If there is one thing the world’s biggest mining companies can agree on it is that the copper market is headed for a big deficit over the next decade.
Rio Tinto, for example, sees demand outstripping supply by 3m tonnes in 2025 because of declining ore grades, a dearth of new developments as well as increased demand as the world move to cleaner forms of energy. (A wind turbine capable of generating a megawatt of power — enough to supply 500 homes — requires more than three tonnes of copper).
Miners are attempting to plug gap by stepping up drilling either directly — Rio has 16 copper exploration programmes in train — or indirectly — big investing in junior exploration companies.
Last month BHP Billiton acquired a 6.1 per cent holding in SolGold, a London-listed explorer that analysts say has discovered one of the largest and highest grade copper deposits in the world in Ecuador.
Since BHP bought its stake, shares in SolGold have leapt by 70 per cent and the company is now valued at more than $800m. They were trading at 37.15p on Wednesday.
In a report published on Wednesday, Liberum, a London-based brokerage, said a “competitive bid situation may be on the horizon” if SolGold’s discovery lives up to expectations. SolGold’s other big shareholder, with 14.5 per cent stake, is Newcrest, a big Australian miner.
“Considering the scarcity of copper ore bodies with Alpala’s size and grade, and with both Newcrest and now BHP on the register, we think SolGold’s valuation needs to be framed in terms of its utility to a potential acquirer,” said Liberum analyst Richard Knights as he set a 69p target price.
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