Copper was trading at its highest since June on Wednesday, hitting $2.95 a pound on optimism that a trade deal between the US and China is close.
The base metal is called “Dr. Copper” for its ability to diagnose the health of the world economy, since it is so much in demand for new construction, telecommunications and other infrastructure that is built when economies grow.
US President Trump earlier deferred a March 1 deadline that would have increased US tariffs on billions worth of Chinese goods from 10% to 25%, telling governors on Monday a trade deal is “very very close.”
This was followed by a statement Thursday from National Economic Council Director Larry Kudlow, who told CNBC’s “Squawk on the Street, “We’re making great headway on non-tariff barriers and tariffs regarding various commodities such as soybeans and energy and beef. We have mechanisms with regard to enforcement, which is — I think — unparalleled.”
As the chart below from Infomine shows, copper’s year to date price rise has been impressive, increasing from $2.62 on Jan. 2 to $2.93 yesterday, Feb. 26 – a 12.5% gain.
The high performance isn’t only reflected in short-lived catalysts. As we have been reporting, all the estimates call for a copper supply deficit in the next few years.
Citi Bank has said it expects the bellwether metal to rally 10% over the next three to six months, during which time the Chinese and US trade delegations should come to an agreement on the year-long trade dispute.
That would put copper at $6,700 a tonne this year due to 2% growth in Chinese demand “led by strong growth in late cycle construction completions and power infrastructure investment,” Citi said, adding that growth in electric cars will buttress copper needs.
The bank also predicts copper inventories, which are at a 10-year low, will fall further in the second quarter and leave the copper market in a deficit of 200,000 tonnes this year and next.
As we wrote in The coming copper crunch, by 2035, without major new mines up and running to replace the ore that is being depleted from existing copper mines, we are looking at a 15-million-tonne supply deficit by 2035. Four to six million tonnes of added capacity are needed by 2025.
Morgan Stanley recently joined Citi and Goldman Sachs in copper’s bullish camp. Morgan Stanley is projecting a 14% upside for copper in 2019, and upgraded the shares of major US copper miner Freeport McMoran, while Goldman upgraded Rio Tinto, which has five copper mines including Bingham Canyon in Utah, Oyu Tolgoi in Mongolia, and the Resolution copper mine in Arizona it is developing with BHP.
Clearly it’s a good time to be a copper miner or explorer, since rising copper prices are bound to influence the stocks of other majors and juniors.
Enter Rockridge Resources (TSX-V:ROCK), the Vancouver company that has an option on the Knife Lake Copper VMS project currently owned by Eagle Plains Resources (TSX-V:EPL).
Under an earn-in agreement, Rockridge can acquire the project by incurring exploration expenditures of C$3.25 million over four years, along with issuing 5,250,000 Rockridge shares and paying $150,000 in cash.
The 85,196-hectare property is about 50 kilometers northwest of Sandy Bay, Saskatchewan and within the Flin Flon-Snow Lake mining district, a prolific greenstone belt. Since the initial discovery of mineralization in 1915, the Flin Flon camp has produced over 170 million tons of sulfide ore from 31 volcanogenic massive sulfide (VMS) deposits, worth over $25 billion.
Historically explored with over 400 diamond drill holes, Knife Lake is a VMS deposit with a 15m-thick mineralized zone containing copper, silver, zinc and cobalt.
Of interest to potential investors is Rockridge’s tightly held share structure. Out of 23 million issued and outstanding shares, about 85% are held by insiders, management, funds and close associates, leaving only 3 million shares in the public float. The company currently has an enterprise value of roughly $4 million – which is low considering the potential of the project.
A $700,000 drill program to begin this spring will focus on confirmation drilling in the deposit area, as well as expansion drilling and some exploratory holes.
The company has also been bulking up its management team. Earlier this year ROCK established a technical advisory board and appointed award-winning geologist/ mining executive Ron Netolizky as its first member.
This week Rockridge appointed Joseph Galluchi to its board of directors. Throughout his career in investment banking and equity research, Galluchi was directly involved in raising over $1 billion for mining companies. He has particular expertise in Canadian base metals firms.
“I am excited to join the Board of Directors and begin working with management and the team at Rockridge Resources. I know the Flin Flon district well having worked with several mining companies with projects there and believe there is a lot of potential for value yet to be unlocked in the region,” he stated in the news release.
The addition of Galluchi to the Rockridge board is timely. With copper doing well and the need for new copper mines never greater, it’s a good opportunity to get in early on a very promising long-term copper play.
Richard (Rick) Mills
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Rockridge Resources (TSX-V:ROCK), is an advertiser on Richard’s site aheadoftheherd.com. Richard owns shares of ROCK