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Copper Price Trending Higher: This $4.5 Million Company has 2 Billion Pounds

— James West

Crown Mining Corp (CVE:CWM) is a Canadian junior public company with 2 billion pounds of copper in the ground and a CA$4.5 million market cap. I started buying stock in the company last week because there is lots of evidence pointing to a much higher copper price, and potentially, a lift in the valuations of all things copper.

Crown’s California copper play is one of the 10 largest undeveloped copper projects in the world, and compared to the others, is in the safest jurisdiction and proximal to major consumers of copper in the United States.

But first, let’s take a look at why the price of copper must  rise in the coming months.

Its completely understandable to be so thoroughly bamboozled by what’s happening in weed and blockchain and cryptocurrency and artificial intelligence that your grasp on the real world is virtually actually non-existent. Symptomatic of who knows what, our obsession with the conceptual, virtual and otherwise intangible would appear to have hijacked all human consciousness and sensibility.

And that would certainly explain the remarkable converging factors in the world’s copper supply that, under normal circumstances, would catalyze a bull market.

But circumstances these days are anything but normal, and so globally, mines are depleting, grades are deteriorating, costs of production and shipping are rising, while investment in exploration has plummeted. This despite the fact that demand is soaring, and fundamentally, looks poised to continue doing so for the foreseeable future.

I would normally point out that this represents extraordinary opportunity for investors. But most investors I know are darting about trying to buy into the next Initial Coin Offering or cryptocurrency or blockchain deal, and so I don’t expect most of them to have the attention span to read beyond the word “The” in the title.

But, on the off chance that you still retain some flimsy grasp on the comings and goings in the material world, let’s take a quick inventory of the world’s copper supply and demand, and see if you don’t agree with my conclusion that copper prices must rise dramatically just to permit the status quo of electrical energy transmission of today.

Supply Side Story

According to the Financial Times, “In 2010, the 15 largest copper producers had reserves rated at an average yield of 1.2 per cent. By the end of 2016, that number had nearly halved to 0.72. Only three group members — Norilsk Nickel, Anglo American and Southern Copper — managed to lift their grades. The four largest copper miners, including state-owned Codelco of Chile, all have this problem. As grades decline, the amount of copper, per tonne of rock removed, produced drops.”

Around the world, despite reports to the contrary, primary copper supply from mines is dropping, and its not just grade that is the problem. With making many mines operating in far flung and less than politically certain jurisdictions, terrorism is also increasingly a cramp on copper supply.

Times of India reports that rebel violence in Papua New Guinea forced the $21 billion Freeport McMorRan to close the main route into its Papua site over the weekend. This latest flare-up provides a reminder that supply issues are looming for the red metal, across the industry.

The Grasberg mine has been a longtime problem. A dispute with Indonesia’s government over the rights to it remains unresolved. There is no clarity over how Freeport might divest its majority control and meet other demands. The contract row has already triggered 15 weeks of disruption this year, after exports were blocked.

It would be easy to dismiss Grasberg as an isolated problem for the copper market. The mine only accounts for about 2.5 percent of the world’s supply. Its lessons, however, apply elsewhere.

According to research firm Sanford C. Bernstein, which uses a bold estimate that almost all new cars will be electric by 2035, global copper supplies would need to double to meet demand by then. Finding and digging up all the metals that stand to benefit, plus new smelting and refining capacity, could require up to $1 trillion in new investment by mining companies, it says. Hunter Hillcoat of Investec, a bank, says the transition could require the addition of a copper mine the size of Chile’s Escondida, the world’s biggest, every year.

Demand for More, More More

Bloomberg recently reported  “Demand for copper globally is set to jump 22 percent in as soon as five years on increasing usage of the metal in electric vehicles, solar and wind power sectors, according to Indian billionaire Kumar Mangalam Birla’s Hindalco Industries Ltd.There is no denying that demand from the electric vehicle revolution is threatening to add an entirely new dimension to the demand side that has heretofore been absent, and remains so in most fundamental analyses.”

According to the International Copper Association, “each type of EV uses considerably more copper than traditional vehicles with internal combustion engines. Copper usage for each vehicle type is listed below:

  • Internal combustion engine: 23 kg of copper.
  • Hybrid electric vehicle (HEV): 40 kg of copper.
  • Plug-in hybrid electric vehicle (PHEV): 60 kg of copper.
  • Battery electric vehicle (BEV): 83 kg of copper.
  • Hybrid electric bus (Ebus HEV): 89 kg of copper.
  • Battery-powered electric bus (Ebus BEV): 224–369 kg of copper (depending on the size of the battery).”

And renewable energy sources are also sure to add incrementally greater demands on available copper supplies.

Did you know, for example, that a large wind turbine can contain as much as 4 tonnes of copper?

From 2018, additional smelters planned in China would start to require an extra 400,000 tonnes per year of copper concentrate, says Aronoud Balhuizen, Chief Commercial Officer of BHP Billiton Limited said he received regular inquiries from customers in China and elsewhere for more copper.

Copper demand from the electric vehicle (EV) sector could rise by as much as nine times in the next decade, says a study prepared for the International Copper Association (ICA) by IDTechEx.

“Demand for electric vehicles is forecast to increase significantly over the next ten years as technology improves, the price gap with petrol cars is closed and more electric chargers are deployed,” IDTechEx Senior Technology Analyst Franco Gonzalez says in the report.

“We believe the current level of copper prices is largely justified by strong and synchronous global growth, the US Dollar depreciating and repeated disappointments in copper mine supply, “ said Goldman Sachs analyst Hui Shan.

In recent years, Goldman has been one of the pessimistic voices on copper, warning a “wall of supply” would weigh on prices. It now is now forecasting a 130,000 tonnes copper market deficit in 2018 (versus a 150,000 surplus previously) as strong global growth helps boosts demand.

“Combining our supply and demand balance forecast with our forward views on growth and currencies, we believe the 2011-2016 surplus market is over and copper is poised to go higher, with the potential to surpass $8,000” by 2020,” said Ms Shan.

Junior Miners Poised to Benefit

While buying ETFs and senior miners presents a conservative and relatively safe way to gain exposure to future upside in copper prices, real torque comes when the big boys go shopping for juniors.

Usually, all it takes is for one major mining firm to buy out a major undeveloped deposit to set off a feeding frenzy that has historically driven valuations in the entire junior exploration segment much higher.

Crown Mining Corp. is just one such contender.

The company has over 2 billion pounds of copper in National Instrument 43-101 indicated and inferred resources, with a further potential 2 billion pounds if historical, non-43-101 sources are to be believed.

Crown’s Moonlight Project is in North-eastern California, which puts it easily in trucking range of Elon Musk’s GigaFactory in the Nevada Desert, and also very close to the principle Tesla manufacturing facility in Fremont, California.

Grade and Tonnage Table with Contained Metal*
Tonnes Cu Copper

million/lb

classification (million) (%) Cut-off
 

1,044

496

 

487

 

60

Moonlight Deposit Indicated 146.5 0.32% 0.20
Inferred 80.0 0.28% 0.20
Superior Mine Inferred 54.4 0.41% 0.20
Engels Mine Inferred 2.6 1.05% 0.20

The company is in the process of performing metallurgical studies and is getting ready to issue its first Preliminary Economic Assessment, and is planning a development program that will seek to improve the project’s economics through a better understanding of the deposit.

Besides all that copper, the deposit also contains an estimated 750,000 ounces of gold, which would be produced as a by-product of primary copper production, and 25 million ounces of silver.

With a current market value hovering around the CA$4.5 million range, the implied price per pound of copper in the ground is a measly one tenth of a penny. During the last bull market in metals that ran to the end of 2010, takeover prices of copper companies with significant resources averaged $0.10 per pound in the ground.

While that kind of exponential revaluation will not translate directly into a proportional share price performance, you don’t need to be a mining analyst to understand the implications for share prices of such companies should a bull market materialize.

Disclosure: The author is a shareholder of Crown Mining Corp and so this article should be considered in the context of advertising.

James West

James West

Editor and Publisher

I employ a Capital Efficiency Model that dictates money should never be exposed for longer than is absolutely necessary to the possibility of being lost. Thus, I routinely sell half my position when a stock doubles from my entry price, and I sell stocks that lose 20%, unless there are...
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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

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