 28 has been dubbed the “Trump rally” on the assumption the price rise had something to do with U.S. president-elect Donald Trump’s promise to go on an infrastructure spending binge that would boost demand for basic materials and metals.
Companies with operating copper mines, like Teck Resources (TSX:TCK.B) and Imperial Metals (TSX:III), experienced nice bumps in their stock prices.
Even the beleaguered Taseko Mines (TSX:TKO), which has been locked in a vicious battle with First Nations and senior governments over its New Prosperity copper mine, saw its stock rise to $0.92 from $0.56 per share between October 24 and November 28.
Other B.C. companies with new copper projects in development, like Northern Dynasty Minerals (TSX:NDM), which is trying to develop the massive Pebble copper mine in Alaska, also experienced healthy stock bumps. The company’s stock price nearly doubled between November 3 and December 2.
Analysts point out copper prices were on the rise even before Trump was elected, and might simply be riding a temporary wave of enthusiasm that will die down once reality sets in.
“It’s not supply and demand driven,” said Joe Mazumdar, an analyst for Exploration Insights. “It’s more about people thinking that Trump’s potentially going to do a lot of spending on infrastructure.”
An unexpected rally in copper and decline in gold started in late October. Per-pound copper prices jumped to US$2.74 on November 28 from US$2.10 on October 24.
Scotiabank commodities analyst Rory Johnston expects prices will settle back to around US$2.20 per pound once the post-election enthusiasm wears off.
Whether copper’s price rise is artificial or not, companies trying to raise the profile of new copper mine proposals are happy to ride the sudden wave of enthusiasm.
“Certainly Trump being elected helped – it fanned the flames,” said Paul West-Sells, CEO of Vancouver’s Western Copper and Gold (TSX:WRN), which is trying to develop a $2.5 billion copper-gold project just across the B.C. border in the Yukon.
The Casino mine is one of a number of large, capital-intensive copper-gold projects. Another is Northern Dynasty’s US$4.7 billion Pebble copper mine in Alaska.
With proven reserves of nine million ounces of gold and 4.5 billion pounds of copper, the Casino mine is one of the world’s largest undeveloped copper projects. When inferred resources are included, its total reserves would be 18 million ounces of gold and 10 billion pounds of copper, according to the company.
If it can be built, it would be the largest mine in the Yukon and its biggest employer, employing 1,000 people during construction and 600 miners over the life of the mine.
The project has the support of the Yukon government, which has applied for federal infrastructure to help the company with the $100 million worth of road building that would need to be done, according to West-Sells.
The biggest problem the company needed to solve was getting power. The Yukon grid isn’t capable of powering up such a large operation.
Western Gold and Copper has solved the problem by partnering with another mining company to have a new $200 million liquefied natural gas (LNG) plant built in Fort Nelson. The LNG will be shipped by truck to the mine sites to provide LNG-generated power.
Western Copper and Gold has already spent $100 million bringing the Casino mine to the permitting stage. West-Sells said permitting will still take about three years to complete.
West-Sells plays up the Casino project’s economics and points to a recent Goldman Sachs report on copper projects that put it in top spot in terms of its internal rate of return.
But as that report points out, the Casino project is only one of 85 copper projects proposed around the world. It may face the same challenge as the KSM copper-gold project in northeastern B.C.: finding a major to buy the project or partner up.
Many of those majors are still smarting from massive write-downs after investing billions in previous large projects with marginal grades during the last major commodities cycle. Since then, they have tended to focus on lower-cost, high-grade projects and expansions of existing mines.
“These projects aren’t great grade,” Mazumdar said. “That’s why they haven’t been bought.”
He added that their best chance of getting financed is to find a Chinese investor, since China consumes 45% of the world’s copper and needs a secure supply.
Shayne Nyquvest, executive vice-president of Mackie Research Capital Corp., said he thinks the best prospects are for expansion projects, like the Imperial Metals Huckleberry mine near Houston, B.C. But he is more optimistic than Mazumdar when it comes to some of the mega-mine proposals, like Casino and Pebble.
“I think, no question, some will get built because it’s all based on supply and demand,” Nyquvest said.
West-Sells thinks the timing is good because no new major copper mine has been built since 2011. It typically takes a decade to bring a mine from discovery to production, so he said projects like his – which are about three years from production – have good prospects to get acquired.
“You’re going to see these next three years where there’s this lag,” he said. “There are going to be almost no new copper mines coming online. There’s a general consensus that, by the time we hit 2020, 2021, you’re going to need significant new supply, and it’s just not in the pipeline.”
“The general view remains that supply is decreasing and demand is increasing,” Goldman Sachs states in its recent report. “It [copper] is one of the few commodities where consensus is forecasting a price recovery.”
However, Goldman Sachs also warns that as new mines get built, the prospect of another oversupply increases.
“A wall of new copper supply will come online over the next five years, adding to the global surplus and weighing on already deflated prices.”