Rio Tinto's Winu project in Western Australia, where exploration boomed following the copper-gold project's discovery in February 2019. Source: Rio Tinto

Copper's strong demand fundamentals underpinned by global electrification is expected to drive the metal's exploration further in Australia in the next few years, particularly around where discoveries by BHP Group and Rio Tinto Group have rejuvenated enthusiasm.

An analysis of Australian Bureau of Statistics, or ABS, data shows copper exploration spend in Western Australia rose to A$70.4 million in the third quarter of 2019 — a level not seen in the past decade — following the discovery of Rio Tinto's Winu deposit in Western Australia in February 2019.

Though Winu is the most recent major discovery and also the largest in the past five years, underpinning its significance, and S&P Global Market Intelligence principal metals and mining research analyst Kevin Murphy noted in an email interview that the post-Winu spike did not last into 2020 as the pandemic hit.

While BHP's Oak Dam discovery in South Australia in November 2018 did not initially generate an increase in copper exploration spend, by July 2019 it had reached its highest point since the second quarter of 2013.

Murphy noted the "nice bounce" in exploration spend after the Winu discovery as Rio Tinto ramped up exploration in Western Australia's Paterson region. It also "generated optimism towards Australia as a place big deposits can still be found."

ABS copper exploration data for the first quarter of 2021 shows A$11.6 million for South Australia and A$51.7 million for Western Australia.

Follow-up success

Asian capital markets and investment group CLSA's metals and mining research analyst Trent Allen said in an interview that there will continue to be investment interest in copper exploration in Australia, particularly in Western Australia and South Australia.

Amid strong demand expected from the world's electrification, falling grades globally, and the lack of major discoveries that led to copper hitting a decade-high in May, Allen said major mining companies will continue exploring for copper, amid a difficulty in finding large-enough targets for merger and acquisition activity.

Cormark Securities analyst Stefan Ioannou said in June he expects copper producers to increase exploration budgets to capitalize on rising copper prices.

Coda Minerals Ltd.'s share price was up 463% on June 15 after saying June 9 that its first deep diamond drill hole on the Emmie Bluff Deeps prospect near Oak Dam 16 kilometers away had revealed evidence of a major IOCG, or iron oxide copper-gold, system.

Allen said the prospect may be geologically similar to OZ Minerals Ltd.'s Carrapateena copper mine 50 kilometers east, which is also IOCG-style, as is Oak Dam, which would partly explain the share price lift. The share price of Torrens Mining Ltd., Coda's project partner, also rose significantly.

Explorer Petratherm Ltd. also said in its acquisition of the Woomera IOCG project nearby that the region is "proving very fertile for significant IOCG-style mineralization," given the presence of Carrapateena, Emmie Bluff Deeps and Oak Dam.

Murphy also cited Market Intelligence's recent Corporate Exploration Strategies data for copper, which showed that grassroots exploration — the most likely form to result in the discovery of new deposits — is allocated mostly, and increasingly, to Latin America.

"Allocations to Australia have been on the downtrend since fiscal 2012, with the exception of fiscal 2019 when Rio Tinto's discovery spurred increased interest," he said.

CLSA analyst Robert Stein initiated coverage on Rio Tinto and BHP in May partly due to their exposure to copper, and named the latter as "best placed to weather the storm" given expectations of Brazil's Vale SA recovering from safety and pandemic-related issues and the "China-backed Simandou mines "poised to crush iron ore prices."

Investment and research firm AB Bernstein global metals and mining analyst Danielle Chigumira believes Australia is an "interesting destination for copper exploration spend" for such large diversified miners.

"In an industry which is still pretty cautious about not repeating some of the suboptimal capital allocation decisions of the last cycle, copper exploration spend combines a metal investors generally like, a small capital outlay, and country exposure with a more predictable fiscal policy," she said in an email interview.

"This trend could be turbo-charged given companies may want to avoid the impacts of greater resource nationalism (via tax and royalty increases) in many Latin American countries."