DAVID PESCOD STOCKTALK LATE EDITION September 17, 2010
COPPER $3.51 +0.02
DULUTH METALS (T-DM) $2.39 +0.07
POLYMET MINING (T-POM) $2.11 +0.02
MINERA ANDES (T-MAI) $1.11 +0.17
CIBC mining analyst Ian Parkinson recently did a study
on copper and its already been receiving a lot of attention
in the press and it deserves to. He took a look at the copper
situation and the need for the product from China and
suggests that we are on the verge of M&A activity and while
we have already seen some in the past two years, it’s time
to look ahead.
He headlines the report, “The Next Leg of Growth in the
Copper Supply Chain” and writes, “Be Long what China’s
Short—A look at Quality Junior Copper Developers”.
Parkinson writes, “We believe M&A activity is about to
heat up in the junior copper space. Fundamentally it is our
favorite metal and one that China is in short supply of. Between
mid-tier producers and foreign interests bidding for
these names, we believe junior copper plays will lead to
superior returns.”
Parkinson continues, “China currently consumes 39% of
the world's copper production but holds only 6.3% of the
world's reserves domestically. This is the main reason why
it has been purchasing stakes in copper assets, particularly
concentrate producers, representing most of the M&A activity
in the sector.”
He adds, “We believe a basket approach, investing in
extremely large, stranded assets, held by companies with
low market capitalizations, will give investors substantial
returns as projects are either taken out or backed financially
by China's trillion dollar balance sheet.”
Parkinson writes that “We have combed through 160+
companies and 200+ projects to highlight our top 25 names
based on the screen.”
If you aren’t aware of the amount of copper used around
the world for everything from pipes to electrical wires to
you-name-it—it’s huge!
Parkinson writes, “Current copper demand sits at an
annual rate of approximately 18,700,000 tonnes per
year.” (As in tonnes per year). “We assume 655,000 tonnes
of new demand per year using a relatively anemic growth
rate of 3.5% year over year.” Parkinson adds, “Let’s put
this number into perspective:
655,000 tonnes is about twice the amount of copper produced
in Canada in 2009, twice the size of Bingham Canyon’s
2009 production and equal to about 60% of Escondida’s
production in 2008 (the world’s largest copper
mine).”
In his research, he looked at all the information available
on many copper developments narrowing in on size,
grade, in-situ value, potential mining methods, proximity
to infrastructure and proximity to the expected market, re:
Asia.
They came up with a top five of Duluth Metals, PolymetMining, Western Copper (WRN), Terrane Metals (TRX), and
Augusta Resources (AZC), but we have put his top 10 herefor you in order.
If you haven’t been paying attention to the take-over
game by Chinese interests over the last while, you would
be interested to know that four different Australian companies
have been taken over by the Chinese in the last
few years such as Belmoral Iron Ore, Michelangelo, Midwest
Corp. and Felix Resources and no less than eight
Canadian companies including Canadian Royalties, Tyler
Resources, Corriente Resources, Northern Peru Copper,
etc. Below is Parkinson’s Top Ten List.
We see our Minera Andes makes his list and they have awee bit of an issue because there is a legal case or two
overhanging them, but we have our hopes that given time
and a couple of new developments, Minera Andes could
zoom up that list.