Copper price gains on supply shortage, demand recovery in China

Copper prices touched a one-year high of US$6,454 a tonne last week, erasing losses caused by the COVID-19 pandemic and the prolonged US-China trade war. The metal has surged by a staggering 45% since March 2020. The present situation of tight supplies could mean the strong rally in prices is likely to continue in the second half of 2020 supported by demand recovery in China. Supply shortages Copper’s gain has been driven mainly by concerns over strains on supply from key producers in South America. Thousands of copper workers have fallen ill in Chile, which is the world’s largest producer of the metal, accounting for more than a quarter of global supply. Mines have reduced their labour force and postponed non-essential activities in an attempt to keep workers safe without forgoing too much output. The risks to production in Chile and other parts of the world have some analysts warning the market could slip into a supply deficit this year. The beneficiaries Mining companies which can keep up output could reap the benefits along with emerging copper exploration and development companies. Castillo Copper Ltd (ASX:CCZ) is one of the emerging players with a three-pillar strategy to transform into a mid-tier copper business having completed a $2.1 million fund-raising exercise to expedite its operations in Australia and Zambia. The company, which has three core copper assets in New South Wales and Queensland in Australia and in Zambia, is close to drilling at its Mt Oxide pillar in Queensland’s Mt Isa copper-belt. Castillo managing director Simon Paull recently said: “Behind the scenes, our team is working at a frenetic pace to ensure all the logistics are in place so that we can move ahead with the inaugural Mt Oxide pillar drilling campaign. “For the Arya and Big One Deposit, our objective with the upcoming drilling campaign is to extend known mineralisation and determine potential scalability. “As such, one of the key focuses is to test how far high-grade supergene ore extends from surface along the strike extent and if this transitions into underlying sulphides at depth.” Locking in a higher price Established copper producer Aeris Resources Ltd (ASX:AIS) has locked in higher copper pricing by entering unsecured A$ copper hedges with Macquarie Bank Limited for 9,000 tonnes at a forward price of A$9,096.80 per tonne from its Tritton Copper Operations in NSW. The hedges will mature over the next six months in scheduled monthly deliveries of 1,500 tonnes. Aeris executive chairman Andre Labuschagne said: “With the current copper price significantly above our budgeted pricing for the first half of FY2021, we have taken the opportunity to hedge 75% of our copper production over the next six months. “Locking in this higher pricing enables us to accelerate exploration and life extension projects at the Tritton Copper Operations, with the first project being the exploration drive to the Budgerygar deposit, which sits adjacent to the Tritton underground mine.” Red River Resources Limited (ASX:RVR) achieved record copper production at its Thalanga Operation in Northern Queensland for the quarter ending June 30, 2020. An increase in copper grade of ore milled to 1.0% and a record copper recovery to copper concentrate of 84.7% resulted in quarterly production of 2,697 tonnes of high-quality copper concentrate, compared to 2,310 tonnes in the previous quarter. Other emerging players Legend Mining Ltd (ASX:LEG) recently added to the robust nature of Mawson prospect within the Rockford Project in WA’s Fraser Range with an intersection of 4.5 metres at 3.05% nickel, 2.32% copper and 0.19% cobalt - the best grades to date. Earlier this month, Euroz reiterated its speculative buy rating for Legend with a price target of 30 cents per share (current price: 14 cents) after the recent high-grade drilling results. Legend has $30 million in cash and receivables and a further $19.5 million of options in the money so is very well funded to execute the current drilling program. Musgrave Minerals Ltd (ASX:MGV) and partner Cyprium Metals Ltd (ASX:CYM) found high-grade copper surface samples earlier this month at the joint venture Cue Copper Project, northwest of the Hollandaire deposits in WA. The samples were from a regional field mapping and surface sampling campaign at the Cue project’s Rapier West and Mt Eelya prospects.