Copper 360 anticipates dividend despite missed targets

Jan Nelson, CEO, Copper 360

IT’S hard to fault Jan Nelson for optimism. Copper 360’s CEO says he aims to declare a maiden dividend in February. That would represent a major turnaround for the company, which this month reported a R129m operating loss for 2023 — well adrift of the R245m profit it forecast in its prelisting statement.

Nelson brushes off last year’s disappointment by arguing that Copper 360 is still a work in progress. It lost more than half its metal production to load-shedding, while its only processing plant failed to achieve targets. Copper 360 responded by buying a processing plant from a neighbouring miner in the Northern Cape for R200m. It also spent R26m building generators for any future electricity disruptions.

The outlay included another R31m for a new crushing facility (which helps improve the processing plant recovery). It is all part of the capacity-building process that mining needs. There’s no way around it, and it’s a testament to the firm’s viability that it’s been able to raise nearly R1.1bn in debt and equity capital — so Nelson says.

“The year was never about ‘driving profitability’,” he says. “It was about getting ourselves set up.”

Nelson is right about the firm’s capital-raising achievements, especially as the miner is valued at just R3bn on the JSE. But shareholders and other investors may well differ with his assessment that 2023 constitutes some sort of success.

For now, however, investors appear to be keeping patience with Nelson, who is an exceptional salesman, which explains why Copper 360’s share was largely undisturbed following the results announcement. There are also other reasons for the share’s relative stability. One is the limited free float of 10% to 12%.

Nelson says there are plans to improve access to the firm’s shares. But it depends on the outlook of Shirley Hayes, chair of Copper 360, whose company, SHiP, vended in significant copper reserves in return for a 58% stake in the business. Hayes’s stake performs one important service to Copper 360, which is to make it “takeover proof”, says Nelson. At its current market value, he fears Copper 360 could easily become prey to a predator.

A second reason for the stability in Copper 360 shares is that anchor shareholders such as Coronation and Investec helped finance Copper 360’s working capital shortfall during the period, so they can’t claim to be surprised by the bad news. (Compare this with the 8% hit Gold Fields suffered last week following its surprise downwards adjustment to production from its Salares Norte mine in Chile.) “We kept them up to date about what was happening with the business,” says Nelson. There’s nothing investors hate more than nasty surprises.

Copper unlimited

Underpinning Copper 360’s business case is the expected supply deficit in copper — the metal that motivated BHP’s attempted takeover of Anglo American last month. “A new supercycle is emerging in the copper market, built on several rising geopolitical and market trends contributing to a strong bullish outlook for copper prices,” say Paul Wong and Jacob White, analysts for Canadian asset management firm, Sprott.

Whereas China’s GDP growth stood behind the most recent metals supercycle of between 2003 and 2009, the next for copper is dual supply lines as the US clamps down on Chinese imports (via tariffs, most likely) and seeks its own supply, further draining the mining sector’s ability to supply more.

Research company BloombergNEF forecast last year that annual global copper supply would fall 5 million tons (Mt) over the next 25 years unless there are significant new developments. Even if there are, demand is forecast to rise to about 55Mt over that time, driven by growth in the sectors of electric mobility, wind power generation and power grid.

South Africa is not a big copper supplier, but its miners can be profitable. One investor asked Nelson at Copper 360’s annual results presentation whether BHP or Anglo might be interested in buying his company. Containing a polite chuckle, Nelson said he doubted they’d be interested.

Nonetheless, it’s worth bearing in mind that at an all-in cost of about $5,600 per ton, Copper 360 is well positioned to capitalise on copper prices that are expected to be in the range of $10,000 to $12,000.

Now it’s time for the difficult bit — which is to produce copper sustainably and at guided capacity. Dividends might then be declared after all.

A version of this article was first published in the Financial Mail.