Supply side of #copper narrative is awash w/ comments on lack of discovery. I can point to plenty of large disc from prior cycles that sit undvp- Galore Creek, Cerro Casale, Caspiche, Reko Diq, Haquira, El Moro, Relinchio, Taca Taca, Pebble, Tujuh Bukit, Mes Aynak, Agua Rica etc.
Finding Cu porphyries hasn’t been the problem. Finding strategically large high-quality deposits that are developable is the challenge. We can point to permitting timelines, social license, geopolitical, water, met, etc. All that’s true and well documented.
Another key pt to consider when risk adjusting new #copper mine supply. How many EPCM firms (ex China) are considered for design/build of multi-billion dollar Cu mega projects? How many projects can these firms work on at any one time? Is this considered in supply models? No.
There is Wood, SNC, Bechtel, Fluor. 4 firms w/ capacity for ~3 major projects at any one time (all metals) (I am told this is a stretch). Let's assume 1 proj is Cu. 1 x 4 firms = 4 proj per 3-yr build-commission cycle. So, 12 projects thru 2030 assuming perfect execution.
Will that do it? Bernstein report indicates we need ~10.4mt of new mine supply by 2030 to meet Base Cu Demand (14.6mt at EV Demand). My math: 10.4mt/12 construct capacity= 0.87mt per new mine or 12 mines each > Collahuasi. At EV Demand translate to 12 new mines each > Escondida.
Consider also Majors are “bound” to new s/h return frameworks infused in strategic plans + exec comp. To make the space investable, generalists have prescribed a focus on full cycle ROE/ earnings/per share metrics. I infer "no pro cyclical mega projects that undermine ROE"
W/ few large shovel-ready projects, quantifiable EPCM constraints & Major's shareholder return KPIs still fresh, its hard to see a scenario where Base Cu Demand is met. This explains my LT bullish view on Cu. For me, as much about getting proj to mkt as it is the expl'n narrative
To be clear, just b/c these projects sit undeveloped does not mean investors did not make a pile of $$ in the juniors that discovered/exp the deposits, particularly if timing coincided w/ a rally in Cu. Many were sold. It's the co that contemplates procyclical dvp that wears it.

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More from @SteveP_Miner

7 Aug 20
1/7 Scale & scalability. Beyond the usual project metrics (NPV, IRR, capex intensity, etc), Scale and particularly project SCALABILITY figure prominently into my investment decisions for gold developers. $MAI.v, $MKO.v, & $RIO.v.
2/7 Scale: early in a cycle (now) when Au prices are rising & industry congestion is benign, investors seek out assets/cos that offer resource scale (leverage to Au). In an industry short on multi-mln oz discoveries & lack of depth in dvp pipelines, this works… until it doesn’t.
3/7 Scalability: For most deposits (ex those w/ world-class IRR’s), Scale without Scalability usually leads to late-cycle dvp decisions as all stars need to align to get investors/boards on side = incr exposure to industry congestion = acute capex/timeline/execution risk.
Read 7 tweets
19 May 20
1/5: In 2008-11 senior Au miners traded at ~16x P/CF & ~1.7x NAV. Presently, according to broker comps, they trade at ~11x 2021 CF (at consensus Au of ~$1660/oz) & P/NAV of ~1.5x. Val'ns remain well below 2008-11 levels & that's before normalizing for today's higher Au prices…
2/5: Yes, Au equities have gapped higher, especially the producers & royalty cos. However, the upside, as presented by equity analysts - notably those using valuations of the last several years to benchmark the opportunity, appears to me to be understated.
3/5: On this, wouldn't the forceful regime change highlighted by slowing growth & deflation, both at a historic rate of changes (Quad 4 in Dalio’s investment framework), justify valuations more typical of periods when Au & Au equities are in favour (e.g. 2008-11)? Yes.
Read 5 tweets

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