Perhaps I'm struggling with forlorn hope confirmation bias but outlook for copper seems to be regularly confirmed in a positive sense for next few years. See Livewiremarkets reporting on a Stanley Morgan report below. 29M being described as requiring either a copper price per lb increase or dramatic cost reduction to aid its survival. Perhaps price for copper will help them out, and a new CEO with an external fresh perspective. 29M up 4.2% today, I'm still down 35% overall. Patience required I guess ho hum. Pretty much the wider community of copper producers here in Australia, in the US and Canada are up since the start of the year.

Note suggestion Nickel and lithium may have troughed, along with improved production output in China. Or still too early to really tell.

Note whilst post date 29M announcements re its Capricorn mine it may not have taken the news into account in this report.

Holding 29M, PLS, HBM (US) in RL, 29M, PLS and SFR in SM.

Morgan Stanley’s latest views on copper, coal, gold, iron ore, nickel, and lithium (+ top ASX stock picks)

Recent data on the Chinese economy showed a pick up in industrial production, as well as copper, coal and iron ore imports.

(28/3/2024 1pm AEDT)

Carl Capolingua

Livewire Markets

Major broker Morgan Stanley has reviewed a swathe of recent data on the Chinese economy and as a result has considered its top picks in aluminium, coal, copper, gold, iron ore, nickel, and lithium. Let’s investigate their key findings.

China data good for miners

Morgan Stanley notes that the latest data on industrial production in China showed a substantial and better-than-expected increase of 7%. Contrasting this, property new starts were down 29.7%.

Chinese PMI and IP. Source: Refinitiv, Morgan Stanley Research

These are two key pillars of the Chinese economy and are likely to be crucial in achieving its 2024 growth target of 5%. For Aussie investors, these two key pillars are likely to have a big impact on local commodity stocks.

Morgan Stanley sees industrial production moderating from the strong start to the year, as much of it was due to “front-loading”. On property, it acknowledges year-on-year growth rates should remain negative for some time but that they will also improve in the coming months. This is due to a combination of “more policy easing and better execution on fiscal stimulus needed to rebuild buyers' confidence”.

China - Property sales and new starts. Source: CEIC, Morgan Stanley Research

Commodities views

On the commodities front, these are Morgan Stanley’s latest views:

Steel / Iron Ore

• We’re approaching the peak season for construction and this is spurring an increase in Chinese steel output.
• Steel exports are also strong, up 31% in January-February, and this has resulted in an 8% increase in iron ore imports.
• Iron ore port inventories rose sharply into January, but have drawn down in February.

China's iron ore stock at ports and stock-to consumption ratio. Source: Mysteel, NBS, CEIC, Morgan Stanley Research

Aluminium

• Production is up 5.5% year on year in January-February
• Easing power supply tightness has assisted and should continue to support increased production – which could put “pressure” on aluminium prices in the “near term”.

Coal

• Production is down 4.2% year on year in January-February, mainly due to safety inspections.
• Consumption by power utilities is up 9.7% a year in January-February.
• The result is “Sustained high coal imports”, +23% year in January-February.
• China has returned as a “a key market for Australian coal and customers”.

Copper

• Copper markets “remain tight” due to a major mine shutdown in Panama and “disappointing guidances from various producers” in recent months.
• Inventories are “continuing to fall”.
• Copper remains the broker’s preferred base metal.

Gold

• “Gold could outperform in 2024 as rate cuts loom”.

Nickel

• “Nickel has likely troughed”
• The recent price rebound was driven by “short covering”, but “fundamentals are improving too”.
• Supply cuts are accelerating, “wiping out most of the surplus we modelled for 2024, with an added volume of around 120ktpa at risk”
• Prices to remain “choppy” though as notes rising inventories at LME warehouses.

Lithium

• Supply cuts have been slower than expected, but “are now picking up”.
• 6% or 78kt of production has been cut so far.
• On the demand side, cathode output plans “are looking better than expected”, this is “boosting” sentiment.
• The 2024 surplus is still likely, but smaller.
• The lithium/battery supply chain remains “fairly well-stocked”.
• “We may still see more downside for now, but if production cuts continue to materialise and EV volumes hold up, prices are likely closer to a trough”.
• “We expect the spot price is likely to be choppy going forward” as price recovery may temper further production cuts.

Top ASX commodity stock picks

These are Morgan Stanley's top ASX commodity stock picks “in order of preference”.

Copper

Rio Tinto (ASX: RIO)

• Due to 13% copper, revenue in 2024 will increase to around 20% by 2026
• Rating: OVERWEIGHT

29Metals (ASX: 29M)

• Due to “bottoming expectations, valuation upside”, Morgan Stanley notes around 52% of the company’s 2024 revenue will come from copper*.
• Rating: OVERWEIGHT.

Aluminium

Alumina (ASX: AWC)

• Selected because of “tight alumina market and pricing”.
• Rating: OVERWEIGHT.

South 32 (ASX: S32)

• Selected because “many of its key commodities being supported in 2024”.
• Rating: OVERWEIGHT.

Gold

Regis Resources (ASX: RRL)

• Due to “upcoming McPhillamy study”.
• Rating: OVERWEIGHT.

Iron Ore

Deterra Royalties (ASX: DRR)

• Due to “valuation upside from where the stock trades”.
• Rating: OVERWEIGHT.

Lithium

“We maintain our cautious stance on Li equities under our coverage, given ongoing Li price volatility and recent market weakness,” says the Morgan Stanley research team.

Mineral Resources (ASX: MIN)

• Due to “supported by its IO exposure”
• Rating: EQUAL-WEIGHT.

IGO (ASX: IGO)

• Due to “headwinds largely priced-in at current stock price levels”.
• Rating: EQUAL-WEIGHT.

Pilbara Minerals (ASX: PLS)

• Due to “premium valuation and significant capex plans compressing FCF generation over FY24-“25.
• Rating: EQUAL-WEIGHT.

*Note the research report which is the source of this article is dated 27 March 2024, which post-dates 29Metals announcement of the suspension of operations at its Capricorn Copper Mine. No reference was made to this announcement in Morgan Stanley’s research report.

ASX announcement for 29M. Their Capricorn Copper mine near Rockhampton flooded once more, operations suspended, staff redundancies excepting a small team. Share price dropped 35% and recovered down 26%. This mine is now back to where it was March 2023 when previously flooded. Guidance on a 29M conference call that paralleled the ASX announcement suggested look to 2nd quarter 23 for probable costs in recovery. More information to flow from their quarterly figures 23rd April but expecting a repeat of last years efforts, albeit at a faster recovery rate given they have all equipment required already at site etc.

ASX ANNOUNCEMENT

Tuesday, 26 March 2024

Capricorn Copper – Suspension of Operations

29Metals Limited (‘29Metals’ or, the ‘Company’) today announced the suspension of operations at Capricorn

Copper.

29Metals will hold a conference call and webcast to discuss today’s announcement, commencing from

9.00am (Melbourne time) on Tuesday, 26 March 2024. Details for the conference call and webcast are set out

at the end of this release.

The decision to suspend operations follows an extended period of rainfall between late January and mid-March

2024, as a result of the weather in the region following consecutive tropical cyclones, resulting in a steady

accumulation of water in regulated structures on site to levels now similar to the levels following the March

2023 extreme weather event.

With water at these levels, dewatering of Esperanza South underground mine (‘ESS’) cannot continue which,

in turn, delays the restart of mining at ESS as part of the Capricorn Copper Recovery Plan.1

Having regard to the impact of the delay to the restart of mining at ESS, current water levels on site and the

operational performance since August 2023, the suspension of operations is the prudent path – 29Metals’

priorities are to protect our people, manage our environmental responsibilities, conserve cash and retain

value.

Commenting on today’s announcement, Managing Director & CEO, Peter Albert, said:

“The decision to suspend operations has not been taken lightly, particularly because of the impact it will have

on our team at Capricorn Copper who have worked tirelessly following the extreme weather event in March

2023, as well as the local community, our contractors, and the businesses across the region and the state of

Queensland that support the site.

“Unfortunately, the combination of elevated water levels at the beginning of the wet season (as a result of the

event a year ago) and the sustained rainfall since late January this year has more than offset our successes

reducing water levels through mechanical evaporation and authorised releases of treated water within

prescribed limits.

“The duration of the suspension will be dependent on a number of factors, including reducing the water levels

held on site and securing the regulatory approvals required to set Capricorn Copper on a sustainable footing.

29Metals’ objective will be to ensure the period of suspension is as short as possible. Planning for the restart

will start almost immediately and we will use this pause in operations to build back stronger and set Capricorn

Copper up for the future.

“During the suspension, 29Metals will continue to progress the growth potential at Capricorn Copper, including

the targeted exploration activity currently underway to test the new mineralised zone identified last year east

of the Mammoth orebody2, and evaluation of the potential to produce a cobalt product. “

There will be a significant reduction in headcount and activity at site as we ramp down mining and milling

activity over the next approximately six weeks. Activities during the suspension will focus on managing the

water inventory (and related compliance activities) and preparing the asset for a future restart.

1 Details of the Capricorn Copper Recovery Plan were outlined in the investor presentation released to the ASX announcements platform on

23 May 2023.

2 Refer to 29Metals’ ASX release entitled ‘Exploration Update – Capricorn Copper” released to the ASX announcements platform on 12 April 2023.

ASX Announcement

Capricorn Copper – Suspension of Operations

Page 2 of 2

29Metals is committed to restarting operations as soon as practicable to realise the potential of Capricorn Copper, with its

substantial mineral endowment of nearly 65 Mt in Mineral Resources, 19 Mt of Ore Reserves at 1.7% copper3 supporting an

estimated mine life of at least ten years, established infrastructure and organic growth opportunities.

The key drivers for a successful and sustainable restart will be:

▪ reducing water inventory held on site, including completing the dewatering of ESS and implementing further measures

to enhance the resilience of the site to future weather events;

▪ establishing long term tailings storage capacity;

▪ completing the design, procurement and installation of the new water treatment plant, providing a reliable and

sustainable source of water suitable for mining and milling operations; and

▪ identifying and implementing opportunities to enhance productivity and reduce costs.

The continuing support of the Queensland government will also be critically important, building upon the Prescribed Project

and Critical Infrastructure Project status conferred late last year4 to secure the regulatory approvals required to support the

restart and the enablers outlined above.

From a balance sheet perspective, the suspension of operations will reduce cash outflows in the nearer term (after initial

one-off termination and redundancy costs). 29Metals will continue to focus on productivity and sustainable cost reduction

initiatives, progressing the Capricorn Copper insurance claim, and offtake finance arrangements to provide additional

liquidity.

Updates regarding restart planning and ongoing activities will be provided in the quarterly report for the March quarter

(expected to be released on 23 April 2024).

Authorised for release by the Managing Director & CEO, Peter Albert

Came across this in my feed this morning and feel this provides a good general background to the copper market. Companies I follow include 29M, AIS (Aeris Resource Ltd), DVP (Develop Global), EVN (Evolution Mining), FFM (Firefly Metals), HBM (US, Hudbay Minerals), HGO (Hillgrove Resources), RRR (Revolver Resource Holdings), SFR (Sandfire Resources) and XAM (Xanadu Mines). There are other producers including larger miners that dilute copper with other production (and therefore any gains in copper) inc RIO Tinto, BHP etc.

Note Chinese smelter production scarcity has evolved quickly. More recently annual figures until now have shown an increase in smelter processing. This may obviously change now as supply reduces. Although Chinese EV production and export is huge and getting bigger, some headwinds for Chinese EV's are emerging as EU, USA and Brics countries look at Chinese government subsidising EV manufacture, and related dumping activities (EV's use 8 times the copper in ICE vehicles).

I own 29M and HBM in RL, 29M, SFR here on SM.