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Core Viewpoint - Copper prices have surged to record highs, driven by supply disruptions and strong demand, particularly from the US and China, indicating a potential for continued price increases in the near future. Group 1: Price Movements - Copper trading on the London Metal Exchange reached a record high of $12,282 per tonne, while prices on the Shanghai Futures Exchange approached 100,000 yuan or $14,270 per tonne, marking a significant premium over US markets [1] - The most active copper contract for March delivery on the Comex in New York rose over 5% to an intraday high of $5.90345 per pound, equivalent to just over $13,000 per tonne, the highest level since July [2] Group 2: Supply Disruptions - Significant supply disruptions have been noted, including a deadly accident at the Grasberg mine in Indonesia, leading Freeport McMoRan to declare force majeure and reduce its output guidance for 2026 [3] - Other incidents, such as an underground flood at Ivanhoe's Kamoa-Kakula mine and a fatal rock blast at Codelco's El Teniente mine, have also impacted global copper production [4] Group 3: Future Price Predictions - BMO Capital Markets forecasts an average copper price of $12,500 per tonne by Q2 2026, anticipating that mine supply will eventually catch up [5] - Goldman Sachs predicts that copper prices will be constrained to $10,000 - $11,000 per tonne in 2026 due to a projected surplus, despite current supply challenges [16] - In contrast, Bank of America has raised its price forecasts to $11,313 per tonne for 2026 and $13,501 per tonne for 2027, citing mine disruptions and strong demand [20] Group 4: Market Dynamics - A Chinese trader has made significant investments in copper, holding a net long position of approximately 90 kilotonnes, reflecting confidence in the market despite volatility [22] - BloombergNEF anticipates a structural deficit in copper starting from 2026, driven by electrification demand outpacing supply, with a potential shortfall of 19 million tonnes by 2050 without new mines [25]

Summary of Conference Call Notes on Metals & Mining Industry Industry Overview - The copper equities have experienced a significant rally of **58% YTD** (COPX), driven by increased investor confidence regarding tighter supply and demand dynamics due to mine disruptions and resilient demand from China, alongside a weaker USD and expectations of a FED rate cut cycle [1][33]. Key Companies and Their Ratings - **First Quantum, HudBay Minerals, and Ero Copper** are rated as **Buy**, indicating attractive risk-reward profiles despite the recent rally [2]. - **Grupo Mexico** is rated **Neutral**, trading at a historical discount to NAV, suggesting a balanced risk-reward scenario [2]. - **Capstone Copper** is rated **Neutral**, with limited upside potential after a significant price increase since April [2]. - **Southern Copper (SCCO)** is rated **Sell** due to high valuation, despite being well-positioned to benefit from rising copper prices [2]. Valuation Methodology Adjustments - The valuation methodology for copper coverage has been adjusted to reflect increased confidence in short-term supply/demand tightness and structural deficits. The new approach is a **50/50 blend of EV/EBITDA and DCF**, with EV/EBITDA multiples at **+1 standard deviation** above the 5-year historical average [3]. Company-Specific Insights Capstone Copper - **3Q25 Forecast**: EBITDA expected at **$205M** (-5% q/q; +70% y/y), impacted by lower production and higher unit costs [51]. - **Production and Sales**: Total copper production forecasted at **12kt**, with C1 cash cost at **$3.81/lb** [52]. Ero Copper - **3Q25 Forecast**: EBITDA expected at **$81M** (-2% q/q; +30% y/y), with production growth offset by cost increases [55]. - **Production and Sales**: Copper production forecasted at **10kt**, with C1 cash cost at **$2.35/lb** [56]. First Quantum Minerals - **3Q25 Forecast**: EBITDA expected at **$512M** (+28% q/q; -2% y/y), driven by higher shipments from Cobre Panama [57]. - **Production and Sales**: Copper production forecasted at **45kt**, with C1 cash cost at **$1.7/lb** [59]. HudBay Minerals - **3Q25 Forecast**: EBITDA expected at **$167M** (-32% q/q; -19% y/y), affected by lower shipments due to operational challenges [60]. - **Production and Sales**: Copper production forecasted at **20kt** [62]. Southern Copper - **3Q25 Forecast**: EBITDA expected at **$1,907M** (+7% q/q; +13% y/y), with stable copper price realization [64]. Market Dynamics - The copper market is perceived to be in a **small surplus** for 2025, with expectations of flat global mine production and challenges in supply growth [33][34]. - Concerns regarding **China's domestic demand** have emerged, with a reported **-2% y/y** decline in September [39][41]. - The **COMEX-LME arbitrage** is expected to create temporary upside risks to copper prices, with forecasts ranging between **$10,000-$11,000** for 2026/2027 [42][44]. Conclusion - The copper market is currently characterized by a strong rally in equities, driven by supply constraints and demand dynamics. Key players are adjusting their strategies and valuations in response to these market conditions, with varying outlooks based on company-specific factors and broader economic indicators.

Summary of Copper Market Analysis Industry Overview - The analysis focuses on the copper market, projecting a new price range of $10,000-$11,000 per ton starting in 2026, driven by supply constraints and structural demand growth from critical sectors [2][5][20]. Key Points Price Forecasts - The 2026 copper price forecast has been raised to $10,500 per ton from $10,000, with a 2027 forecast maintained at $10,750 per ton [2][5]. - The price is expected to remain capped at $11,000 for the next two years due to market dynamics [2][17]. Supply Dynamics - Mine supply growth is constrained, averaging +1.5% year-over-year from 2025 to 2030, primarily due to deeper mining operations and lower ore grades [2][4][34]. - Recent mine disruptions, including the Grasberg outage, have led to a projected 6% drop in global refined copper production from Q2 2025 to Q1 2026 [10][15]. - New supply is anticipated from low-capex, price-responsive mines in the Democratic Republic of Congo (DRC) and China, which are expected to meet demand in the short term [10][39]. Demand Trends - Global refined copper demand growth is forecasted to moderate from +2.8% year-over-year in 2025 to an average of +2.1% from 2026 to 2030, driven by infrastructure investments [2][63]. - Critical sectors such as grid and power infrastructure are expected to account for over 60% of demand growth, with additional contributions from defense, electric vehicles, and data centers [3][62]. Substitution Effects - There is an anticipated acceleration in the substitution of copper with aluminum in cyclical sectors, which is expected to moderate copper demand growth and cap prices [3][70]. - The copper/aluminum price ratio is projected to exceed 4:1 in 2026, further incentivizing this substitution [70]. Strategic Stockpiling - Strategic stockpiling of copper is considered essential due to its constrained resources and critical applications, particularly in the US and China [25][28]. - The US has allocated approximately $500 million for cobalt stockpiling, with potential plans for copper stockpiling estimated at $1.8 billion for 40 days of consumption [28][31]. Market Balance - The copper market is expected to remain in a small surplus until the end of the decade, with a projected deficit emerging by 2029 [18][78]. - The balance of refined production and consumption indicates a surplus of 180,000 tons in 2026, with a gradual shift towards a deficit by 2029 [78]. Risks and Considerations - If copper prices rise too quickly, it may lead to accelerated substitution and a slowdown in demand growth from cyclical sectors [17][70]. - The analysis highlights the uncertainty surrounding strategic stockpiling, suggesting that without it, the surplus could exert downward pressure on prices [32]. Conclusion - The copper market is poised for a significant price adjustment due to supply constraints and evolving demand dynamics, with strategic stockpiling playing a crucial role in shaping future price trajectories. The interplay between supply, demand, and substitution will be critical in determining the market's direction over the next several years.

Investment Rating - The report rates the following companies as "Buy": BHP.AX, RIO, GLEN, LUN, FM, CMOC, MMG, Zijin, S32, and Vale [4][25][47] Core Insights - The all-in marginal cost for the top 20 copper producers is estimated at approximately US$4.3/lb for 2024, indicating a broad support for a long-run copper price of around US$4.6/lb [1][8] - The top 20 copper producers are projected to spend over US$30 billion in capital expenditures (capex) in 2024, with Codelco and Freeport leading with approximately US$4.5 billion each [2][25] - Copper demand is expected to rise by 4 million tonnes by 2030, necessitating higher prices to support growth in mine and scrap supply to prevent market deficits [3] Summary by Sections Cost Analysis - The report presents a global copper cash cost curve, with the marginal cash cost of production estimated at approximately US$3.1/lb, influenced by various factors including inflation and ore grade decline [16][24] - The five companies with the highest all-in costs for 2024 are KGHM, Capstone, Codelco, Ivanhoe, and Teck, with Codelco's Chuquicamata mine being the most costly at around US$5.9/lb [2][12] Production and Demand Forecast - Refined copper production is projected to increase from 26,015 thousand tonnes in 2023 to 27,061 thousand tonnes in 2024, while consumption is expected to rise from 25,954 thousand tonnes in 2023 to 26,712 thousand tonnes in 2024 [31] - The report indicates a potential market balance shift, with a forecasted surplus of 349 thousand tonnes in 2024, followed by a deficit of 120 thousand tonnes in 2026 [31] Company-Specific Insights - Codelco aims to recover production volumes to 1.7 million tonnes per annum over the next 4-5 years, with significant investments in modernization and expansion [27] - Freeport's Grasberg operations in Indonesia are highlighted for their industry-leading cash cost of negative ~US$0.3/lb, despite high capex spending [27] - BHP's Escondida mine is projected to see a decline in production due to grade decline, but growth is expected to accelerate post-2030 [28]