Base Metals Weekly Round-Up: Deals, Buyouts and Outages

- October 19th, 2018

In base metals news this week, Solaris Copper snags itself an early deal, Townsville may be set for a new nickel refinery, BHP reveals the impact of Olympic Dam and more.

Over the past few weeks (and for a few more weeks) it’s been Q3, or third-quarter reporting time, with majors, juniors and explorers releasing their reports in the first full quarter that the commodities sector has been exposed to the US-China trade war.

Politically, the world’s starting to look inwards as elections become the order of the day.

In the US, all eyes are on the upcoming mid-terms, which analysts are now saying are unlikely to have any major impact on the course of the trade war, regardless of outcome.

Further south, the upcoming runoff election in Brazil, which will determine who becomes the next president, is generating a flurry of coverage as voters and foreign observers chew over the possibility of Jair Bolsonaro as leader of Brazil.

In Australia, the fledgling Morrison government is shambling towards a by-election in the Sydney electorate of Wentworth — the freshly vacated seat of the deposed former Prime Minister Malcolm Turnbull, who quit and fled to New York, where he is proving himself unhelpful to his former government comrades who may well lose government if the by-election does not go well for them.

The mining industry motioned general unhappiness with government instability when Scott Morrison took over two months ago — so another change in government will likely go over like a lead balloon.

Looking at prices, copper was down by Thursday (October 18), reaching US$6,145 — some 2.37 percent below where it started on Monday (October 15). Thursday’s price represents an October low for the red metal, which was trading as high at US$6,232 at the end of last week.

Zinc went the other way, though not by much. It started at US$2,661 a tonne on Monday, took a dip and spent the rest of the week on its way back up, reaching US$2,682 by Thursday — a gain of 0.79 percent.

It was nickel that had the ugly week — falling 4.03 percent to US$12,135 after starting at US$12,645 a tonne on Monday. Like copper, that’s an October low— but unlike copper, it’s nickel’s 2018 low (so far).

Scroll down for the top stories this week in the base metals space.

Base metals top news stories

News this week was dominated by quarterly reporting and the rush that comes with reading statistics, but a few notable stories unrelated to quarterlies stood out (though we still love quarterlies).

1. Two-Month-Old Solaris Chalks Up Win with Freeport Deal

Yet-to-be-listed Solaris Copper is a spun-out company from Equinox Gold (TSX:EQX) — famous for being the brainchild of the respected mining elder Ross Beaty. Solaris, which is only two months old, made headlines this week when it snagged a lucrative earn-in agreed with mining giant and (soon to be former) majority owner of the Grasberg copper mine, Freeport McMoRan (NYSE:FCX).

Under the agreement, Freeport will be able to earn up to an 80-percent interest in Solaris’ Ricardo copper-moly property if it spends US$130 million, or US$30 million and delivers a feasibility study for a mine at the property.

The property, which is described by Solaris as “grassroots exploration” stage, spans 16,000 hectares in Northern Chile, some 30 kilometers south of Chuquicamata.

It has some big-name neighbors in Escondida, Collahuasi and Zaldivar, no doubt explaining Freeport’s interest — despite only limited drilling being conducted there since it was acquired by Equinox in 2013.

2. Pure Minerals Snaps Up Private Battery Metals Company

In Australia, the Northern Queensland city of Townsville is being teased by the possibility of an early Christmas present with Pure Minerals (ASX:PM1) announcing plans to acquire a private company with a whole lot of ducks in a row.

Upon announcing its desire to buy Queensland Pacific Metals, Pure Minerals let the cat out of the bag by revealing plans to construct a nickel-cobalt processing plant in the city to process ore sourced from New Caledonia, only 2,000km away across the Coral Sea.

The city has been without a refinery since 2016 after self-proclaimed billionaire Clive Palmer shuttered the Yabulu nickel refinery citing low nickel prices (and general financial hardship), putting hundreds of workers out of work.

If a feasibility study confirms the viability of the plant, construction would begin in 2020, costing AU$300 million to construct and employing 400 people upon completion, with the option of a further expansion in the future.

3. Acid and Fire Put Brakes on BHP’s September Quarter

We can’t have a list of stories without one slot being occupied by quarterly reporting — with BHP (ASX:BHP,NYSE:BHP,LSE:BLT) taking the cake for finally revealing the impact of an outage at Olympic Dam in South Australia.

The company described the disruption at its South Australian copper operations as an “unplanned acid plant outage,” which is a polite way of saying the boiler tubes failed, immediately halting production and taking a 20,000-tonne chomp out of guidances for Olympic Dam, which were revised from 200,000-220,000 tonnes of copper to 170,000-180,000 tonnes for the year.

Olympic Dam, along with disruptions at Spence in Chile together meant BHP had to reduce copper guidances across the board, with not even a 10 percent increase in production at Escondida able to offset the declines.

Read on for more base metals news this week.

In other base metals news

In British Columbia, the impact of the previously reported unionized workers strike at Imperial Metals’ (TSX:III) Mount Polley mine has been revealed in the company’s third quarter results, with a 34-percent fall in copper production and a 22-percent fall in gold.

The workers went on strike in May and negotiations between them and the company didn’t see them back and work until August, well into the third quarter, after the strike action had already put a sizeable dent in the second quarter results. Mount Polley’s fall in production was not offset by the company’s other mine, the Red Chris mine, which posted its own decrease in production because “copper recoveries continued to be lower than planned.”

In Poland, Warsaw is looking to improve the books for copper producers by reducing taxes — though the primary benefactor would be state-run KGHM, a major employer that would be close to the hearts of many voters as the eastern European country holds local elections this weekend.

BHP Billiton’s CEO Andrew Mackenzie took a swipe at the trade war, calling it an “assault on the global trading system” without actually naming the two main players, disparaging protectionism and blaming it for undercutting sentiment.

Despite his feelings on the trade war, he also said that BHP had not been “significantly impacted”.

MMG (ASX:MMG) reported that its Dugald River zinc mine was ramping up well, flagging an increase to its guidances from the mine from 120,000-140,000 tonnes to 140,000-150,000 tonnes of zinc in concentrate.

Deep in the forests of Brazil, Anglo American (LSE:AAL) was reported by local media to have “very promising” drill results from an ongoing copper-hunting campaign first reported back in June after it secured exploration permits for hundreds of blocks in the Matto Grosso and Para states of the Amazon.

Don’t forget to follow us @INN_Resource for real-time updates!

Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.

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