The copper price has hit a 10-year high of US$10,000 per tonne, partly driven by demand from China, the world’s second largest economy. Copper prices are strongly correlated to the Chinese economy, hardly surprising given that the country accounted for 50 per cent of global demand in 2020 but only produced 8 per cent of supply (source: UBS). International Monetary Fund (IMF) forecasts China’s GDP growth of 8.4 per cent in 2021, up from 2.3 per cent in 2020.
The resurgent North American economy – UBS predict 8 per cent plus GDP growth in 2021 – is another reason why the copper market moved from surplus to deficit in 2020. Estimated global demand of 26.1m tonnes exceeded supply of 25.5m tonnes, and the market remains tight. US housing starts and building permits are at their highest levels since 2006. That’s worth noting because the construction industry accounts for 30 per cent of global demand for copper.
Furthermore, the infrastructure and green energy stimulus programmes that have been unleashed in response to the Covid-19 pandemic are all copper-intensive. For instance, wind farms and solar panels require five times more copper than for fossil fuel power generation, and electric vehicles use four times as much copper as ICE vehicles.
Metal Tiger’s copper-bottomed investments
- Sandfire’s quarterly results highlights hidden value in Metal Tiger’s smelter royalties.
- Drilling to start on Kalahari Metals Project.
UK investors have yet to cotton on to the hidden value in the copper assets of Metal Tiger (MTR:23p), an Aim-traded investment company primarily focused on undervalued natural resources opportunities.
The latest quarterly report from Sandfire Resources (Aus:SFR), a mining and exploration group that is developing the T3 Copper-Silver and A4 projects in the Kalahari Copper Belt, Botswana was incredibly informative. Metal Tiger holds 6.2m shares in the A$1.2bn market capitalisation Australian Stock Exchange-listed company worth A$42.3m (15.2p a share) in addition to a capped US$2m Net Smelter Royalty (NSR) on Sandfire’s T3 Motheo Project, and an uncapped 2 per cent NSR over 8,000km2 of Sandfire’s adjacent licence holdings, which includes the A4 resource area.
Sandfire is expected to be awarded its mining licence to progress the US$259m development of T3 in the coming weeks, and has received proposals for debt financing from no fewer than nine participating banks. It’s hardly surprising given that T3 could generate US$1bn of cash profit over its initial 12.5-year mine life using a long-term copper price of US$3.16 per lb (30 per cent below the current spot price of US$4.55 per lb) and at production rate of 3.2m tonnes a year.
The surging copper price – Goldman Sachs has a price target of US$15,000 per tonne (US$6.82 per lb) – means that A4 now looks nailed on to be developed, too. A4’s maiden inferred mineral resource of 6.5m tonnes grading 1.5 per cent copper and 24g per tonne silver suggests it could produce 100,000 tonnes of copper (market value of US$1bn) and 4.9m ounces of silver (US$129m).
Bearing this in mind, Sandfire’s directors noted that “given its location to the planned processing plant and infrastructure to T3, the A4 deposit has potential to become an important source of higher grade ore for the T3 Motheo Production Hub and supports the potential expansion from a base case of 3.2m tonnes to 5.2m tonnes per annum.”
In addition, they note that localised high grade intersections were not included in A4’s maiden inferred mineral resource and will be included in the updated mineral resource estimate in the June 2021 quarter. Sandfire’s board also revealed that “the results demonstrate the potential for further high-grade mineralisation occurring elsewhere along the A4 Dome and in other untested targets in the T3 Expansion area where drilling is being stepped up.”
| Simon Thompson's 2020 Bargain Shares Portfolio Performance | ||||||
| Company name | TIDM | Market | Opening offer price 07.02.20 | Bid price 06.05.21 | Dividends | Percentage change (%) |
| Xaar | XAR | Main | 42p | 186.6p | 0.0p | 344.3% |
| Metal Tiger (see note two) | MTR | Aim | 11.8p | 22.5p | 0.0p | 90.7% |
| Creightons | CRL | Main | 44p | 83p | 0.65p | 90.1% |
| Cenkos Securities | CNKS | Aim | 56p | 80p | 2.0p | 46.4% |
| Northamber | NAR | Aim | 54.9p | 71p | 0.6p | 30.4% |
| Anglo Eastern Plantations | AEP | Main | 570p | 652p | 0.4p | 14.5% |
| Brand Architekts | BAR | Aim | 160p | 180p | 0.0p | 12.5% |
| Chenavari Capital Solutions (see note one) | CCSL | Main | 61.4p | 35p | 0.0p | -1.0% |
| CIP Merchant Capital | CIP | Aim | 57p | 55p | 0.0p | -3.5% |
| PCF | PCF | Aim | 33.3p | 23p | 0.4p | -29.7% |
| Average | 59.5% | |||||
| FTSE All-Share Total Return index | 7,796 | 7,808 | 0.2% | |||
| FTSE Small-Cap Total Return index | 9,274 | 11,398 | 22.9% | |||
| FTSE AIM All-Share Total Return index | 1,099 | 1,446 | 31.6% | |||
| Note 1. Chenavari Capital Solutions made a compulsory capital redemption of 34.73 per cent of the share capital at 85.72p a share in March 2020, and subsequent compulsory capital redemption of 21.9 per cent of the share capital at 72.93p a share in July 2020. The total return takes into account the capital redemptions. The company delisted its shares from AIM on 30 September at a closing bid-price of 35p. Approximately 17.9 percent of each holding was then redeemed on 9 November 2020 at 65.26p per share. The board plans to make further compulsory capital redemptions in due course. | ||||||
| Note 2. Metal Tiger shares consolidated on the basis of one share for every 10 shares previously held on 1 July 2020. | ||||||
| Source: London Stock Exchange. | ||||||
Metal Tiger’s copper assets set to produce strong cash flows
This is fantastic news for Metal Tiger’s royalty interests which could easily generate around US$30m (14p a share) of cash flows for the company, and that excludes any expansion by Sandfire across another seven targets subject to Metal Tiger’s uncapped NSR. The point is that Metal Tiger’s forthcoming results will place a maiden value on its NSR and it should be material for the £35m market capitalisation company.
In addition, Metal Tiger also owns a 50 per cent interest in the Kalahari Metals Project (carrying value A$3.85m) in the Kalahari Copper Belt, Botswana, the balance of that project being owned by Australian Stock Exchange-listed Cobre Pty (Aus:CBEXX), a company in which Metal Tiger holds a stake worth A$4.3m (1.5p a share). The nearby Sandfire T3 and A4 deposits are located 15 miles north of Kalahari Metals Kitlanya East Project.
Following the completion of a comprehensive review of Kalahari Metals’ exploration work, which includes airborne electromagnetic and magnetic surveys with geophysical inversion modelling and structural analysis, supported by soil geochemical sampling and stratigraphic drilling, the joint venture partners have approved a 7,000m drilling programme on two of Kalahari Metals four project areas. Positive drilling news from Kalahari Metals could put a rocket under Metal Tiger’s share price. It would not only increase the value of the company’s 50 per cent stake, but also increase the likelihood of a windfall gain resulting on a sale of the resource to a larger mining group. Sandfire would be an obvious acquirer, but by no means the only mining company that could be interested.
The bottom line is that the combined value of Metal Tiger’s holdings in Sandfire, Cobre Pty and Kalahari Metals, Southern Gold (Aus:SAU), Pan Asian Metals (Aus:PAM), Trident Royalties (TRI:32.5p) and other portfolio companies (worth £2.75m) back up all of the company’s £35m market capitalisation. This means the valuable NSRs on Sandfire’s Kalahari Copper Belt projects are materially undervalued even after taking account Metal Tiger’s £6.9m equity derivative collar financing arrangements on its holding in Sandfire.
It’s worth pointing out, too, that Metal Tiger’s dual listing on the Australian Stock Exchange is likely to happen within weeks following the publication of the company's forthcoming annual results. With the copper price at a 10-year high, it couldn’t come at a better time.
Metal Tiger’s shares have produced a 90 per cent gain since I included them in my 2020 Bargain Shares Portfolio and I expect the re-rating to run up to my next target price of 35p at the very least. Buy.
■ Simon Thompson's latest book Successful Stock Picking Strategies and his previous book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 to place an order. The books are being sold through no other source and are priced at £16.95 each plus postage and packaging of £3.25 [UK].
Promotion: Subject to stock availability, both books can be purchased for the promotional price of £25 with free postage and packaging.
They include case studies of Simon Thompson’s market beating Bargain Share Portfolio companies outlining the investment characteristics that made them successful investments. Simon also highlights many other investment approaches and stock screens he uses to identify small-cap companies with investment potential. Details of the content can be viewed on www.ypdbooks.com.
