Copper Investor Roundup: Analysis of the Week’s Most Important Events (February 28th, 2020)

Funds Net Short on Copper Hits Lowest Level Since Q3 2019 on Coronavirus

Bottom Line: Money managers have turned bearish on the CME copper contract as they price in the short-term impacts of coronavirus (COVID-19) on physical supply chains. Investors turned net long in December on signs of recovery in Chinese manufacturing, but shifted back to net short in January as COVID-19 gathered steam. Three-month copper on the London Metal Exchange was trading at $5,639/t on Feb. 26, down 8.9% year-to-date.

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Copper Market was in 385,000t Deficit Through First 11 Months of 2019

Bottom Line: Reduced output in major copper-producing countries Chile, Indonesia, DRC, and Zambia more than offset growth in other countries, according to the International Copper Study Group preliminary report for November 2019. Investors should be able to start gauging the impact of the coronavirus outbreak on the demand/supply balance when the ICSG releases February data in mid-to-late May.

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Freeport-McMoRan CEO: Everybody ‘On Edge’ with Virus Uncertainty

Bottom Line: The coronavirus outbreak is rattling miners and equipment suppliers, according to the chief executive of Freeport-McMoRan [stock_market_widget type="inline" template="generic" color="default" assets="FCX" markup="(NYSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"], the world’s largest publicly traded copper producer. Richard Adkerson said Freeport has yet to have any significant supply chain issues, but noted that China factory shutdowns were causing a buildup of stockpiles.

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Hubei Copper Factory, One of China’s Largest, Returns to Activity

Bottom Line: Work has resumed at the Daye Hubei copper plant near Wuhan, the epicentre of the coronavirus outbreak, according to a firm that uses satellite to track factory activity worldwide. More than 1,000 employees were quarantined in late January, but the latest satellite images show work is being done at the plant. The report is significant because work could only have resumed with the approval of the Chinese government.

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Southern Copper Shipments Unaffected by Coronavirus

Bottom Line: The coronavirus outbreak has not affected shipments or the supply chain at Southern Copper Corp’s [stock_market_widget type="inline" template="generic" color="default" assets="SCCO" markup="(NYSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"][stock_market_widget type="inline" template="generic" color="default" assets="SCCO" markup="(BMV: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] copper mines in Peru and Mexico. Speaking in a Q4 earnings call, CFO Raul Jacob said that the outbreak, if contained, will only have a “mild impact” on the global economy ending in a v-shaped recovery in copper demand. Southern expects global copper supply to grow around 2% in 2020, barring a worsening of the COVID-19 outbreak.

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Freeport Not About to Sell Grasberg to Barrick Gold

Bottom Line: Barrick Gold has discussed buying the Grasberg mine in Indonesia, the world’s second-largest copper mine (and world’s largest gold mine), with mine owner Freeport-McMoRan. But Freeport chief executive Richard Adkerson said now was not the time for a deal because the mine is moving from open-pit to underground mining and Freeport’s stock is too low. Freeport has fallen 21% year-to-date over coronavirus and copper price concerns.

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Northern Dynasty Soars on Pebble Environmental Impact Statement

Bottom Line: Northern Dynasty Minerals Ltd. [stock_market_widget type="inline" template="generic" color="default" assets="NDM.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"][stock_market_widget type="inline" template="generic" color="default" assets="NAC" markup="(NYSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] was up 23% Feb. 26 compared to Feb. 12, when it reported that the U.S. Army Corps of Engineers distributed a preliminary version of the Final Environmental Impact Statement for Alaska’s Pebble project to federal, state, and local agencies. Pebble is the world’s largest undeveloped copper and gold resource. Opponents of the project claim it poses a significant risk to downstream fish costs and could cause an environmental disaster. But the preliminary final EIS portrays a mine development that will co-exist with the fisheries and water resources of Bristol Bay.

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Lundin Mining Projects Copper Production to Rise 30% by 2021

Bottom Line: Lundin Mining Corp. [stock_market_widget type="inline" template="generic" color="default" assets="LUN.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] expects copper production to soar in 2020-21 as the investments made at the Candelaria mine in Chile in the past two years take effect. The integration of the newly acquired Chapada mine in Brazil will add further growth. Lundin rose 5% on Feb. 21 on the back of its full-year results but slumped 6% the next three trading days as COVID-19 overshadowed company performance.

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Market Outlook

This has been a disastrous week for capital markets, and the copper sector is no different. All the copper stocks on our watchlist fell this week, with most dropping by double-figure percentages.

Copper is used for a wide variety of industrial applications, such as electrical applications, telecommunications, and power generation, and is, therefore, more susceptible to global economic events than other metals.

There’s no getting around the fact that a prolonged coronavirus outbreak will be bad for copper producers. On the other hand, if the coronavirus can be contained in the near-term, then copper stocks should rebound in a meaningful way and possibly outperform the general market.

The COPX ETF plummeted to new lows amid the market’s reaction to the coronavirus. In contrast, Northern Dynasty broke out of their sideways move after a positive report from their Pebble project.

Global X Copper ETF 3-Month Performance

Source: Yahoo Finance.

Northern Dynasty Minerals Breakout

Source: Yahoo Finance.
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The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Nadav Shemer
Nadav Shemer is a writer, researcher, and analyst specializing in mining, energy, innovation, and consumer finance. While at Mining Journal, he compiled the publication's inaugural list of the world's top 100 mining companies by revenue and reported on visits to mine sites in the U.S., Africa, and Europe. He has also worked at FCBI Energy, where his publications included a series of white papers on decommissioning of North Sea oil rigs and reports on petrochemicals construction costs. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.
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