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Miner Poised to Capitalize on Increasing Demand for Copper
Contributed Opinion

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Peter Epstein Copper is gaining momentum, according to Peter Epstein of Epstein Research, and Pampa Metals is "cashed-up" and drilling for new discoveries "in the shadow of giants."

Copper = Cu / Copper Equivalent = Cu Eq. All dollar figures in US dollars unless indicated otherwise. All Cu prices in US$/lb (converted from US$/metric tonne).

Copper is red hot, up 104% from COVID-19 lows in March 2020.

The most important source of primary copper is from a type of mineral deposit known as a porphyry, which provides ~60% of the world's copper, a significant amount of its gold, and nearly all the world's molybdenum. Porphyries are generally large, bulk tonnage deposits. They can be tens to hundreds of millions, or even billions, of metric tonnes (Mt) in size.

In looking at the latest U.S. Geological Survey data, global mined copper was down modestly in 2020 to 20.0 million Mt. Chile was, by far, the largest producer at 5.7 million Mt, equal to a whopping 28.5% of last year's mined supply.

Cu is perhaps the only metal to benefit from all of the following: 1] giant new infrastructure programs; 2] wires/cables/motors/structures from new energy projects (with renewable energy 5–6x more Cu-intensive); 3] paradigm shift to electrified transportation (including massive buildout of Cu-intensive charging systems); 4] incremental power hookups for the "Internet of Things;" 5] Post COVID-19, new Cu uses in hospitals, schools, mass transit hubs, etc., due to its antimicrobial properties; 6] new and replacement electric grid and telecom infrastructure, including wireless towers and 5G wireless network base stations.

According to Bloomberg Intelligence, the average lead time from discovery to first production has increased by 40% from previous commodity cycles, to nearly 14 years. Consider this: Mined copper grades are falling, mines are getting deeper and haulage trips from mine to mill are getting longer. These factors, as well as higher labor, electricity and water/infrastructure costs, is fueling cost inflation.

Copper fundamentals have rarely been stronger

Longer lead times and copper prices below $3/lb resulted in a serious lack of exploration and development for most of the 2010s. Freeport-McMoRan Inc.'s (FCX:NYSE) CEO said recently that even if copper soared to $10/lb tomorrow, it would take seven or eight years to deliver new production.

In my opinion, all roads lead to higher prices. Some well-respected copper bulls including Robert Friedland and Gianni Kovacevic now believe that demand growth will be 4% or 5% in many of the next 30 years. Adjusted for inflation, 2011's all-time nominal high would be ~$5.5/lb today.

The world's #1 copper trader, Trafigura Beheer BV, expects the price to break through $4.54 this year, before entering a multiyear range of $5.44¬$6.80/lb Goldman Sachs raised its price deck to $5/lb next year and $6.80 by 2025. Does that level sound crazy? Although it's 59% above the current price of $4.28, readers are reminded that today's level is 104% above last year's low of $2.10/lb.

This bullish narrative makes intuitive sense. On top of increased demand from population growth, urbanization, expanding middle classes, electric vehicles (EVs) and the production, storage and transport of renewable energy, there's Africa. By 2075, the African continent is expected to host four of the 10 largest cities on the planet. The scale of infrastructure building needed there will be breathtaking.

Cu demand soaring: EVs, building/rebuilding electric grids + renewable energy

The world's intensifying efforts to decarbonize/combat climate change is a very important tailwind for copper utilization. Each one degree Celsius of avoided global warming will require millions of Mt of copper/year to achieve and sustain. Major mining companies like BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK) and Rio Tinto Plc (RIO:NYSE; RIO:ASX; RIO:LSE; RTPPF:OTCPK) are carefully studying the impacts of climate change on demand for their critical metals.

Kovacevic astutely points out that most of the last decade's preliminary economic assessments (PEAs) and feasibility studies (PFS) were done at around $2.75 to $3.00/lb Cu. And, most of those projects have been stalled for years due to mediocre (or worse) economics.

After-tax internal rates of return (IRRs) of 12-15% for projects with multi-billion dollar capex budgets, with upfront capex significantly higher than after-tax net present value (NPV), are difficult to green light, especially in jurisdictions outside of Canada, the U.S., Chile, Peru and Australia. Note: Some of the largest existing and future copper mines are in Indonesia, Russia, the Democratic Republic of Congo, Zambia, Pakistan, Mongolia, China and Panama.

Kovacevic adds that today's open-pit mined copper grades of 0.45¬0.65% are being replaced by ~0.3% Cu Eq. grades on a meaningful portion of future production. Assuming $3/lb Cu, that's $19.84/Mt of ore. Sub-$20/Mt does not make the grade for the next generation of bulk tonnage mines, with tens of billions of dollars in upfront capex ahead of them.

Experts and analysts calling for US$6/lb-plus copper in coming years

Incentive prices to warrant developing higher-risk, lower-grade operations that take years longer to develop will have to be well above $3/lb Increasingly, pundits and analysts are saying $5/lb might be needed. At 0.4% Cu Eq. and $5 Cu, a deposit would host ore with a gross in-situ value of $44.10/Mt. Five dollars per pound is only 17% above today's price.

Most of the challenges of bringing on new copper supply are being felt globally. In western Canada, one can avoid ultra-high altitudes and have far less worries over water—but some mines there are already operating at less than 0.3% Cu Eq., leaving little room for error.

Juniors with properties in world-class jurisdictions are very well placed to benefit from a rising copper price. All else equal, for a resource of 500 million Mt, each additional 0.10% of Cu Eq. grade equates to an incremental $4.4 billion in un-discounted life of mine revenue! That's why Chile's 0.4-0.6% Cu Eq. porphyries can be so much more valuable than western Canada's 0.3% mines.

Newly listed Pampa Metals Corp. (PM:CSE; PMMCF:OTCQB) controls a 100% interest in eight exciting exploration projects along proven mineral belts in northern Chile, one of the world's top mining jurisdictions. The total portfolio of 59,000 hectares is prospective for copper and gold, but management's primary focus is on maiden discoveries on copper-heavy porphyries.

The properties were secured by other companies over the past 10 years, and represent the best of dozens of opportunities reviewed across South America. These targets are located along proven, prolific mineral belts. Importantly, none sit at ultra-high elevations. Each is less than 3,000 meters above sea level and are fairly near the coast.

Pampa farms out two gold-copper projects to focus on copper-heavy targets

Pampa farmed out two of its eight prospects to Austral Gold Ltd. (AGD:ASX), which has an option to earn up to an 80% joint-venture (JV) interest in both the Cerro Blanco and Morros Blancos projects. To earn an initial 60% JV interest, Austral must invest a total of $3 million ($3M) in exploration over up to two years and return for cancellation ~3M Pampa Metals shares (taking Austral's subsidiary, Revelo Resources, ownership in Pampa down to 12.8%).

Austral can increase to 65% by producing a preliminary economic assessment (PEA) on either or both projects. Finally, Austral can climb to an 80% JV interest by delivering a bankable feasibility study (BFS) on either project.

It's impossible to overstate the difference in market sentiment between $2.5–$3.0/lb and $4.0–$4.5/lb Cu. Just imagine the excitement if/when the price surpasses $5 bucks.

Julian Bavin, CEO of Pampa Metals, commented: "The Company is advancing rapidly with its exploration program, with two, Arrieros and Redondo-Veronica (R-V), substantially advanced. We're especially pleased with results at R-V, where significant geological outcrop gives us a good idea of targets to be followed up on. Arrieros, largely devoid of geological outcrop, requires completion of geophysical surveying. We're planning an initial drill program on R-V to start in May and will continue exploring other projects in Pampa's portfolio."

R-V is ~40 kilometers north-northeast of the massive La Escondida–Zaldivar copper mining district, home of the world's largest porphyry copper operation. Historic work at R-V includes geological mapping and geochemical sampling.

Five separate zones of hydrothermal alteration characteristic of porphyry copper deposits have been identified and mapped on R-V, all of which, subject to geophysical results, are likely to provide valid drill targets.

All areas of interest are large (2–4 square kilometers), with three having been subject to 1 or 2 historic drill holes (of unknown origin and drill results). One priority area has had no evidence of drilling. A fifth area has seen significant historical drilling and has evidence of copper oxides.


Pampa Metals' world-class portfolio in northern Chile, combined with a highly experienced management team, a healthy cash balance of CA$4M (no debt), means that the company is well placed to deliver on key objectives in a rising copper price environment. With an enterprise value (market cap + debt – cash) of just CA$18M, Pampa offers a compelling risk/reward proposition.

The Arrieros project is covered by 14,000 hectares of exploration and exploitation concessions in an ~18-kilometer-long by 8-kilometer-wide, contiguous, north-south block. It's centered 40 kilometers south of the Chuquicamata mine in the Antofagasta region of northern Chile.

The Arrieros property is 25 kilometers south of Calama, an important mining center with a population of 166,000. The town serves exploration/development projects and operating mines for companies including Codelco, Antofagasta Plc (ANTO:LSE), BHP, Freeport McMoRan and KGHM Polish Copper Ltd. (KGHPF:OTCPK).

Northern Chile hosts one of the highest concentrations of mid-tier and major Cu and gold producers in the world. In addition to the above five companies: Vale S.A. (VALE:NYSE), Rio Tinto, Anglo American Plc (AAUK:NASDAQ), Teck Resources Ltd. (TCK:TSX; TCK:NYSE), SQM (SQM:NYSE), Newmont Corp. (NEM:NYSE), Barrick Gold Corp. (ABX:TSX; GOLD:NYSE), Newcrest Mining Ltd. (NCM:ASX), Glencore International Plc (GLEN:LSE), Kinross Gold Corp. (K:TSX; KGC:NYSE), Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE), Sumitomo Corp. (8053:TKY; SSUMF:OTCPK) and FMG have interests in the greater region of northern Chile. Pampa's management team believes that a meaningful discovery would attract significant attention.

This is one of the strongest management teams I've come across for a company this size. CEO Julian Bavin, M.Sc., has 38 years' experience as a geo and senior exec. He's a former exploration director at Rio Tinto, and currently lives in Chile. Non-executive chairman Adrian Manger, CPA, has 30 years' experience, including 20 at BHP. He was involved at a senior level in the $1 billion Spence mine development in northern Chile. He has an extensive background in equity/bank financing.

Director Yannis Tsitos, M.Sc., has a 30-year career as physicist, geophysicist, explorer, deal-maker and business development manager at BHP (19 years). He's an expert in project evaluation and risk management, and is president of Goldsource Mines Inc. (GXS:TSX.V). Director Timothy Beale, M.Sc., has 35 years' under his belt as a geo. He has strong experience in mineral exploration, and has worked with BP Minerals, RTZ, Rio Tinto, Hochschild Mining Plc (HOC:LSE) and Anglo American. He's lived and worked for more than 20 years in Chile, Argentina and Peru.

In the end, a strong management team can only take a company so far, it requires strong prospects as well. Pampa Metals has great properties, two of which have been farmed out. The company is cashed up to conduct a lot of exploration on multiple properties, while its strategic partner Austral invests in two projects to earn 60% JV interests.

Pampa is in the right place at the right time with the right commodity. Relatively few, if any, copper juniors have as large a property portfolio in northern Chile. Fewer still control 100% of their prospects, although early-stage properties that get drilled this year and next already enjoy a substantial headstart on greenfield projects.

Flying under the radar, Pampa remains unknown to investors, and has an enterprise value of CA$18M, with CA$4M in cash. Drilling by both the company and Austral in coming months offers considerable discovery potential on multiple properties. Any discoveries could lead to satellite deposits for one of the many large mines/development projects in the area.

Peter Epstein is the founder of Epstein Research. His background is in company and financial analysis. He holds an MBA degree in financial analysis from New York University's Stern School of Business.


Disclosures/Disclaimers: The content of this article is for information only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein of Epstein Research [ER], (together, [ER]) about Pampa Metals, including but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is not to be considered implicit or explicit investment advice. Nothing contained herein is a recommendation or solicitation to buy or sell any security. [ER] is not responsible under any circumstances for investment actions taken by the reader. [ER] has never been, and is not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and does not perform market making activities. [ER] is not directly employed by any company, group, organization, party or person. The shares of Pampa Metals are highly speculative, not suitable for all investors. Readers understand and agree that investments in small cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they will consult with their own licensed or registered financial advisors before making any investment decisions.

At the time this article was posted, Pampa Metals is an advertiser on [ER] and Peter Epstein owned shares in the Company.

Readers understand and agree that they must conduct their own due diligence above and beyond reading this article. While the author believes he's diligent in screening out companies that, for any reasons whatsoever, are unattractive investment opportunities, he cannot guarantee that his efforts will (or have been) successful. [ER] is not responsible for any perceived, or actual, errors including, but not limited to, commentary, opinions, views, assumptions, reported facts and financial calculations, or for the completeness of this article or future content. [ER] is not expected or required to subsequently follow or cover events and news, or write about any particular company or topic. [ER] is not an expert in any company, industry sector or investment topic.

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