Copper Trends: A Review of 2016

- December 20th, 2016

Copper is at a turning point, and if the copper mining juniors are any indication – it will be a busy year ahead. Here we recap 2016, and look at companies to watch in 2017.

The copper forecast for 2017 is bullish — some say it’s because of Trump, while others say it’s more about supply and demand. Here we take a look at copper trends in 2016: how the red metal’s price did, and big news in the past year.

A look back at the copper price

2016 started with a price dip to a year-low of $1.93/lb on January 19, but the red metal slowly gained back its bearings in the latter half of 2016, which also coincided with the US presidential elections.
The US Geological Survey says that global copper production increased by 200,000 tonnes for a total of 18.7 million tonnes in 2015, despite reported production cuts from major miners.
By August 2016, copper prices were up about 2 percent overall, trading at $2.16 per pound. In the same period, Goldman Sachs was warning investors about a “supply storm” for copper, and stated in a note that the company’s estimates suggest “copper is entering the eye of the supply storm,” and further said that the wall of supply would translate to an increase in copper smelter and refinery charges thus affecting refined copper production.
But in December, the investment bank giant dramatically turned bullish on copper, contributing the change in sentiment to improved supply and demand fundamentals.

What Caused This Sharp Rebound? More Importantly, Can You Afford To Miss Out?

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Scotiabank, in a note to investors in December said the fourth quarter of 2016 “has been great for copper and we think this new-found positive sentiment will carry into 2017.” The bank pointed out that more confidence in future metals demand is the big driver for this positive sentiment. The note further said that supply disruptions could be a potential factor in 2017, “there are big labor negotiations in December and into early 2017 at some of the world’s largest copper mines,” the bank stated.

News in 2016

Copper miners have had their share of ups and downs in 2016. To name a few:

  • Imperial Metals’ (TSX:III) open-pit Huckleberry Mine in BC, Canada has been placed on care and maintenance since the end of August 2016. However, the company’s Mount Polley Mine received the green light to return to normal operations in June 2016. In October, however, charges were filed against subsidiary Mount Polley Mining and the Government of BC for the dam break that occurred in the open pit copper-gold mine back in August 2014.
  • Anglo American (LON:AAL) in November decided to keep all activity at the Los Bronces copper mine in Chile halted due to attacks by protesters.
  • In the latter part of 2016, Capstone Mining (TSX:CS) used the surge in prices as an opportunity to bring back laid-off workers to the Minto copper mine, the Yukon’s only operating mine. CBC spoke to Mine Manager Ron Light and reported that Minto may resume open pit operations and is seeking approval from the territorial government for changes to its mine plan which could potentially bring 40-45 people back to work in January.
  • Rudna, a copper mine in Poland operated by KGHM (WSE:KGH), was hit by an earthquake that claimed eight lives in November.
  • Turquoise Hill Resources (TSX,NYSE:TRQ) announced on December 14 that it has resumed concentrate shipments from the Oyu Tolgoi copper-gold mine in Mongolia into China.
  • Freeport-McMoRan’s (NYSE:FCX) Grasberg copper mine in Indonesia may be facing cutbacks as the Indonesian government’s prohibition on exporting of raw, unprocessed ores comes into force by mid-January.
  • Reuters reported that a deal has been reached for miner wages at Codelco’s Chuquicamata mine. This is a positive precedence for Chile’s other copper mines such as BHP Billiton’s Escondida mine.

Top copper stocks rallied in 2016 and even outperformed 2015’s best, registering gains as high as over 800 percent year-to-date — see our list of top copper stocks on the TSX and the TSXV.

Companies to watch in 2017

Copper is at a turning point, and if the copper mining juniors are any indication – it will be a busy year ahead. Below are some copper-focused companies of note.
In 2016, Western Copper and Gold’s (TSX:WRN) Casino Project was rated number 1 in Goldman Sach’s Copper 85 report (released in July 25, 2016) due to its IRR rate of 15 percent. The report identified companies that are best positioned to deliver growth with attractive returns, taking into consideration project capital intensity and balance sheet strength. Western Copper and Gold expects construction to begin in 2017, with first commercial production anticipated in 2020.
In December, Dundee Capital Partners issued the following copper-focused companies “Buy” recommendations:

  • Lundin Mining (TSX:LUN) is a Dundee Capital Partners Top Pick. The company holds an indirect 24 percent equity stake in the Tenke Fungurume copper/cobalt mine in the Democratic Republic of Congo. In a press release dated November 30, 2016, Paul Conibear, President and CEO said, “As we head into 2017, we anticipate building on the strong operating performance achieved during 2016, including the copper production profile which has once again been improved at Candelaria.
  • Nevsun Resources (TSX:NSU,NYSEMKT:NSU) is also a Dundee Capital Partners Top Pick. The company operates the Bisha Mine in Eritrea and is developing the Timok copper-gold project in eastern Serbia. As reported in a press release dated December 7, 2016, Nevsun is working on an additional drilling in progress at the Timok copper-gold project.
  • Capstone Mining (TSX:CS) has three producing mines: Pinto Valley in Arizona, Cozamin in Zacatecas State, Mexico and the Minto mine in the Yukon, Canada. In November, Capstone announced a copper price protection for 43,000 tonnes of copper with settlements between January and December 2017. “Our actions ensure we can continue to reduce debt in 2017, while retaining meaningful exposure to copper prices, particularly in the second half of 2017 and beyond.” said President and CEO, Darren Pylot.
  • Excelsior Mining (TSXV:MIN) is developing the Gunnison Copper Project, an in-situ recovery copper project located in Arizona, USA. The company released a Feasibility Study for the North Star Deposit of the Gunnison project in December, which indicated a post-tax NPV of $807 million. In a letter to shareholders, President and CEO Stephen Twyerould said that the company anticipates receipt of operating permits as the next milestone.
  • Heron Resources (TSX:HER,ASX:HRR) is focused on developing its 100 percent owned, high grade Woodlawn Zinc-Copper Project located near Sydney, Australia. The company announced that its non-Woodlawn, gold and nickel assets have been spun into wholly-owned company, Ardea Resources, which is slated to be listed on the ASX in early January.
  • Nevada Copper (TSX:NCU) owns 100 percent of the Pumpkin Hollow Copper Development Property in Nevada, USA. Pumpkin Hollow is the largest, fully-permitted copper project not owned by a major. All pre-construction milestones for the project have been completed.

2016 may have been a tough one for copper junior miners due to the wild price ride, but junior miners are cautiously optimistic — and analysts bullish — for what 2017 may bring. As David Morgan said, “Dr. Copper is called Dr. Copper for a reason. It’s got a PhD in economics, and if we see an increase in the copper price it’s very much telling us in real terms that there is further industrialization going on.”
Securities Disclosure: I, Pia Rivera, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Western Copper and Gold is a client of the Investing News Network. This article is not paid-for content.

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