Monsters of Rock: Are brighter times ahead for our loss-making copper miners?

Shaw and Partners ramps up copper forecasts, predicts US$11,000/t by 2025
Sandfire says it will start knocking down net debt after ramping up its new Motheo copper mine in Botswana
29Metals, Gold Road report

Shaw and Partners says 2024 shapes as a “strong year for copper equities” after ratcheting its price forecasts by up to 20% over the next three years.

Analysts from the corporate advisory firm used a note on their buy recommendation AIC Mines (ASX:A1M) to reveal a big lift in forward pricing for the metal known as Dr Copper.

They have lifted their 2024 outlook slightly by 0.4% to $4/lb (US$8800/t). But the firm’s 2025 and 2026 outlooks have been ramped up 10.5% and 20.3% respectively to US$4.50/lb (US$9900/t) and $5/lb (US$11,000/t) in 2025 and 2026 respectively.

Long term real prices (based on 2024 money) are up 10.7% to US$4.26/lb (US$9372/t).

“The copper market is also set to experience a significant surge in demand over the next decade due to an acceleration in the adoption of renewable energy, electric vehicles, and associated infrastructure,” Shaw’s analysts led by Peter Kormendy said.

“However, this surge in demand is likely to be met with significant supply challenges.”

What a day for a couple of copper miners to release their financial accounts.

Sandfire says the turnaround is coming

Since OZ Minerals fell into the abyss (otherwise known as the corporate labyrinth that is BHP (ASX:BHP)) Sandfire Resources (ASX:SFR) has been the number one exposure for copper on the ASX.

But its performance since OZ’s departure has been far from pretty, with the closure of its long flagship DeGrussa mine in WA, including a heritage reporting bungle, and energy costs at its newly acquired MATSA mine in Spain have led to a less than desirable performance since it took up the ASX copper mantle.

Its first half results were fairly ho-hum, drawing a 3.4% fall in its share price, with underlying group EBITDA down US$2mm to US$136m, a statutory loss of US$54m (US$26m worse than last year) and underlying loss down US$17m to US$37m.

Sandfire saw its net debt position rise US$46m to US$476m against June 2023 numbers, though it has begun to reverse that, with unaudited net debt of US$459m at January 31.

SFR has invested heavily in its new Motheo mine in Botswana, which hit a processing rate in the December quarter of 3.5Mtpa, above its 3.2Mtpa nameplate.

It’s due to ramp up to 5.2Mtpa with expansion works now complete and a 4.3Mtpa runrate hit in January.

That should lead to a 50% increase in copper equivalent production to around 150,000t by FY25.

SFR expects to deliver 97,000t of copper, 88,000t zinc, 10,000t lead and 3.8Moz silver this year for a copper equivalent level of 135,000t.

“Our main objective is to ramp up Motheo, you’ll see the EBITDA that it’s generating,” Sandfire MD Brendan Harris said.

“A4 will be completed by the end of this half year our capital expenditure starts to decline and cash will go into the balance sheet, we’ll reduce net debt.

“Hence (CFO) Megan (Jansen)’s comment that we see net debt peaking through the current half year period.”

Meanwhile, Sandfire has decided to retain its shuttered DeGrussa copper and gold mine after ending a process to sell the mothballed asset and rehabilitate the project.

It comes after the signing of a framework agreement with the Yugunga-Nya traditional owner group following the revelation it had failed to notify them and the State Government about the disturbance of cultural materials at the Monty satellite mine until years after the damage took place.

“We were also pleased to jointly announce the signing of a framework agreement between Sandfire and the Yugunga-Nya at the end of the period. This agreement is an important step toward rebuilding our relationship with the Yugunga-Nya and ensuring the ongoing protection of cultural heritage at our DeGrussa operation,” Harris said in the miner’s half-year report.

“Our decision to retain DeGrussa and rehabilitate the operation means we will maintain an important presence in the region for years to come and we look forward to working with the Yugunga-Nya, Government and our other stakeholders to deliver meaningful, sustainable outcomes for the community.”

Sandfire Resources (ASX:SFR) share price today

29M reveals stonking loss

29Metals (ASX:29M) meanwhile revealed a large but expected loss at its Australian copper assets, reporting a NLAT of $440m, down from a $47m loss in 2022.

It came after flooding prompted the months long closure of its Capricorn mine in Queensland, with copper output down from 40,800t in 2022 to 24,200t last year and zinc production off from 57,600t to 51,500t.

The EMR Capital backed miner saw revenue fall from $721m to $450m, with EBITDA swinging from +$152m to -$21m as cashflows dropped from $156m to a $37 outflow.

Outgoing MD and CEO Peter Albert said the company had improved development rates at its Xantho Extended ore body at the Golden Grove polymetallic mine in WA, with cost management leading to $20m in savings.

“The enablers are now firmly in place to deliver improved productivity and support progressively higher metal production at Golden Grove,” he said. Albert said however that 29M would need the continued support of the Queensland Government to fully recover mining operations at Capricorn, which received prescribed project status in November after Glencore announced the 2025 closure of its nearby Mt Isa mine.

On Thursday fellow Queensland miner AIC announced a 143% turnaround in post-tax profit from its Eloise mine for the half year from a $5.2m loss to a $2.2m profit.

Earnings lifted 217% to $24.7m, with revenue up 58% to $91m.

AIC produced a record 7161t of copper metal from Eloise in the first six months of the financial year at all in sustaining costs of $4.89/lb, the most under the Aaron Colleran-led firm’s ownership of the mine.

29Metals (ASX:29M) and AIC Mines (ASX:A1M) share prices today

On the ASX today the materials sector recorded a spare 0.07% gain, with energy up 0.02%.

Woodside Energy (ASX:WDS) was largely unchanged despite announcing a US$1.4 billion deal to sell 15.1% of its Scarborough gas project to JERA, a JV company owned by Japanese power giants TEPCO and Chubu Electric.

The agreement will also snare JERA six LNG cargoes annually over a decade from 2026, with US$740m to be paid by the purchasers and JERA to also refund Woodside costs incurred on its project share dating back to the start of 2022.

In the gold world, Gold Road Resources (ASX:GOR) announced a record NPAT of $115.7m for 2023, up from $63.7m a year earlier, generating record free cash flow of $140.2m on gold sales of 161,472oz from its Gruyere mine in WA, revenue of $472.1m and record EBITDA of $250.1m at a 53% margin.

GOR will pay out a 1c per share final dividend, taking its full year payout to 2.2c, taking its total return to shareholders to $23.76m for 2023.