Critical Minerals (Part 2 – 25/Sep)
By Tshepo Magagane
Critical Minerals Australia (bulks) vs Copperbelt (Zambia) – The Opportunity (country level and entrepreneurs) – I wax lyrical about how Australia managed to take advantage of Chinese Steel production in the 00s – remember, most Steel and Steel Making Raw Materials were written-off to zero in the late 90s and early 00s!
1. Scale – Bulks were just outsized and the biggest drivers of miners in the 00s – however, I shall make a quick comparison with the Transition that we are seeing due to the “Transition”
a. If I take Iron Ore prices of USD100/t – it will give me total revenues of cUSD90bn for the Top 3 seaborne producers
b. Copper at current prices is a USD30bn revenue market
c. Assuming a move to 50Mtpa market at current prices will result in a USD50bn market
d. SAmerican low grade Copper has a replacement cost of USD80k/tpa and Oyu / Reko come in at USD44k/tpa
e. Then I just double the Copper price to USD20k/t (wont incentivise that required supply) – Copper becomes a USD60bn market at current production levels and USD100bn at required production levels
So re: Scale, Copper is swapped with Iron ore
2. Returns – Copperbelt production is based on geology that is superior to SAmerican geology, hence it comes in to the left of the Cost Curve – Tier 1 projects will be top Quintile 1 and non-Tier 1 will come in at Quintile 1 & 2 (you are talking cUSD4k/t)
So, you are going to swap the returns profile of Bulks with that of Copper going forward
3. ESG – Eskom power problems have had a positive impact for miners, as they now have their own energy generation as part of their core plans…
…Solar+PV+Storage is a modular standard that can be unrolled to new projects…
…in addition, you have Hydro in the lies of the DRC
4. Zambia – it has the opportunity to grow from a USD6bn revenue market (current production levels at current prices) to a USD60bn revenue market (3Mtpa at USD20k/t)
Ie USD54bn of incremental revenues pa!
Those revenues coming in at Quintile 1 & 2 cost structures (if you get the fiscal and operating model right)!
USD16bn of revenues going to independent projects per annum.
Why the Investment Case:
Zambia Exploration Fund – a subsidiary of The Critical Minerals Fund:
Aim being to support them to MRE to PFS to BFS to PF!
Khoemacau was sold for USD2bn (50kpta) – adjusting it for just pricing, the asset is likely worth USD4-5bn…
…a comparable asset will be worth USD10-20bn in 7-10yrs time or even more!
The opportunity is there for a cross country vehicle in Zambia, DRC, Botswana, Angola!
| How to Think About Risk with Howard MarksHoward Marks explores the true meaning of risk in a new ten-part video series. He discusses the character of risk, the relationship between risk and return, misconceptions about risk, and much more.www.oaktreecapital.com |
