A junior mining company that trades on the Toronto Exchange has recently announced a substantial new deposit. Duluth Metals Limited trades under the symbol (DM.TO) on the Toronto Exchange and the symbol (OTCPK:DULMF) on the pink sheets. On June 13th, they released a report confirming significant increases to their copper, nickel, palladium, platinum and gold reserves. Their indicated reserve is 8.0 billion pounds of copper, and their inferred reserve is 13.5 billion pounds of copper.
Global copper demand is strong and should remain strong in the future. Current annual demand is 575,000 tons per year, and that number is growing. By 2100, global demand should outstrip the amount extractable. Copper is one of the most widely used base metals. It is used in electrical wiring, water pipes, ammunition, jewelry and more. A Toyota Prius has about 300 pounds of copper in it, and pure electric cars have even more. Wind turbines contain large amounts of copper. The amount varies by model; some may have thousands of pounds of copper in one turbine. The Vesta V90, which produces 3 Mw of power, has 9400 pounds of copper in it. China is currently consuming 22% of the world's copper.
One good thing about copper is that it is highly recyclable. About 80% of the copper ever mined is still available today. As copper becomes more expensive, deposits that were once unprofitable to mine also will become feasible.
There are many ways to play the long-term demand story for copper. There are several copper ETFs of which JJC (JJC) is the most liquid, and it is also optionable, so options strategies can be used in addition to purchasing JJC outright. A synthetic long stock position can be created by selling puts and buying calls. If you're bullish but want to limit downside, long-term calls can be purchased. Alternatively, you can sell puts to target a favorable entry price and collect some premium while you wait. Freeport McMoran (FCX) is a copper producer that also has options and has strong fundamental ratings from the analysts. Encore Wire (WIRE) is another that has options and also has a strong fundamental rating from various analysts.
Duluth Metals, DULMF, also looks like an interesting play. Their indicated and inferred deposits are substantial. In addition to their recently announced copper deposits, they have 2.5 billion pounds of nickel and 12.1 million ounces of palladium, plus gold and platinum. A map showing their property area in Minnesota can be found at duluthmetals.com .
If the indicated and inferred deposit analysis is correct, this will be one of the largest metal deposits anywhere in the world. The mine will be capable of producing 80,000 tons of ore per day. Once production starts, it will be an underground mine, so environmental impact at the surface will be minimal. Amongst the challenges that Duluth Metals will face will be raising sufficient capital to begin production. The logical conclusion is that this company will become a takeover target for a mining company with deep pockets. Considering the size of their deposits, the valuation could be as high as $14 per share. Also, you can expect legal challenges from environmental groups to increase costs and possibly delay production.
A good way to play the long term copper demand story would be with a suitable mix of JJC, FCX, WIRE and DULMF.
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