The world’s two largest copper mines have closed recently, driving the price of copper to a nearly 2-year high. The first is the Escondida mine; located in Chile and owned by BHP Billiton; it is the world’s largest copper mine.
I have a unique perspective towards this shut-down as I was traveling in Chile, in the Atacama Desert, about 30 minutes by paved road from the famed Escondida open-pit mine late last year. While I was visiting another mine operation and exploration project, I saw the roads, infrastructure, and buses full of workers heading to mines in the region. More importantly, I saw the quality of life many have attained in Antofagasta, which is 170 west on the Pacific Ocean and boasts the highest GDP per capita of Chile, at 37,000 USD. While the area in the Atacama Desert, where Escondida produces is a very mature mining friendly region, it is the driest desert on earth. In any event, as is the case in other countries such as Peru and Africa, when there is a large workforce, tensions and the potential for strikes always exist.
Mining activities ceased last week after 2500 workers at Escondida rejected a pay deal. With a deal in limbo, BHP announced on Friday that it would be unable to meet its upcoming contractual obligations on metals shipments. Workers didn’t take long to vent their frustrations on BHP’s facilities at the mine.
James Thomson from the Financial Review wrote,
“BHP confirmed on Monday that 14 people were injured after a fire broke out on Friday around 3 am local time. Four workers were taken to nearby Antofagasta due to their injuries.”
Further reports were that,
“BHP alleges the masked group activated fire alarms, damaged property and stole goods. The company said a smaller group cut power to surveillance cameras and the mine’s entrance verification system.”
source: http://www.afr.com/business/mining/copper/strike-at-bhp-billitons-escondida-mine-turns-violent-20170213-gubqcg
It sounds like it will take more than a few pennies an hour wage increase or some soft spoken words to get right with these miners.
Freeport-McMoRan’s Grasberg Copper Mine discontinues exports
The second mine to discontinue exports was Freeport-McMoRan’s Grasberg copper and gold mine. Regarded as the world’s second largest producing copper mine, it is no wonder copper prices are soaring.
On January 12th, Indonesia’s government introduced rules restricting copper concentrate exports. The law is designed to expand the nation’s domestic smelting industry.
Freeport-McMoRan has begun to send workers home, a spokesman for the company’s local unit said on Tuesday.
Reuters reported that,
“Freeport previously said the suspension of concentrate exports would require the Grasberg mine to slash output by around 70 million pounds of copper per month.”
source: http://www.reuters.com/article/us-indonesia-freeport-output-idUSKBN15T0SS
I can’t think of a time for any metal, base or precious, where the two largest producing mines of that specific metal, both shut down for totally separate reasons. During past world wars, the largest gold mines were closed due to various laws promoting the extraction of strategic metals. The current environment for copper is now a truly unique opportunity for producers and explorers of the metal.
Copper prices move to 20-month high
After suffering years of downturn, amidst declining optimism from Europe to the United States, changing economic sentiment has reversed copper’s downward slide. The move can be seen more clearly in the 6-month chart below.
While the TSX Venture declined today, sentiment towards juniors hasn’t been this bullish in years. Copper companies have been feeling the love as well.
On January 24th, Regulus Resources announced the completion of a definitive agreement for the Antakori Copper-Gold Project in Peru.
The company reported that its wholly owned Peruvian subsidiary, Southern Legacy Peru S.A.C., finalized the execution of a Definitive Agreement with Compañía Minera Coimolache S.A. to allow for the collaborative exploration of the AntaKori copper-gold project in northern Peru. Regulus’ stock has been on fire for weeks:
Regulus – 1 Year Stock Chart
Another company, while not specifically focused in the copper sector, but indicative of the strong junior resource markets is Bonterra Resources.
On February 6th, Bonterra announced a $6.0 million bought deal financing with Sprott Capital Partners. The next day it announced it was increasing the amount to $9.4 million. Finally, early this week on February 13th, the company announced that it had agreed to increase the offering size of purchased securities from $12,902,400 to $13,974,800 in gross proceeds. These types of increases only happen when sentiment is increasing and is a very bullish sign for the sector.
Note: Across the Pacific Ocean in Asia, China’s iron ore futures rose for a sixth session Tuesday. They are now at their highest level in more than three years. Iron ore is another resource that booms during periods of economic expansion.
Domestic Copper stocks to benefit from Largest Copper Mines Closure
With the world’s two largest copper mines are either shut down, laying off workers or discontinuing production for the immediate future, the copper revival has arrived. Expect copper stocks, particularly those located in favorable locations to perform well in the coming weeks and quarters. Investors small and large will be hitting the pause button on Indonesia and Chile before rushing in, no matter how opportunistic the asset may appear.
