Video by Kate Power
Article by Jason Kururangi

Capstone Copper is a copper miner headquartered in Canada with assets across the Americas. Its key growth project is Mantoverde, Chile, which is due to come online in 2024. It also has further growth options through the Santo Domingo project located 35km away.

Copper is an attractive commodity with strong fundamentals. First, on the demand side, copper is a commodity with multiple end markets and industrial uses. Significant growth in demand is expected to support economies in transitioning and decarbonising, given its key role across electricity grid applications and extensive use in electric motors. As an example, an electric vehicle has approximately 4x the copper intensity of a non-electric car.

Secondly, on the supply side, copper has attractive medium-term fundamentals. Demand from resource businesses results in depletion of existing mines, so it is important that new mines are continually brought on or old mines expanded to support growing end-market demand for copper. However, bringing on additional copper supply is challenged, given higher grade large deposits in tier one mining jurisdictions are often already in production. Generally, incremental projects are being commissioned at lower grades, and typically are higher cost. New projects also typically have environmental constraints, such as around water use, impacting projects in some locations. Given this backdrop and the current copper market deficits, this is expected to be supportive for the copper price out towards the back end of the decade, with robust prices needed to incentivise miners to continue to bring on these higher cost tonnes.

Given a dearth of attractive copper opportunities on the ASX, we viewed the arrival of Capstone Copper as a positive development. We engaged early with its process to list on the ASX and first initiated a position in the company as it pursued a dual listing onto the Australian market. It is still early on our journey with the business, and the next key milestone will be release of its next quarterly production results where we expect to see progress on its existing developments. The stock price performed well early, as the timing of the listing was particularly fortuitous. It coincided with a tightening global copper supply, after a number of supply disruptions, including the shut down of a large copper mine in Panama due to political and social unrest. We have however taken some early profits after a strong rally.

We like the Capstone story, given it has a number of high-quality assets in strong stable mining jurisdictions. Its assets have attractive brownfield growth opportunities (developments on sites previously used for industrial or commercial purposes) that we think will help drive down its cost structure and deliver attractive returns to shareholders. It also has a strong balance sheet, with flexibility to sell down stakes in some existing assets. We do have some near-term caution, however, and have adjusted positions accordingly, as copper prices are already reflecting some optimism. Further,  we can see some risks around inventory levels, particularly in China, and we have managed our positions to reflect some of this short-term risk.

Notwithstanding this potential short-term volatility, on a medium-term view, the outlook remains attractive to us as shareholders as Capstone has high quality assets, with low and declining costs, large resource endowments and growing production. The company also has a strong balance sheet that will benefit from persistent underlying demand for copper, while delivering into a supply constrained market.