Chieftain Chatter
Doing the contango…
With refining and treatment charges approaching zero the copper price broke through US$4.20 per pound for the first time in 15 months with the underlying supply/demand fundamentals finally reaching a squeeze which may support a new high for the industrial metal.
With significant smelter capacity expansion in China and a general shortage of inbound ore it has resulted in treatment charges collapsing.
The copper market is now in the widest contango position (not a yoga pose) in history between spot price and 3 month futures price.
Additionally, resilient positive economic data out of the US and further talk of rate cuts have assisted copper breaking out. Likewise, some expansionary PMI data out of China exceeded expectations and has also boosted demand forecast fundamentals.
Analysts and traders have been turning increasingly bullish on copper in recent weeks, with Goldman Sachs Group predicting prices will reach record highs of around $5.40 by the first quarter of next year, while not so bullish Citigroup are forecasting similar price by early 2026.
Chinese smelters, which produce over half the world’s supply of refined copper, have been moving closer to implementing a joint output cut because the tightening ore supplies have driven processing fees to near zero.
“It’s a case of rising demand and tightening supply effectively coming together…on the demand side alone it would be hard for copper to move substantially higher, but there is a genuine supply crisis out there.” Michael Widmer, head of metals research at Bank of America.
The prospects of rate reductions seem to be fading fast however inflation remains largely in check and locally the RBA have said nothing to dispel this stating ‘that the risks to the economy were balanced’.
Furthermore, they commented the upside risks to rates are if “aggregate demand continued to exceed supply for longer than anticipated, productivity growth did not increase sustainably or if services price inflation proved stickier than assumed in the forecasts”.
Conversely, the downside risk is “weakness in consumption could continue for longer than expected… perhaps because of a weakening in the labour market”.
Take what you will from that but I think it lengthens the timeframe for any rate cut and as per the copper price drivers any positive data or stimulus out of China will be key.
This scenario is also building in the US with bond yields heading back up, markets taking a breather, and the chances of a June rate cut are being diminished.
Additionally, a private sector jobs report last week added 184,000 jobs in March up from 155,000 in February and wages rose 5.1% year on year …not the stats. to support a rate cut.
To add insult to injury the situation on the Gaza strip is getting ugly and tensions are high with the yanks now instructing Benny N to pull his head in after bombing the Iran consular building in Syria.
As a result, the oil price is back to US$90 per barrel…you get the drift!
So, with inflation and the Middle East remaining sticky the case for bullion continues to gain momentum. Central banks have been actively buying the precious metal and in particular the Chinese and Chinese investors are loading up as a hedge against their uncertain economy.
Quote of the week...
"There should be great solace in knowing that many eventual 10-baggers are likely sitting right under our noses." Stockhead
On the lighter side….
School of hard rocks…
Ramelius Resources (ASX:RMS) knocked it out of the park with record quarterly production of 87,000 ounces versus expectations of around 75,000 and importantly resulting in free cashflow of $125m for the quarter.
AISC’s are expected to fall in the range of $1,375-1,475 per ounce which is well ahead of expectations thus leaving a cash balance of $407m. “Further details will be provided in the Quarterly Report later in the month, including a review of how this outperformance will positively impact full year FY24 gold production and AISC Guidance.” Edna May was the standout performer with record production of 41,000 ounces which was vastly ahead of expectations while Mt Magnet also delivered a solid performance with production of 46,000 ounces.
Develop (ASX:DVP) has released an updated resource estimate for Woodlawn which resulted in a 10% increase in tonnes and a 5-8% increase in contained metal.
They also followed with their restart study at Woodlawn which contained:
12,000 tpa of Cu and 36,000 tpa of Zn
Assumed prices of US$8,769 Cu and US$2,688 Zn
Restart capital $42m
Pre-tax NPV $658m
With 80% of the mine plan underpinned by reserves, DVP will now advance its funding options which may result in a minority project sell down.
DVP recently also announced they’d won the underground development contract with Karora Resources (ASX:KRR) at the beta Hunt mine which will lift their mining services revenue to $175m in FY 2025.
But wait, there’s more, they have also commenced a scoping study at Sulphur Springs with Anax Metals (ASX:ANX) to explore the potential to treat high-grade oxide and transitional ore.
Regis Resources (ASX:RRL) announced an update on their DFS for the McPhillamys gold project in NSW.
In summary the life of mine stats. are:
Pre-production capex approx. $1 billion
61Mt of ore at 1.0 g/t
Average mining rate for first 6 years at 36Mt per annum (ore and waste)
LOM strip at a ratio of 3.8:1
This is for a 7Mtpa plant, 90km water pipeline,
The average AISC range to be $1,600/oz - $1,800/oz
The 20% capex blowout can be attributed changes of scope of the project and cost pressures industry wide and as a result the final DFS will be delayed until the end of June.
Rock star performer WA1 Resources (ASX:WA1) reported further assay results from broad spaced diamond and RC drilling in the central and eastern zones that further that demonstrates continuity of the shallow high-grade blanket of niobium mineralisation at Luni.
Significant results of extensional and infill drilling included:
34m at 4.8% NB2O5
42m at 1.5% NB2O5
7m at 5.5% NB2O5
15m at 1.5% NB2O5
Drilling at Luni continues with one diamond rig onsite since late February and another scheduled to arrive in April.
Assays remain pending from the 2023 drill program which are expected soon and will be included in the resource estimate due in the June quarter.
Meanwhile, their immediate neighbour and the stock we are full as a goog in Encounter Resources (ASX:ENR) tapped the market for $10.5m to fund the forthcoming drill season in the West Arunta.
This sits ENR with a very healthy $16m and interestingly it would appear a corporate appeared in the 22 cent raise which will heighten the markets attention as to who it is.
ENR are about to commence 20,000 metres of aircore to test the many regional carbonatite targets, follow up drill the already high grade niobium/rare earth hits from last year and diamond drill the eastern anomaly.
Commenting on the Placement, Encounter Managing Director Will Robinson said: “It’s a pivotal few months coming up at Aileron as we complete our first pattern-testing of numerous compelling targets in this highly fertile, new mineral belt. The additional funding will allow us to expand our drilling programs at Aileron. Drilling at Emily and Crean is planned to establish the extent of the shallow, high-grade niobium-REE mineralisation intersected in wide-spaced drilling last year.
We are particularly excited to complete the first drilling at the large, interpreted intrusions at Green and Joyce located directly east of the Luni discovery made by WA1 Resources.
And the first drill hole into the intense gravity feature identified at Perce will be fascinating.”
Timing’s everything in this game and Paladin Energy (ASX:PDN) have switched the lights back on at Langer Heinrich producing their first drums of yellow cake on March 30th.
They will now ramp up to full production over the next 15 months to ultimately 6m pounds of annual production. The ramp up will happen in a staged manner with peak production by the end of 2025 if all goes to plan.
In the meantime, they will build up an inventory before shipments commence mid yearish. At least the mine is a proven operator having previously been in production back in the glory days of US$140 uranium prices.
As previously discussed in the Chatter the fundamentals of the uranium market remain bullish with around with 140 million pounds in global long-term offtake contracted over 2023 adding to a tight short and mid-term market and continual growth in reactor adoption increasing demand over the long term.
Austal (ASX:ASB) has been long speculated as a target from private equity and shipbuilding competitors, so it was no surprise an unsolicited bid conditional bid came through the door from South Korean Shipbuilder Hanwha Ocean via a scheme of arrangement at $2.825 cash per share.
There are a number of conditions including due diligence, and approvals from Australia’s FIRB, the US Committee on Foreign Investment (CFIUS), and the US Defense Counterintelligence and Security Agency.
Given that ASB designs and builds vessels for the Australian and US navies the likelihood of allowing a Korean company to acquire ASB seems extremely unlikely.
ASB has an MOU with the Australian Govt to negotiate Strategic Shipbuilding Agreement which would see their Henderson facility as the key for construction of the Defence Departments vessels going forward.
However, regardless this maybe the catalyst for other (trusted) players to emerge and lodge a competing bid.
Who’s shaking the tin…
Terra Uranium (ASX:T92)- $500k at 16 cents
Many Peaks Minerals (ASX:MPK) - $2m at 17 cents
Challenger Gold (ASX:CEL)- $5.6m at 8.5 cents (plus 1:1 option)
Miramar Resources (ASX:M2R) - $546k at 1.2 cents (plus 2:1 option)
Admiralty Resources (ASX:ADY) - $733k at $0.0054
Southern Cross Gold (ASX:SXG) - $10.23m at $1.82
Codrus Minerals Limited (ASX:CDR) - $1m at 3.5 cents
Encounter Resources (ASX:ENR) - $10.5m at 22 cents
Oar Resources (ASX:OAR) - $1m at $0.002
Alma Metals (ASX:ALM) - $1.77m at $0.008
Lepidico (ASX:LPD) - $5.7m at $0.003 (plus 1:1 option)
Anteo Tech (ASX:ADO) - $2.5m at 2.5 cents
Tennant Minerals (ASX:TMS) - $2.5m at 2.5 cents (plus 1:1 option)
Enova Mining (ASX:ENV) - $1.5m at 1.8 cents (plus 1:2 option)
A catch up with….
Jeff Quatermaine, Chairman and CEO of Perseus Mining Ltd (ASX:PRU)
We were fortunate to catch up with Jeff before he hopped on another plane to promote in Europe and visit his operations in Ghana and Ivory Coast plus a little detour in Saudi Arabi after the recent Cooperation Agreement with Aijan and Bros – the mining division of the Kingdom of Saudi Arabia. PRU has claimed victory in the OreCorp battle, with a 51% interest and is pretty excited with the potential of Nyanzaga. We sense that PRU may look to develop this a little differently to the ORR DFS which combined both an open pit and underground operation and a 4mtpa mill and maybe it just becomes a large, simpler open pit and mill that still produces >200koz per annum for >10yrs. Their target is for FID by end of CY’24. PRU has been one of the real African success stories; growing from a single asset – Edkian mine in Ghana to a multi mine operation, increasing production from ~150koz per year to >500koz pa. Its last year has been a cracker – producing 528koz at an AISC of US$984/oz generating a margin of US$930/oz and more importantly adding A$365m to the balance sheet – enabling it to bid cash for ORR and still have a lazy $750m left over!!. It puts many of its Australian peers to shame with its cash generation but still attracts the ‘African discount’ trading at least a 50% discount to its peers. Jeff didn’t seem overly perturbed having been in the game a long time and seen the vagaries of the market. The co – operation agreement with the Saudis piqued our interest as apparently, they have set themselves a target of becoming a significant gold producer in the next 3-5yrs. No doubt their political clout could come in handy in some of the more difficult spots on the continent, including Sudan where PRU has stopped work on its Meyas project (2.85moz resource) so watch this space.
We came away suitably impressed and couldn’t help ourselves but tuck a few more away.. As Cooky use to say.. ‘it’s not a buy, it’s a strong buy’