February 16th, 2022 | 11:14 CET
BYD, Phoenix Copper, Freeport-McMoRan - The supercycle is on
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"[...] Nickel, therefore, benefits twice: firstly from its growing importance within batteries and secondly from the generally growing demand for such storage. [...]" Terry Lynch, CEO, Power Nickel
Explosion in the market leader
The share of the second-largest copper producer Freeport McMoRan is a fundamental investment in every commodity portfolio. Only the Chilean market leader Codelco is ahead of the US producer from Phoenix. Last year's figures were once again impressive and show the extreme demand for copper. The giant produced 3.843 billion pounds of copper, 20% more than in the same period last year. That was partly due to the ramp-up of underground production at the Grasberg mine and higher milling rates in North and South America.
In addition to copper, gold production also flourished with 1.381 million ounces, a substantial 61% increase, partly due to the expansion of the Grasberg mine, the world's largest gold mine in Western New Guinea. As a result, net profit exploded by 619% and amounted to USD 4.306 billion. The booming business development can be seen impressively on the share chart. After the low of USD 4.82 at the time of the Corona breakout, Freeport increased almost ninefold. Nevertheless, the Company has further growth potential. A breakout above the USD 45.62 mark would push the door wide open to new ten-year highs at USD 61.35.
Low supply, high demand
Rising demand is overrunning the existing copper supply. In the past decade, investment in exploration and the development of new copper deposits largely failed to materialize due to the weak copper price. Currently, copper demand is being met by around 10 large and 20 smaller mines. The demand is enormous. An interesting investment target is the share of Phoenix Copper. The up-and-coming producer of base and precious metals, whose main activities are located in the Alder Creek mining district in Idaho in the USA, currently has a market capitalization of EUR 70.30 million and is listed on the AIM in London and the OTCQX Market in the USA as well as in Frankfurt. At the same time, the Company stands on several feet.
The main project is the Empire mine, to which Phoenix Copper secured the lease rights back in 2013. Since then, the land size of the open pit project has been expanded from the original 2.05 sq km to the current 17.20 sq km. Production is scheduled for the first half of 2023. It is estimated that less than 1% of the potential ore system at Empire has been explored to date, promising enormous potential for the future.
Broadly diversified portfolio
In addition to the prospective Empire open pit mine, Phoenix owns the historic Horseshoe, White Knob and Blue Bird underground mines, all of which have historically produced copper, gold, silver, zinc, lead and tungsten. The discovery at Red Star, 330 m northwest of the Empire mine, has shown high-grade silver/lead sulfide ore in three shallow exploration holes. In addition, the Navarre Creek district includes a Carlin-type volcanic gold discovery that has a 6.1 km strike length within a 14.48 sq km area.
In addition, Phoenix Copper owns Redcastle and Bighorn, two cobalt claims located in Lemhi County. They run along the most prolific cobalt mineralization trend in the US and adjacent to the mine of Electra Battery Metals, formerly known as First Cobalt, with whom it already has a joint venture. The Company is well-financed with cash on hand of about USD 15 million. Debt capital in the form of a bond is also to be raised for the transition to production at the Empire mine in order to achieve the set goals of starting production by 2023.
Phoenix Copper CFO Richard Wilkins will present the Company tomorrow, February 17, 2022, at the virtual International Investment Forum IIF. Registration is free at www.ii-forum.com.
Renewable energy growth driver
There is an enormous demand for copper in renewable energies. For example, 30t of copper is used to produce just one wind turbine. For a new type of electric car, around four times the amount is needed than for the production of a car with an internal combustion engine. In 2019, there was already a shortage of 383,000t on the market. In 2020, the supply deficit rose to 559,000t, the highest value in more than a decade.
If we look at the growth rates of the electric carmakers in New Energy Vehicles alone, we see that demand will increase significantly in the coming years. BYD alone plans to more than double its unit sales from around 600,000 units to 1.5 million in the current year.
Especially in China, competition is fierce and growing strongly. Tesla sold 59,845 electric cars in January, according to the latest data from the China Passenger Car Association (CPCA). However, the market leader in the Middle Kingdom is BYD, which delivered 93,101 units in the first month of the year. It is followed by Great Wall Motor (GWM) with 13,781 units and XPeng and Li Auto with 12,922 and 12,268 cars, respectively.
The demand for copper will continue to increase in the coming years due to its importance in relation to the energy transition. In addition to copper producers such as Freeport-McMoRan, investors should take a closer look at second-tier Phoenix Copper. BYD remains the undisputed market leader in China in the electric car sector.
Conflict of interest
Pursuant to §85 of the German Securities Trading Act (WpHG), we point out that Apaton Finance GmbH as well as partners, authors or employees of Apaton Finance GmbH (hereinafter referred to as "Relevant Persons") may hold shares or other financial instruments of the aforementioned companies in the future or may bet on rising or falling prices and thus a conflict of interest may arise in the future. The Relevant Persons reserve the right to buy or sell shares or other financial instruments of the Company at any time (hereinafter each a "Transaction"). Transactions may, under certain circumstances, influence the respective price of the shares or other financial instruments of the Company.
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