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Ivanhoe Set to Begin Production at World’s Second-Largest Copper Project

Summary:
Copper has had an incredible run, surging 45 percent since its March low on plunging global inventories and the prospect of heightened usage by China, its biggest purchaser. It’s also been a good year for one of the world’s top explorers of the red metal, Ivanhoe Mines, which just this week released stellar economic results of its tier-one Kamoa-Kakula Copper Project in the Democratic Republic of the Congo (DRC). One of our favorite natural resource companies, Ivanhoe has returned more than 146 percent in the past six months alone as investors anticipate the start of production at the Kakula Mine, which has the potential to become the world’s second-largest copper mining complex, with annual output projected to be 800,000 metric tonnes a year. We now know approximately when phase one of

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Ivanhoe Set to Begin Production at World’s Second-Largest Copper ProjectCopper has had an incredible run, surging 45 percent since its March low on plunging global inventories and the prospect of heightened usage by China, its biggest purchaser. It’s also been a good year for one of the world’s top explorers of the red metal, Ivanhoe Mines, which just this week released stellar economic results of its tier-one Kamoa-Kakula Copper Project in the Democratic Republic of the Congo (DRC).

One of our favorite natural resource companies, Ivanhoe has returned more than 146 percent in the past six months alone as investors anticipate the start of production at the Kakula Mine, which has the potential to become the world’s second-largest copper mining complex, with annual output projected to be 800,000 metric tonnes a year.

We now know approximately when phase one of mining is set to begin. The company is fully funded to begin operations in the third quarter of 2021, according to a press release dated September 8.

Ivanhoe Set to Begin Production at World’s Second-Largest Copper Project

“Kakula is on track to begin production in under one year from now, which, considering we’ve been working in Africa for 27 years now, feels like tomorrow morning,” commented Robert Friedland, Ivanhoe’s billionaire founder and co-chairman.

It’s impossible to overstate how exciting the news is. As many of you know, a new mine of this scale and quality doesn’t come online too often these days. The copper grade at Kakula is ultra-high at 6.6 percent over the first five years of production, a grade “that is an order of magnitude higher than the majority of the world’s other major copper mines,” according to Robert.

Sure to please ESG investors, operations at the complex will be powered by clean, renewable hydropower, allowing the company to achieve its goal of becoming the world’s “greenest” copper miner.

As you can see in the chart above, production will continue to ramp up in phases until full processing capacity is reached sometime between 2028 and 2030. This makes Ivanhoe a true long-term play on copper, a metal that should only increase in importance as the “electrification of everything” trend accelerates.

Like copper, shares of Ivanhoe have been on a tear since mid-March. Its stock jumped more than 8 percent on Wednesday following the positive news, its biggest single-day increase since May. The company is now trading at its highest level in seven years, with the best still yet to come. This week, Canaccord Genuity raised its 12-month price target to C$7.00 ($5.30), a 20 percent increase from where it stands today.

Ivanhoe Set to Begin Production at World’s Second-Largest Copper Project

Copper Price May Soar on “Historic Squeeze”

If you recall, Robert visited our office in January 2018. He told us then that you’ll need a telescope to see copper prices in 2021.

He may have been on to something.

Copper’s supply-demand profile looks incredibly favorable, with the pace of China’s new orders running red hot. Meanwhile, copper inventories in warehouses monitored by the London Metal Exchange (LME) have fallen to a 15-year low.

Ivanhoe Set to Begin Production at World’s Second-Largest Copper Project

Some analysts see the same market conditions developing that propelled the price of copper up 450 percent between 2000 and 2011, during China’s industrial explosion. As I recently shared with you, manufacturing activity is expanding at a rapid pace, as measured by the purchasing manager’s index (PMI).

Citigroup is extremely bullish, telling clients this week that a price of $8,000 per ton is possible.

With Kakula set to begin production, Ivanhoe is very well-positioned to ride the wave higher.

Greenspan and Druckenmiller Sound the Alarm Over Inflation

Late last month, I asked whether the headline consumer price index (CPI), the government’s preferred measure of inflation, was “fake news.” According to the Bureau of Labor Statistics (BLS), consumer prices rose only 1.3 percent year-over-year in August. An alternate measure, which uses the 1980 methodology for inflation, puts the increase at closer to 9 percent.

Some of you took a poll on our site asking whether you believe the CPI is an accurate reflection of changes in price. An overwhelming majority of you, 86 percent, said that inflation is happening at a much faster rate than what’s being reported.

Now, former Federal Reserve Chairman Alan Greenspan and billionaire investor Stanley Druckenmiller are both sounding the alarm over the prospect of rising inflation.

Speaking to CNBC on Thursday, Greenspan said his biggest concerns going forward were inflation and the expanding budget deficit. “My overall view is that the inflation outlook is unfortunately negative and that’s essentially the result of entitlements crowding out private investments and productivity growth,” the “Maestro” told the network.

Greenspan has long criticized the rising cost of entitlements such as Medicare and Medicare, calling them a drain on capital reserves.

Also speaking to CNBC this week, Druckenmiller said he believes inflation (as measured by the CPI) could hit between 5 percent and 10 percent in the next four to five years, thanks in large part to the Fed’s unprecedented levels of money-printing.

Near-zero rates have sent valuations soaring, according to Druckenmiller, who says that the market is “in a raging mania.”

“Everyone loves a party, but inevitably after a big party there is hangover,” he added.

Current Fed Chair Jerome Powell recently unveiled the central bank’s new approach to managing inflation, saying changes in prices would average 2 percent over time. The implication is that the Fed would allow inflation to run hot in some instances. To get there, rates will likely remain at zero for some time longer.

$25 Trillion in Bank Assets, $20 Trillion in Stimulus Spending

Meanwhile, the amount of assets on the Fed’s balance sheet has surged to more than $7 trillion. Combined with balance sheets of other major central banks—the European Central Bank (ECB), Bank of Japan (BoJ) and People’s Bank of China (PBOC)—total assets are currently above an unbelievable $25 trillion.

Ivanhoe Set to Begin Production at World’s Second-Largest Copper Project

On the fiscal side, world governments have so far announced $20 trillion in stimulus measures in response to the global pandemic.

Much of this new cash has flowed into ETFs, whose assets under management (AUM) have hit $7 trillion for the first time ever. Global investors have ploughed as much as $428 billion into ETFs so far in 2020 through the end of August, a 57 percent increase from the same eight months last year, according to the Financial Times.

Citi Raises Average Gold Price Forecast to $2,500

But with the risk of currency devaluation higher now than it’s been in recent memory, it’s crucial that investors get exposure to gold and other hard assets using the 10 Percent Golden Rule.

Coincidentally, Greenspan and Druckenmiller are both fans of the yellow metal as a portfolio diversifier, not to mention other heavyweights including Bridgewater’s Ray Dalio, Paul Singer and Paul Tudor Jones. And don’t forget that none other than Warren Buffett himself, who has long derided the asset, took a stake in a gold producer for the first time, disclosing a $565 million position of Barrick Gold as of June.

Shares of Barrick are up close to 64 percent so far in 2020.

The price of gold is around 6 percent off its all-time high, making now an incredible buying opportunity. Today, analysts at Citi raised their 2021 gold price forecast some $300 an ounce and believe the metal could average $2,500 in 2021, with a target of $2,200 over the next three months and one of $2,400 over the next six to 12 months. A weaker U.S. dollar and heightened macro uncertainty should serve as support, Citi says.

I maintain my call for $4,000 gold in the next three years due to record stimulus spending and money-printing, which may lead to extreme currency debasement. Get my full thoughts by watching my interview with CNBC below, and make sure to like and subscribe to our YouTube channel!

Gold Market

This week spot gold closed at $1,941.99, up $11.08 per ounce, or 0.57 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week lower by 0.51 percent. The S&P/TSX Venture Index came in up 0.46 percent. The U.S. Trade-Weighted Dollar rose 0.57 percent.

Date Event Survey Actual Prior
Sep-4 Change in Nonfarm Payrolls 1350k 1371k 1734k
Sep-10 ECB Main Refinancing Rate 0.00% 0.00% 0.00%
Sep-10 PPI Final Demand YoY -0.30% -0.20% -0.40%
Sep-10 Initial Jobless Claims 850k 884k 884k
Sep-11 Germany CPI YoY 0.00% 0.00% 0.00%
Sep-11 CPI YoY 1.20% 1.30% 1.00%
Sep-14 China Retail Sales YoY 0.00% -1.10%
Sep-15 Germany ZEW Survey Expectations 69.5 71.5
Sep-15 Germany ZEW Survey Current Situtaion -72 -81.3
Sep-16 FOMC Rate Decision (Upper Bound) 0.25% 0.25%
Sep-17 Eurozone CPI Core YoY 0.40% 0.40%
Sep-17 Housing Starts 1480k 1496k
Sep-17 Initial Jobless Claims 850k 884k

Strengths

  • The best performing precious metal for the week was platinum, up 2.91 percent. The price of gold saw a small uptick on Thursday after the producer price index (PPI) increased 0.3 percent in August and the Labor Department said 884,000 Americans filed for first-time jobless claims in the most recent week. The metal notched a small weekly gain of 0.57 percent. Reuters reports that Thailand’s central bank will allow gold trading in U.S. dollars soon as it tries to curb the impact of growing gold demand on the baht currency.
  • Silver, known for its massive and rare price spikes, could be on its way to another boom. The white metal’s gains are nearly double that of gold for 2020. Retail investors have added more than 8,800 tons of the metal to ETFs so far this year. Bloomberg notes than Robinhood buyers of the largest silver ETF have more than doubled in the month leading to August 13.

Ivanhoe Set to Begin Production at World’s Second-Largest Copper Project

  • The Turkish Treasury and the Istanbul Gold Refinery will allow selected jewelers to collect gold from citizens and deposit it at state banks in a new effort to coax gold into its financial system. It is estimated that “under-the-mattress” stashed gold is valued around 40 percent of Turkey’s GDP. According to Esen, an estimated 5,000 tons of gold are stored outside of the financial system. Gold is popular in the country as a protection against inflation and traditional gift for holidays and celebration – especially as the lira as gone through wild price swings.

Weaknesses

  • The worst performing precious metal for the week was silver, down 0.48 percent.
  • The 120-day rolling correlation between gold and the Bloomberg Barclays gauge of emerging-market dollar bonds fell below zero for the first time since July 2016 this week – signaling that the two assets have stopped responding in the same way to the dollar’s moves. While the gold rally is looking “tired and ripe for a correction,” emerging-market bonds are extending gains to a sixth month, reports Bloomberg.
  • As demand for physical gold as a haven asset has jumped, so too has the cost and logistics of insuring it. Bloomberg Businessweek notes that as the price of gold rises, the number of insurable ounces at each storage site decreases, since insurers place a cap on how much financial exposure they’ll assume for each vault. Ludwig Karl of Swiss Gold Safe, which manages vaults in the Alps, said “you could put all the gold in the world in a large storage space, but you would never be able to get the insurance for it.” Although positive that demand is rising, is it a small weakness that insurance and storage difficulties could detract new buyers.

Opportunities

  • Gold-backed ETFs saw a ninth-straight month of inflows in August, driven by growing appetite in Asia. Collectively, 39 tons of bullion, equivalent to $2.1 billion, were added to ETFs in August with 7 tons coming from Asia.
  • A diamond the size of an egg is being put up for auction next month and is expected to fetch $12 million to $30 million. Kitco News reports that Sotheby’s is selling a 102.39-carat diamond – the second largest oval diamond of its kind to be offered at auction. The largest ever, a 118.28-carat stone set a record $30.8 million price in 2013.
  • Talley Leger, investment strategist at Invesco, said in a commentary that the end to gold’s bull run looks increasingly unlikely, reports Kitco News. Leger says for the gold market to lose steam, the U.S. economy would have to overheat enough to force the Fed to drastically raise interest rates, which would boost the dollar. “In our view, the Fed seems determined to protect this budding upturn by keeping interest rates low for the foreseeable future.” Lower rates boost gold’s appeal since it is a non-interest-bearing asset.

Threats

  • A flurry of new investors to the gold mining space has Newmont Corp. warning against dodgy deals. The SEC warns investors of “mini-tender” offers: “Some bidders make mini-tender offers at below-market prices, hoping they will catch investors off guard if the investors do not compare the offer price to the current market price.” Newmont explains that these are offers to acquire less than five percent of a company’s outstanding shares and avoid many of the investor protections afforded for larger tender offers.
  • James Steel, chief precious metals analyst at HSBC, said a rise in international trade could create an unfavorable market for gold. Steel points out that an increase in trade is a positive sign for global economic growth and geopolitical stability, which decreases the appeal of gold. “The outlook for trade is better than it was, but is still contracting that is good for gold,” Steel said on an LBMA webinar this week.
  • LVMH (Moet Hennessy Louis Vuitton) said it will walk away from its planned $16 billion takeover of Tiffany – a hit to the jewelry and luxury goods industry. LVMH said that its board received a letter from the French foreign ministry asking it to delay the acquisition to beyond January 2021 due to the threat of additional U.S. tariffs. At the same time, LVMH said Tiffany asked to extend the deadline to December 31 from the original date of November 24. Now Tiffany is suing to force the deal through – which was set to be the largest transaction ever in the luxury sector.

The 5 M's of mining for picking Gold Stocks - Click to watch the video!

Index Summary

  • The major market indices finished down this week. The Dow Jones Industrial Average lost 2.22 percent. The S&P 500 Stock Index fell 3.23 percent, while the Nasdaq Composite fell 5.28 percent. The Russell 2000 small capitalization index lost 3.01 percent this week.
  • The Hang Seng Composite lost 2.75 percent this week; while Taiwan was down 0.64 and the KOSPI rose 0.03 percent.
  • The 10-year Treasury bond yield rose 3 basis points to 0.667 percent.

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

Original article published at http://www.usfunds.com/investor-library/investor-alert/ivanhoe-set-to-begin-production-at-worlds-second-largest-copper-project/

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