Copper Cos. Watch for Investment to Return to Chile

Junior explorers like World Copper Ltd. (WCU:TSX.V;WCUFF:OTCQX) are watching the situation intently as mining tax reform wraps up in Chile.

Companies want to see more investment dollars for exploring and mining copper return to the South American country, which is the world's top producer of the red metal needed for the green economy transition.

The reforms raised some tax rates on producers, but the country's mining industry said it is relieved that the measure ended uncertainty over the types of reforms being enacted.

"Uncertainty lasted for almost five years and, without a doubt, hurt the country's main productive activity," the mining association Sonami said in a statement.

Sonami said the final legislative language was "better" than what was initially proposed by the government, giving credit to Finance Minister Mario Marcel for enacting industry-friendly revisions.

The world needs more copper for electric vehicles (EVs) and other green technology. EVs use more than three times as much copper as gas-burning cars. New copper production — and investment in exploration — will be needed to fuel the supply of those vehicles, analysts say.

"Based on industry-wide capital intensity data, we calculate that some US$196 billion of investment will be required," a market analysis issued by RFC Ambrian last year said. "Of this, US$80 billion is for greenfield projects, and US$116 billion is for brownfield projects, of which US$71 billion is simply for replacement capacity. A further US$35 billion of investment will be required to close the supply gap."

An S&P report called copper "one of the most underappreciated critical minerals." 

"Deeper electrification requires wires, and wires are primarily made from copper," the report said.

Billionaire Robert Friedland, founder and executive co-chairman of Ivanhoe Mines Ltd., recently told Bloomberg that he fears copper prices could jump tenfold.

"We're heading for a train wreck here," he said.

The Catalyst: New Activity Appearing

New investment and activity has already started to percolate in Chile, with its porphyry copper belt that runs north-south in the central Andes Mountains.

Mitsubishi Corporation (MSBSHY:OTCPK) last month made a strategic investment in Marimaca Copper Corp. (MARI:TSX.V) and its Marimaca copper project in the Antofagasta region through a non-brokered private placement of CA$20 million.

Los Andes Copper Ltd. (LA:CVE) is looking at finance options for development of a mine in the country, working with advisors to look at strategies for the next stage of its Vizcachitas project, Bloomberg reported.

World Copper Chief Executive Officer Nolan Peterson said he was hopeful that the activity "is giving some hope to the market that capital is ready to be deployed into Chile again."

BHP Group Ltd. said last year that it would invest US$10 billion in Chile to fuel the copper industry's growth, but the company wanted the situation to be more stable.

World Copper is well-situated. Its more than 16,000-hectare Escalones project has inferred resources of 426 million tonnes of 0.367% copper based on nearly 25,000 meters of drilling in 53 holes, the company noted.

Escalones is roughly twice the size of the Marimaca project. Marimaca Copper, meanwhile, has a market cap of CA$366 million vs. World Copper's CA$19 million.

Projections are showing that even with moderate growth in demand, copper supply will not be able to keep up, Peterson said.

"Price will go up, which will spur some investment that might compensate," he said. "But in general, … the world’s ability to meet future demand is not looking good."

In a Good Position

World Copper is a good position with both Escalones and its Zonia project in Arizona having resource estimates.

"World Copper's stock is benefitting from several catalysts," analyst Steve Ralston of Zacks Small-Cap Research wrote last December. "Currently, there is a positive macro tailwind for the copper mining industry, driven by the outlook for a looming supply shortage based on the confluence of increased demand from green electrification initiatives and an impending reduction of mine production."

Peterson has said the company is "poised to benefit from a rush of investment to come."

"We have two assets that are relatively easy to put into production," he said.

Taylor Combaluzier of Red Cloud Securities, who has rated the stock a Buy with a target of CA$2.15, said World Copper has "transformed from an explorer into a developer with a portfolio of high-quality copper projects in premiere copper mining jurisdictions.

"We believe Escalones shows compelling economics when compared to other copper development projects and that it offers lots of potential for resource expansion," he wrote. "Additionally, we believe Zonia has lots of untapped potential, as it could either be rapidly developed for nearer-term production or potentially be expanded through exploration to increase the scale of the project."

Ownership and Share Structure

Wealth Minerals Ltd. (WML:TSX.V; WMLLF:OTCQB) owns about 15.8% of World Copper or about 19.2 million shares. About 27% is owned by management and insiders, including Director Robert Kopple with 11.84% or 14.8 million shares and Board Chairman Hendrik van Alphen with 2.67% or 3.25 million shares. CEO Peterson said he holds about 700,000 shares. The rest is retail.

Its market cap is CA$19.38 million. It has 125 million shares outstanding, including 87.2 million of them free-floating. It trades in a 52-week range of CA$0.39 and CA$0.135.

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1. World Copper Ltd. is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$4,000 and US$5,000.
2. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of World Copper Ltd.
3. Steve Sobek wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
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