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James Burgess

James Burgess

James Burgess studied Business Management at the University of Nottingham. He has worked in property development, chartered surveying, marketing, law, and accounts. He has also…

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How To Play The Coming Copper Boom

Copper mine

Three forces are driving one of the most exciting times in copper-mining history: Trump’s $500-billion infrastructure plan, the Fed’s interest rate hike, and the beginning of a new Chinese run on the metal. In the middle of it all, a little-known small-cap miner has pulled off a copper coup in Chile and could be on the verge of discovering the world’s largest new deposit.

This year is set up for another copper bull run, and ground zero is Chile, where Arena Minerals Inc. (TSX:AN.V; OTC:AMRZF) has gained access to one of the world’s most valuable copper land holdings in one of the world’s hottest copper regions.

And not only do they have the savvy to pull off what would normally be a large-cap play, they also have the cash, experience, and local resource base to do it.

Arena has pulled off what could only be described as a coup—scooping up one of the most sought-after pieces of copper territory before any of the big miners.

Copper: Fundamentally Fantastic

 

(Click to enlarge)

While major miners like BHP Billiton, Rio Tinto, Glencore and Anglo saw the beginning of a turnaround in 2016, this year is about much more than just a slow recovery. This year is about a bull run, and here’s why:

• China’s copper demand is again on a boom swing. It happened in 2004/2005, when Shanghai inventories rose above the London Metal Exchange (LME) inventories, which is the world’s standard. A massive bull market ensued—and the same thing is happening again, right now:

 

(Click to enlarge)

• Trump’s $500-billion infrastructure plan has already driven copper prices up, and coupled with Chinese demand, this has real staying power.

• Continued workers’ strikes at major copper mines are further boosting prices.

• The Fed raised key interest rates after a two-day policy meeting last week, and this has weighed on the dollar and benefitted copper prices, making it one of the best stocks to add to an investor portfolio right now.

• We’re going to be short on supply, and the shortage is expected to become evident in the first half of this year, where we could see a repeat of the ‘China boom’ of 2005—or even better. The reality, we don’t have another mega-project in the works, and the major deposits have already been found. This means that Arena is sitting on what appears to be the only mega-copper venue that hasn’t been explored and exploited. It’s an unheard-of achievement for a small-cap miner.

Chile: The Copper Jackpot

The Atacama Copper is the project to end all projects in Chile’s copper heartland and covers approximately 73,000 hectares in the heart of the Antofagasta mining district.

Arena’s (TSX:AN.V; OTC:AMRZF) flagship project is an original 2,930-square-kilometer exploration venue surrounded on all sides by some of the biggest mines in the world. It’s only 50 kilometers from Antofagasta—a highly active, mining friendly area that is inundated with world class operating mines and brilliant infrastructure.

(Click to enlarge) 

The Atacama region is full of major players because it has a very distinct exploration advantage.

A short distance in almost any direction are a multitude of world class copper mines, including BHP Billiton’s (NYSE:BHP) Escondida copper porphyry deposit, the largest open-pit copper mine in the world. Mining giant Rio Tinto (NYSE:RIO) has a 30 percent interest in Escondida as well.

 

But this is a mining bonanza all the way around—for everything from gold and silver to lithium as well. U.S. firm Albemarle Corporation (NYSE:ABL) acquired Rockwood Holdings here, and Chilean producer Sociedad Quimica y Minera (SQM) is all over the Atacama region.

It’s here that Arena is drilling towards what could end up being the biggest copper porphyry discovery in the world. And it’s getting closer and closer to the jackpot.

 

(Click to enlarge)

Arena (TSX:AN.V; OTC:AMRZF) started out here with a whopping 300,000 hectares and started zeroing in on areas of interest. And the probability of finding copper porphyry is higher because this is a geological wonderland for metals, and particularly for copper.

Chile’s elongated western margin is bounded by an earthquake-inducing, mountain-building and ore deposit-forming subduction zone, all ‘pushing up’ the metals belt.

To the south of Atacama, we have the giant Escondida, and to the north, Collahuasi. In between we’ve got El Indio, Los Pelambres, and El Teniente--all bursting at the seams with copper prospects. Even closer to Arena, we’ve got Spence, Sierra Gorda, Lomas Bayas & Mantos and Chuquicamata.

This is the elephant hunt of the decade, and early indications are that the edge of a porphyry system has already been hit by one of Arena’s partners on the ground, JOGMEC (Japan Oil, Gas and Metals National Corporation). As they work towards the bullseye here, these are billion-plus-type projects, and a major small-dunk for a company of Arena’s size.

The Mining Coup of the Century

Everyone has tried to get in on this project, but in the end it was small-cap Arena that was savvy enough to land it, thanks to visionary management and strategic partnerships.

To get in on Atacama, you have to know the right people, have the right local experience and command a great deal of respect.

Arena came out of the efforts of president and CEO William Randall and executive vice-chairman Dan Bruno, both born and raised in Latin America, and both with extensive mining and capital raising experience. Together, they leveraged their relationships in Chile, particularly with Chilean giant SQM.

Everyone has been gunning for a crack at this play for three decades, but its owner, SQM, wasn’t biting. SQM was a government-run entity that has been privatized, and it controls some 4 million hectares of land in Chile. Because of its focus on lithium, potash, iodine and nitrate, there are huge parcels of land in the prime copper and gold districts that were left untouched.

But a few years ago, SQM decided to divest, and Arena got first dibs on this unexploited heartland.

So while Randall and Bruno orchestrated the property coup, another big name in mining—Paul Matsyek is behind the project’s brilliant strategy. Matysek is one of the most energetic driving forces on the small-cap mining scene today. He’s created shareholder value of well over $2 billion in gold, lithium, potash and uranium, and now he’s breaking out with copper.

Along with an impressive line-up of experts, they have pulled off the spectacular in Chile—and this is how they’re making this huge project work for them:

Arena secured three option agreements carving up the property with Teck (NYSE:TECK) and JOGMEC. These deals give Arena a big-cap play, covers all the costs and an impressive revenue stream.

More specifically, Arena’s JV deals significantly reduce Arena’s ongoing commitments, and makes for an investor dream:

• Arena retains material interest without incurring further costs
• It minimizes dilution to shareholders
• It means a major increase in spending with more aggressive timelines—straight to the bullseye
• It means more and faster drilling

Smart JV agreements like this are hard to come by, and this is what makes Arena exceptional. Not only will Arena have the money, it will spend to get to the big copper discovery of the decade. They’ve put the brakes on dilution, and the end result will be the drilling of over 241 holes.

So, we’re looking at large projects in prime copper territory owned by a $10-million market cap company. It doesn’t get much more exciting than this in mining.

Permits in Place, Cashed-Up and Ready to Drill

Right now there’s a major catalyst, which makes for the perfect time for Arena to ping on investor radar.

They’ve kept quiet about their massive project for a year, while they went through the permitting process. Now that they just revealed the news it’s full speed ahead. Arena was granted environmental and drilling permits 10 days ago, and they’ve already moved one drill on the property, with the second scheduled for next week.

Arena (TSX:AN.V; OTC:AMRZF) is permitted for 241 drill holes, each one about 150 meters. And it’s scheduled to go down at breakneck speed, with the first 15,000 meters slated for completion by the end of April.

After that, there will be a month or two drill break, and then it all starts again, with results coming in between mid-April and mid-June. You’ll want to be positioned well ahead of this.

In 2016 the company was cash positive with expenses and G&A covered and exceeded by the JVs, which isn’t only unique, it’s largely unheard of in the exploration game right now.

There hasn’t been a better time in recent history for a new copper discovery. Even better...

As the positive catalysts for copper line up, the most impressive thing on the copper scene right now is Chile’s unexploited copper deposits, and by far the most impressive move was Arena’s scooping up of big-cap territory that could lead us to the next big copper discovery.

By James Burgess of Oilprice.com

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