Stefan Ioannou, Ph.D., is Analyst of Cormark Securities Inc. Dr. Ioannou is a mining engineer and holds a Ph.D. in economic geology from the University of Toronto. He joined Cormark in December 2016, working in equity research for 13 years with Haywood Securities — base metals analyst since 2006. Prior to that, Dr. Ioannou worked as an exploration geologist in Nevada and throughout the Canadian Shield.
“…Worth mentioning is that while we have seen base metal prices fall drastically in the wake of COVID-19, which has prompted investors to focus on said weakness, operating cost factors, in particular energy — fuel — and foreign exchange rate considerations are working in the favor of most miners.
So if you’re operating a mine anywhere outside the U.S. right now, any costs you’re incurring in local currency, namely labor, have recently dropped significantly in U.S. dollar terms. In Brazil, FX rate considerations are meaningfully offsetting the impact of copper price weakness.
With regard to fuel costs, which can account for 7% to 10% of a mine’s total operating cost, low oil prices are helping producers weather the pandemic for now. To put that into context, we talked about the AISC for the 90th centile of the copper curve being about $2.25 per pound right now.
In 2019, it was closer to $2.50 per pound, and again, that was on the back of higher fuel costs, stronger foreign currencies and other factors.”
Dr. Ioannou identifies his top investment danger for the current market:
“Balance sheet liquidity is key right now, as it positions a company to weather the storm.
If we look at copper right now, the metal’s price is testing the 90th centile of the industry’s AISC cost curve right now, which is about $2.25 per pound, which means 10% of the world’s copper mines are not economic right now and are essentially bleeding cash. In lieu of balance sheet strength, said producers face potential bankruptcy. ”
The global mining expert identifies his pick for current investment:
“A great example would be Lundin Mining (OTCMKTS:LUNMF), which has five mines. They’re all operating well in safe jurisdictions throughout the world, and they all have some sort of a modest near- to medium-term organic growth component to them.
The company has also demonstrated really good ability to prudently use its balance sheet…”
Get the complete picture by reading both recent interviews from Dr. Ioannou, exclusively in the Wall Street Transcript.
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