Will Copper Enter a Structural Deficit?

Source: Michael Ballanger 04/30/2024

Michael Ballanger of GGM Advisory Inc. shares his view on the current state of the copper market and shares some copper stocks in his portfolio.

While I was dabbling in the Li and U₃O₈ trades, I was quietly but steadily accumulating a basket of juniors that were not considered to be seen as "trades" but rather long-term positions with either excellent projects or discoveries and all of them are now fully funded and awaiting the commencement of drill programs in the hunt for or development of the one metal that is used universally the world over — copper.

I told subscribers in late 2022 that the two metals for the decade were copper and gold, with copper being the comprehensive answer to the electrification movement as whatever else happens with the establishment of new energy sources (like nuclear's revival), the current global transmission grid would need to be expanded to accommodate all this new electricity being pumped out of all these new modular nuclear reactors.

Then, along comes another Millennial narrative called "artificial intelligence" and as the mania of the decade fixes its grip on the investment world, they suddenly realize that all of this new computing power brought about by "AI" will require a boatload of additional electricity to power all of those new computers that will allow kindergarten kiddies to compose operatic symphonies with their iPhones driven by the magic of "AI"!

At this point in the weekly missive, I draw your attention to the earlier part where I spoke of an "epiphany of sorts" and that I was forced to "pinch myself" rather than revel in the glory of the 2024 performances of my two favorite metals. I would draw your attention firstly to copper, which just took out the June 2022 high at $4.57 while sporting a near-vertical ascent during the past month. It is now sporting an RSI at around 75, and while there is still a MACD "buy signal" in place, a couple of corrective days could trigger a reversal.

Up until mid-February, the ascent in copper had been gradual, but since then, the rise has moved to vertical. As I have written countless times, "any market whose trend moves from gradual to vertical is approaching a reversal of the prior trend."

So, copper is now overbought and in full vertical regalia, which means it may be like a bug in search of a windshield strictly from a technical perspective.

Now, when I make remarks such as these on a metal that is surely going to enter into a "structural deficit" within the next several quarters, the market appears to be discounting any likelihood of a global slowdown. I will exercise caution in chasing the big copper names. I have owned Freeport-McMoRan Inc. FCX since $38 and will continue to hold it (at $50.50).

Despite the possibility of a correction, I see $75-100 by the end of 2025. A copper-gold leviathan, it is a core holding in any growth portfolio looking for the leadership of the cyclical names to replace technology as the next mania.

As for the juniors, I hold Fitzroy Minerals Inc. FTZFF on the strength and promise of good things happening in their Chilean copper and Argentinian gold endeavors. I hear that field results are yielding some very interesting new revelations, and while they will be constrained by the South American winter, aggressive marketing of the new drill targets should set up an interesting drill program in the fall.

I also own American Eagle Gold Corp. AMEGF, a very interesting little junior with a new copper-gold porphyry discovery in B.C. and an eager partner in Teck Resources Ltd. TCKRF who at last glance own 19.9% of the company.

Their NAK discovery reported last January took the stock from under a dime to a high of CA$0.74 and is a solid "Buy" at around CA$0.60. I also added a brand new junior — Vortex Metals Inc. VMSSF by way of the recently announced (and upsized) placement at CA$0.09 (last at CA$0.13).

They are about to receive regulatory approval on a project located near the town of Illapel in north-central Chile, where a very interesting copper prospect exists. I listened to VMS director and ex-BHP country manager John Larson describe in minute detail the prospective nature of the multiple targets that exist. Also of extreme interest to me are the two Oaxaca (Mexico) prospects believed to be volcanogenic massive sulfide targets that were actually described to me by the late, great mine finder David Jones the year before he passed away.

A world-renowned expert in the exploration and exploitation of collapsed calderas (volcanos), he discovered Fortuna's San Jose Gold Mine using techniques similar to what attracted him to the two Vortex targets. Chairman Michael Williams has brought investors a great deal of success with Underworld Resources (sold for $139 million to Kinross in 2009) and, more recently, Aftermath Silver, which subscribers know all too well from 2020. I am told that with the good graces of regulators and drill availability, Larson could be drilling Illapel by the end of next month.

With AE and VMS about to drill in May and with FTZ busy preparing for a fall start-up, 2024 is proving to be an interesting year with lots of irons in the fire hunting for the hottest metal on the planet.

Important Disclosures:

1. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of American Eagle Gold Corp. and Vortex Metals Inc.
2. Michael Ballanger: I, or members of my immediate household or family, own securities of: All. I determined which companies would be included in this article based on my research and understanding of the sector.
3. Statements and opinions expressed are the opinions of the author and not of Streetwise Reports, Street Smart, or their officers. The author is wholly responsible for the accuracy of the statements. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Any disclosures from the author can be found below. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
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Michael Ballanger Disclosures

This letter makes no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents my views and replicates trades that I am making but nothing more than that. Always consult your registered advisor to assist you with your investments. I accept no liability for any loss arising from the use of the data contained on this letter. Options and junior mining stocks contain a high level of risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. One should be familiar with the risks involved in junior mining and options trading and we recommend consulting a financial adviser if you feel you do not understand the risks involved.