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Explains the big jump in copper and other base metal companies today
With high cost producers closing, this might put some supply pressure on copper and base metals and I guess we are seeing this in the lift of copper prices.
Interesting China gov has not intervened to subsidise the copper smelters, otherwise smelters would not be making cuts.
Copper price soars to 7-month high on China’s plans to cut output
Staff Writer | March 13, 2024 | 9:29 am Markets China Copper
China copper smelters raise Q4 treatment charge floor ahead of miner talks
Copper prices soared on Wednesday to their highest in seven months after Chinese smelters, which process half of the world’s mined copper, agreed on a joint production cut.
Benchmark three-month copper on the London Metal Exchange (LME) touched $8,799 a metric ton, the highest since Aug. 1, 2023. It last traded 1.6% up at $8,790 as at 1055 GMT.
The rise started on the Shanghai Futures Exchange (SHFE), where copper reached a two-year high of 70,460 yuan ($9,796) per ton.
China’s biggest copper smelters met in Beijing on Wednesday, agreeing on a symbolic cut in loss-making production, without specifying volumes and timing.
“It’s a knee-jerk response to rush in. Interest spiked on SHFE right after the announcement of China’s production cut,” a trader said. “Who will admit they are the first to turn unprofitable?”
Shortages have led to intensifying competition for mined copper concentrates, causing a sharp fall in income for smelters to decade-low levels.
“But it’s important to note that there are around 1.7 million tons per year new ex-China smelter projects that are expected to come online in the second half, which will put more pressure on global concentrate supply,” said Brian Peng, a copper analyst of consultancy CRU.
More global copper smelters were not operating in the first two months of the year than in the same period last year, mainly because of Chinese inactivity, data from satellite surveillance of metal processing plants showed.
However, higher copper prices could further dampen demand in top consumer China, as can be seen in inventories.
Copper inventory in warehouses monitored by SHFE rose steeply to 239,245 tonnes as at March 8 from 30,905 tonnes in the beginning of the year.
July 2018: Sandfire are growing via exploration in surrounding tenements (to DeGrussa) via farm-in agreements where SFR do the drilling (spend the money) in exchange for earning a share of the tenement if something is found. This worked well with TLM (Talisman Mining) when they found the Monty deposit. It worked out really well for TLM who have now agreed to sell their minority 30% stake in Springfield (the tenements that host Monty) to SFR for $72m plus a 1% NSR royalty on any future discoveries at Springfield. Sandfire are currently exploration drilling through tenements belonging to Auris Minerals (AUR), FE Ltd (FEL), Enterprise Metals (ENT), and have plans to also drill out areas of the Great Western Exploration (WTE) tenements to the east of the ENT tenements. Any of these tenements could host another commercial deposit such as DeGrussa or Monty. Sandfire are also developing the high-grade Black Butte Copper Project, located in central Montana in the United States.
January 2019: The SFR/TLM transaction completed in October 2018, TLM declared and paid a special dividend in December, and are expected to also pay a capital return to their shareholders early this year (2019).
Since the Monty discovery - which was on TLM (Talisman Mining) land, now bought and owned by SFR, the various JVs that SFR are involved in have not yielded any further commercial metal/mineral discoveries to date, but they're still drilling.
Disclosure: I hold SFR and TLM shares.
08-Jul-19: Update. I no longer hold TLM shares. Still hold SFR. Still think SFR is a decent copper play, if you're bullish on copper.
20-Feb-2020: December 2019 Half Year Financial Results Announcement
December 2019 Half Year Financial Report and Appendix 4D
December 2019 Half Year Financial Results Presentation
DECEMBER 2019 HALF YEAR FINANCIAL RESULTS
Increasing copper-gold production drives solid interim profit, enabling further investment in long-term growth projects
Highlights
Sandfire Resources Ltd (ASX: SFR; “Sandfire” or “the Company”) is pleased to report its financial results for the six month period ended 31 December 2019. The Company delivered another strong operational and financial performance underpinned by robust production and cost management at its DeGrussa Operations in Western Australia.
This allowed the Company to maintain strong revenues and operating cash flows, to post a net profit after income tax of $33.3 million (1HFY18: $48.3 million). The interim profit translates to earnings per share of 20.6 cents (basic and diluted).
Total revenue of $313.1 million (1HFY18: $272.3 million) was underpinned by payable metal sales totalling 33,616 tonnes of contained copper (1HFY18: 32,715t) and 18,252 ounces of contained gold (1HFY18: 20,721oz).
The half-year results included production from the new satellite Monty Copper-Gold Mine, resulting in an additional amortisation expense of $34.2 million driven by the amortisation of the Monty CopperGold Mine purchase price, following the acquisition of Talisman Mining’s 30% interest in the project in 2018, as well as amortisation of the decline and mine development. There was also increased investment in exploration and evaluation expenditure of $6.2 million during the period, including exploration at the newly acquired Tshukudu Project in Botswana following its acquisition from MOD Resources Ltd (MOD) in October 2019.
The strong financial performance was achieved despite weakness in the US Dollar copper price during the reporting period, offset by a fall in the USD: AUD exchange rate and a stronger gold price.
The DeGrussa Operations delivered another strong operational performance for the period, with production of 34,988 tonnes of contained copper (1HFY18: 34,813t) and 19,370 ounces of contained gold (1HFY18: 21,567oz), towards FY2020 guidance of 70-72kt of contained copper and 38-40koz of contained gold.
As a result, the DeGrussa Operations segment generated earnings before net finance and income tax expense of $91.4 million (1HFY18: $101.7 million), which included depreciation and amortisation charges of $90.1 million (1HFY18: $61.6 million).
Cash flow from operating activities was $109.1 million (1HFY18: $97.5 million) and $140.3 million prior to payments for exploration and evaluation expenses (1HFY18: $121.9 million).
The Company maintained its strong commitment to shareholder returns during the half-year, declaring an interim fully-franked dividend of 5 cents per share.
The Group cash position at 31 December 2019 was $201.7 million after making significant investments in long-term growth and diversification projects. This included $44.6 million for the cash component of the acquisition of MOD (giving Sandfire 100% ownership of the T3 Copper-Silver Project and adding a new growth platform for the Company in Botswana, southern Africa) and $23.1 million on further investments in early stage, high-quality base metals exploration and development assets through the Company’s Sandfire Ventures program. The Company also paid $40.0 million in income tax payments and $28.5 million in dividend payments during the reporting period.
This information should be read in conjunction with Sandfire’s December 2019 Half-Year Financial Report and accompanying notes.
[See separate straw for outlook statement.]
20-Feb-2020: I've posted links and a results summary (for SFR's FY2020 H1 Results) in a separate straw. The following is their outlook statement (that accompanied their report):
Management Comment and Outlook
Sandfire’s Managing Director, Mr Karl Simich, said the first-half of the 2020 financial year marked the beginning of an exciting new growth chapter as the Company began its transformation from a single-mine company into a diversified and sustainable global metals company operating across multiple jurisdictions.
“Underpinned by another solid operational and financial performance at DeGrussa, we took some important long-term growth steps during this period with the completion of the MOD acquisition, continued progress with the permitting and Feasibility Study for the Black Butte Copper Project in Montana, USA and the commencement of a major new exploration campaign in Botswana.
“At the operational level, the DeGrussa Operation posted another strong set of numbers despite what continues to be a relatively muted global environment for base metals. Another impressive production performance once again drove strong sales revenue, low unit operating costs, robust operating cash flows and strong bottom line earnings – helping us to maintain a period-end cash position of $201.7 million.
“It is important to note that this was after making significant investments in our long-term growth pipeline, including $44.6 million on the cash component of the MOD acquisition and $23.1 million on further investments in high-quality base metal opportunities, while also paying out $28.5 million in dividends and $40.0 million in income tax.
“With a debt-free balance sheet we remain in an excellent position to fund the next stage of our growth and diversification. The key focus in the short term is completing the optimisation of the Feasibility Study and permitting for the T3 development project in Botswana, which we expect to be our first new base metal operation outside of DeGrussa. Project funding discussions are underway and we remain on track to make a decision to mine by mid calendar year 2020.
“Meanwhile, our expanded exploration campaign in Botswana has also paid early dividends, with an exciting new copper discovery at the A4 Dome, located just 8km from T3, rapidly taking shape and five diamond rigs currently focused on delineating this zone.
“The delineation of additional resources within close proximity of our proposed first production hub in Botswana would stand us in excellent stead as we begin to unlock the potential of this belt-scale exploration opportunity. I am optimistic about the outlook for this project given that we effectively control the 200km long centre of an emerging sediment-hosted copper province.
“Turning to the macro picture, there is no doubt that 2020 has seen a number of new challenges emerge in commodity markets due to the impact of the coronavirus and potential impact on metals demand and global logistics and trade. Notwithstanding the short-term impacts, which will continue to play out over the next few weeks and months, we remain positive about the medium-term outlook for copper, which remains fundamental as an essential ingredient for a sustainable, low-carbon future.
“Sandfire is getting on with the job of advancing our new mid-tier projects in Botswana and the USA towards development, exploring vigorously for new deposits in Botswana and Australia, and increasing our exposure to high-quality assets around the world.
“I am pleased to say that the second half of the financial year is off to a strong start and we are on track to achieve FY2020 guidance of 70-72kt of contained copper and 38-40koz of contained gold with C1 costs of ~US$0.90/lb.”
ENDS
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Disclosure: I hold SFR shares.
01-Dec-2020: Sandfire Approves Development of new Long-life Copper Mine plus Investor Update and Outlook Presentation - A New Era
Also: High-Grade Copper-Silver Intersections in Latest A4 Drilling plus Maiden Mineral Resource for A4 Copper-Silver Deposit
Finally: LYL: Award of EP Contract for Sandfire's Motheo Contract
So, what happens when you release all of that in one day, and the copper price has just hit a new 7.5-year high overnight. Well, your share price rises by +9.82%, that's what.
Further Reading: MiningNews.Net: Copper sector perks up ["The copper price hit a fresh 7.5-year high overnight. Among the companies to release news this week are Sandfire, Hot Chili, Aeris, Aurelia, Copper Mountain, Azure, Sunstone and Alderan – and it’s only Tuesday.]
Clearly, SFR aren't Robinson Crusoe today. AMG (Ausmex Mining Group) rose +12.82% and CBE (Cobre) went up +23.33%.
How's this for timing. I sold all of my SFR yesterday to top up 3 of my gold company positions. I was happy to see that all three of those gold companies' SPs rose strongly today, but, unfortunately, not nearly as strongly as SFR's SP rose on the back of all of this news. I finally came to the conclusion yesterday that the market just doesn't like Sandfire much, and I couldn't see what was going to change that situation. [hint: positive news about the FID and completed DFS for T2 in Botswana might do it, along with a fresh company presso that reminds people about the global copper producer that SFR plan to be within a few years, with high-grade copper mines operating in 3 countries... That's what we got today anyway.]
The two main decent-sized pure-play copper exposures on the ASX are SFR and OZL (OZ Minerals) and the market just loves OZL (look at their 12-month chart) and doesn't care much for SFR (look at their 12-month chart!). Today might be the start of a positive market re-rating of SFR at last. If so, it's not before time! It probably will be. That's usually what happens right after I cut my losses on an investment that I'm underwater on.
My reasons for selling SFR (yesterday) are: (1) they don't seem to be able to get any love from the market compared to OZL, (2) their one producing mine (De Grussa plus the nearby Monty deposit) has a declining resource with limited life left and they haven't been succesful in finding "another Monty" yet, and (3) there is development risk around their Botswana copper mine development project (the subject of today's announcements as it turns out) as well as the Black Butte Copper Project, located in central Montana in the United States.
None of those risks are new of course, but taken together - well, I thought I could invest the money elsewhere in companies with less downside risks and more upside, so that's what I did. Those companies just happened to all be gold producers as it turns out (NST, SBM & RRL). Sandfire do produce some gold too (as does OZL), but their bread and butter (for both SFR and OZL) is copper production. That's their main game.
For now, SFR remains on my Strawman.com scorecard, but is no longer in any of my real-life portfolios.
Article in Livewire by Darko Kuzmanovic, senior portfolio manager at Janus Henderson Investors:
The WA copper miner poised for a global breakout
DISC: Small Hold in SM & RL