Ground Breakers: Goldman’s copper bullishness continues to reign supreme … but IGO’s Greenbushes news could put a dampener on things

Goldman maintains bullish copper outlook and warns supply crunch could come quicker than expected
IGO downgrades lithium output from Greenbushes
Gold Road, Bellevue, Fenix and Metals X report

Goldman Sachs continues to ring the bell for copper bulls, continuing to predict prices will hit US$10,000/t in the next 12 months in a rare note of optimism for the battery metals sector.

While lithium and nickel prices have been tumbling and graphite and manganese remain in the gutter, copper has emerged as a beacon of light in the wake of a string of mine closures and production failures that have market experts predicting an earlier swing to deficits than previously forecast.

The latest run in copper prices has been propelled by RRR rate cuts in China, with a reduction of the reserve ratio needing to be held by Chinese banks expected to free up around US$140 billion in liquidity in the Middle Kingdom.

But in a note last Thursday, Goldman’s commodities research team says there are ‘exceptional fundamentals’ for the red metal regardless of China’s economic policy settings.

“That said, this adjustment in policy can help boost sentiment and support credit extension as noted by our economists, which we think should in turn reduce the left tail risks to China’s traditional copper demand (property, appliance, machinery),” GS analysts said.

“We expect the copper market to be in a 428,000t deficit distributed throughout the year, between a modest 269,000t seasonal surplus in Q1 and a 696,000t deficit over Q2-Q4.

“The market has suffered from supply shock over the past quarter from a series of mine supply downgrades tightening the concentrate supply.

“Falling spot TCRCs in China (treating and refining charges) reinforce out expectation for a sharp deceleration in refined output growth this year (GSe +1.3% y/y vs. +4.2% y/y in ’23).”

Meanwhile, GS thinks copper demand will lift 2% this year against a 3% decline last year outside China, with ‘inventory build well below seasonal norms’.

That could bring the great tightening in copper markets forward earlier than expected. Happy claim for those hopeful of a return to the halcyon times of May 2021, when copper hit a record US$10,700/t.

… But there’s been some rough news out of Greenbushes

After the positive notes on the lithium market expounded by Pilbara Minerals (ASX:PLS) and Mineral Resources (ASX:MIN) last week, we were due for a reality check.

And from the mouthpiece of IGO (ASX:IGO), a company still licking its wounds from the maelstrom that has engulfed the nickel industry, we have that in the form of a previously flagged production cutback at the world’s biggest lithium mine.

It comes after a more than 80% slide in lithium chemical and spodumene concentrate prices over the past year.

IGO, which owns 24.99% of the high grade monster in WA’s South-West alongside Tianqi (26.1%) and Albemarle (49%), revealed this morning the JV partners would reduce output for FY24 from 1.4-1.5Mt to 1.3-1.4Mt, something that will see its cash costs rise above the top end of the $280-$330/t guidance range.

Further adjustments to cash costs and capex guidance are expected in the miner’s half year financials in February. However, a processing expansion at Greenbushes will still be completed.

The news comes after Albemarle revealed it would reduce spending by US$750m, including halting the construction of the fourth of its 25,000tpa lithium hydroxide refining trains at the Kemerton plant in WA.

“Despite the short-term weakness in the lithium market, the JV Partners at Greenbushes are strongly aligned on continuing to drive value from this world class operation,” IGO MD Ivan Vella said.

“IGO is pleased with the new arrangements which balance near term market weakness whilst maintaining the leading position of this world class asset, including the commitment to CGP3 development.

“I am looking forward to continuing to build our relationship with two industry leaders and realise the full potential of our asset and its impact on this nascent industry.”

Intended to be complete in the first half of 2025, CGP3 would take Greenbushes’ production capacity into the vicinity of 2.1Mtpa, with another expansion planned for 2027 production — CGP4 — proposed to boost output to 2.5Mtpa.

The current capacity of 1.5Mtpa is supported by two chemical grade plants to process spodumene concentrate from the mine (1.34Mtpa) along with a smaller tailings retreatment facility, processing waste rock from previous tantalum mining operations that contain high grade lithium.

IGO (ASX:IGO) share price today

And a handful of reports

No big dogs in the queue today with Fortescue (ASX:FMG), MinRes (ASX:MIN), Lynas (ASX:LYC) and Pilbara Minerals (ASX:PLS) all chalked off the board last week.

Here’s a quickfire rundown of some of the highlights from today’s cohort.

Australia’s newest gold miner Bellevue Gold (ASX:BGL) delivered a strong update on its processing plant at its WA gold mine of the same name, hitting its 1Mtpa nameplate capacity in the month of December.

Gold output of 15,500oz came with grades only slightly above development levels, falling 18% below consensus estimates for the quarter and 8% below estimates prepared by investment bank RBC, analyst Alex Barkley said.

But second half guidance of 75,000-85,000oz came in 16% above RBC’s estimate of 69,000oz and in line with consensus expectations of 80,000oz. Barkley said the lower than expected December quarter output was less important than it may seem given more stockpile and development ore processing is limited grades.

“We received little insight into mine grade reconciliation vs plan, which we see as a potential upside risk for the site,” he said in a note to clients.

“Q2 processing has reached nameplate 1.0Mtpa in only its second month of operation. We forecast a peak rate of 1.2Mtp, reached only by MarQ 2025; and this was already temporarily achieved.

“Net debt finished higher than RBCe by A$26m and total liquidity is A$49m. However, with the strong December month and solid 2H FY24 guidance: we expect cash position to improve, and the risk of requiring additional equity capital is low.

“Overall we consider this result a positive as the milling capacity demonstrated today bolsters the ongoing outlook for the site.”

Gold Road Resources (ASX:GOR) missed badly on costs at its 50-50 Gruyere JV with Gold Fields, prompting a more than 10% dive in the gold miner’s share price.

Gruyere delivered 321,984oz, to the lower end of its 320,000-350,000oz guidance range, with GOR’s 160,922oz share coming in at all in sustaining costs of $1662/oz, above its $1540-1660/oz range after production at Gruyere fell from 88,668oz at $1682/oz in the September quarter to 74,659oz at $1973/oz in December.

That appears to be a template for 2024, when GOR expects to produce on a 100% basis 300,000-335,000oz at $1900-2050/oz (150,000-167,500oz attributable to Gold Road).

Labour shortages felt by contractor MACA were blamed for poor mining productivity, a sign the issues that have been felt in recent years by the WA mining industry continue to plague the sector.

Also delivering December quarter numbers were iron ore producer Fenix Resources (ASX:FEX), which sold 353,376wmt from its Iron Ridge mine at costs of $78.2/wmt FOB Geraldton, seeing cash margins lift from $70/dmt to $102/dmt after prices received for its high grade iron ore in China lifted from US$116/dmt in the September quarter to US$138/dmt.

Including third party product, Fenix exported 897,604wmt, using port infrastructure acquired from Mt Gibson Iron (ASX:MGX) last year.

That saw its cash build slightly from $59.6m at September 30 to $63.2m at December 31.

And tin miner Metals X (ASX:MLX) lifted its cash balance $18.81m in the December quarter to $143.04m after its half-owned Renison mine in Tasmania produced 2714t of tin in concentrate, up from 2545t in the September quarter.

That saw all in costs fall from $29,057/t to $28,112/t, though margins were compressed by a falling Aussie dollar, which saw tin prices drop from $40,667/t to $37,063/t despite a slight uptick in the US dollar benchmark.

That saw ‘imputed’ EBITDA fall from $49.04m to $41.74m in the December quarter, though MLX says it will see improved payment terms on sales from the coming quarter after replacing an offtake contract with the Thailand Smelting and Refining Co. with sales to its JV partner Yunnan Tin.