February 11th, 2021 | 12:32 CET
Kodiak Copper, Freeport-McMoRan, Millennial Lithium: The copper rally continues!
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"[...] We knew the world was rapidly electrifying and urbanising and needing significant amounts of copper to do so. [...]" Nick Mather, CEO, SolGold PLC
Born in Munich, he first studied economics and graduated in business administration at the Ludwig-Maximilians-University in 1995. As he was involved with the stock market at a very early stage, he now has more than 30 years of experience in the capital markets.
Kodiak Copper - copper supply in the making
When you consider that the global supply of copper is currently managed from about 10 major mines and 20 far smaller ones, it becomes clear that a medium-term supply of the coveted raw material can only come from new developments. An e-vehicle requires 4 times the amount of copper used in a conventional vehicle, and around 70% of the world's copper is used in electronic applications. Global demand will be about 1.6 million metric tons (MT) in 2025, compared to 0.6 million MT in 2020, representing a 160% increase in demand in 5 years - that's exponential!
The MPD project of Canadian explorer Kodiak Copper, an exciting player from British Columbia, stands out. The 100% owned project, which includes the recently discovered Gate Zone, is close to well-known mines such as Copper Mountain, Highland Valley, and New Afton. Public access has been completed for years with infrastructure that inspires. A copper major can start shipping directly after investing in the production facility. Of course, we are talking about investments in the range of several USD 100 million.
The Kodiak Copper portfolio is complemented by a property in Arizona, located in a very mine-friendly environment. The porphyry drilling in British Columbia went quite to management's liking. The good results also prompted Teck Resources to acquire a stake of just under 10% for a total of CAD 8 million. With a full treasury of more than CAD 14 million, the Company can now move forward in 2021, with plans for more than 30,000 meters of further testing and assaying.
Kodiak Copper shares have been trending sideways at the CAD 1.50 line for several weeks; presumably, the market is waiting for fresh news. We expect news soon, and with the successful setup, it shouldn't be bad. To buy - as long as the potential is not yet open in front of us, with new drilling results, the CAD 2.00 should be approached.
Freeport-McMoRan - Copper is the new gold
One of the copper standard stocks is Freeport-McMoRan, a commodity stock from Phoenix. The stock has had a great run, with a 5-year return of a whopping 398%. Due to strong copper prices, Freeport-McMoRan was able to reduce almost all of its debt. The dividend was just reinstated; it is now USD 0.075 per quarter, which is a 50% increase over the dividend before it was discontinued last year. With expected growth over the next few years, the quarterly dividend could return to USD 0.25, which was the payout before the oil market collapse that nearly bankrupted Freeport-McMoRan.
Freeport-McMoRan's projected EBITDA of USD 11 billion for 2021, assuming stable copper prices, could be even greater if demand increases. This high cash flow will allow the Company to deploy funds for further mine developments to cope with rising demand. The London Metal Exchange complains about physical inventories being too low if the forward price continues to go through the roof.
At the current entry point, Freeport-McMoRan stock certainly looks to have done very well already, and overall we fundamentally estimate growth of about 10% per annum (CAGR) over the next 5 years. However, as the economy is likely to pick up another gear after the pandemic, an investment makes long-term sense after a minor correction in the chart.
Millennial Lithium - Lithium remains one of the Metals for 2021
The entire lithium stock sector has moved up tremendously in recent months. Since Elon Musk's Battery Day in September 2020, there has been no stopping white gold stocks. The share of Millennial Lithium even reached a new 11-year high of EUR 3.24 in January. Many other lithium stocks also knew almost only one way recently: up. The lithium price recently climbed to USD 65,000 and is thus as high as it was last in mid-2019.
The demand for lithium will remain high because investments in e-mobility will accelerate again under Biden's government. At least, that's what a comparative study published in the journal Nature Energy on the series production of lithium-ion batteries and alternative technologies by a team of battery researchers led by WWU Münster suggests. What has been buried in drawers for years is now coming to light. The oil lobby blocked battery cell production for long periods, and now the oil multinationals are even investing in battery metals themselves - the signs of the times are tangible. They are urging us to throw old habits overboard. Relying permanently on increasing oil sales volumes has been a discontinued model for 3 years. Global demand is falling, currently only slightly, but it is falling!
If we look at the future demand for energy storage, it will undoubtedly take a few more years until enough Gigafactories are built to meet the future demand. For the year 2030, global production of rechargeable batteries will increase from today's 750 gigawatt-hours (GWh) per year to 1,500 GWh. Despite all the euphoria, lithium stocks remain a speculative investment. Orocobre and SQM are the best-known representatives, a smaller value but thus also a thoroughly promising player is Millennial Lithium. The market capitalization already reaches EUR 232 million - production on the 12,619sqm Pastos Grandes project is expected to start in 2 years. It is exciting to see where we will see the share then.
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