Aeris Resources margins poised to vanish as copper price hits 20-month low

Aeris Resources (ASX: AIS) is showing the growing pains of being a copper producer, facing a double whammy of free falling spot prices and surging costs. 

The junior copper miner produced 18,581 tonnes of copper in FY22 at an all-in sustaining cost of $5.10/lb.

Production was in-line with FY22 guidance of 18,500 to 19,500 tonnes but costs well exceeded expectations of $4.60/lb to $4.85/lb.

“AISC was slightly above the top end of our guidance, primarily as a result of cost and labour market pressures, which are impacting the whole industry, but which we are working hard to contain,” the update report said.

“New employment policies to reduce labour turnover have been introduced and group-wide purchasing initiatives to reduce input costs are being implemented.” 

Aeris shares are down -20% in the last month and -72% from August 2021 highs.

Aeris 12-month price chart

Margin squeeze

Goldman Sachs said copper is ‘sleepwalking towards a stockout’ in early April, with expectations that prices could reach all-time highs by mid-year. 

Well here we are. Stockpiles are still somewhat low by historical standards but prices have done a complete 180, down almost -30% since the report to levels not seen since November 2020.

Copper futures (Source: TradingView)

Current prices of US$3.3/lb equate to around $4.90 Australian dollars, which means a junior miner like Aeris would be operating at a loss.

Though, its FY22 earnings will likely reflect copper’s better days, when prices traded between US$4.00 to US$4.80.

Why higher copper prices are necessary

Everything seems to be working against Aussie copper miners: Wild weather, labour shortages, supply chain disruptions and surging energy costs.

Looking at energy specifically, think about the sheer amount of energy required to mine, process, transport, smelt and refine the product. 

Junior producer margins are getting squeezed amid freefalling copper prices and elevated costs.

This comes at an awkward time where, as the International Energy Agency puts it "electricity networks need a huge amount of copper and aluminium, with copper being a cornerstone for all electricity-related technologies."

Still, Goldman Sachs retains a bullish long-term view for copper, expecting prices to reach US$15,000 a tonne by 2025 (US$6.8/lb), given a "clear structural bull story" as mine supply peaks, according to Bloomberg.