Mary Gazze, The Canadian Press, On Tuesday April 26, 2011, 4:15 pm EDT
By Mary Gazze, The Canadian Press
TORONTO - More big miners will likely follow theworld's largest gold company into the copper sector as the metal's pricesoars alongside Chinese industry's growing hunger for it, experts say.
Canada's Barrick Gold Corp. (TSX:ABX) took a bold stepinto copper Monday with a friendly $7.3-billion bid to acquire EquinoxMinerals Ltd. (TSX:EQN). Other miners will likely follow suit as copperbecomes increasingly lucrative while China seeks to meet its need forthe metal used in electric cables, cars, cellphones and trains,Scotiabank commodities specialist Patricia Mohr said Tuesday.
"Copper is much more profitable than gold. Considerablymore, even with the record gold prices we've been seeing recently.That's why I've been calling copper the new gold," she said.
Copper is likely to hover around record prices for thenext few years, because there isn't enough in the world to feed China'sdemand, which will climb even higher this spring as better weather leadsto construction season, Mohr said.
The price of copper was trading at US$4.33 per poundmidday Tuesday, below the record of $4.60 set in February. But Mohr saidcopper is still bringing in "huge" profit margins.
"Even at $4.29 you have a 68 per cent profit margin," she said, adding that other metals bring in about 50 per cent.
The high cost of mining and increasingly lower grade ofcopper found at established mines will inevitably lead to smallerplayers being swept up as the major global miners look to get into theindustry and diversify with little risk.
Companies will see copper as a worthwhile investmentwhile a world shortage of copper grows deeper as China grows in the nextdecade, said Tom Whelan, head of mining and metals research atconsultancy firm Ernst & Young.
China already consumes between 35 and 40 per cent ofthe world's supply of copper, at about seven million tonnes a year, andappears to have an insatiable appetite for more. Whelan said statisticsfrom the Chinese government indicate demand will grow to 12 milliontonnes over the next 10 years on an annual basis.
But the world's supply won't expand fast enough to keep up with the demand, he said.
"It's not like mining companies can just flip aswitch," he said, adding that it takes time to make mine sites suitablefor extracting metal.
"Supply remains constrained and there's been anunderinvestment in new mine supply. It's just taking longer and longerto get mines into production. At the end of the day the supply growth isconstrained."
He said global copper output should rise to 20 million tonnes by 2015, helping to ease the supply shortage.
And metals miners —particularly gold companies likeBarrick— are becoming increasingly more comfortable with copper, as theytend to find it nestled in the same mines as gold, said Whelan.
With the number of available gold mines wearing thinaround the world, gold miners have to look to other metals to grow theirbusiness.
"All mining companies need a growth story, and mergersand acquisitions are certainly on the table for many copper companies,"he said.
Mohr said opportunities to buy smaller, establishedcopper miners are rare, and with the price of copper so high, manycompanies could start bidding wars to get their hands on one.
She said the price of copper should come back down whennew mines open, but it will be the hottest metal on the market untilthat happens in about two years' time.
But John Ing, president and CEO at Maison Placementsand a gold analyst, said he expects the prices of copper to stay high inthe near future.
"(Acquiring companies) are looking ahead and they seecontinued demand for copper. In fact there's expected to be a deficit.In the near and intermediate term, the expectation is for higherprices," he said.
"Copper is at $4.29 thereabouts and this is at a timewhen China's imports for this part of the year have slowed down, yetcopper prices remain very strong," he said.
Source: https://ca.finance.yahoo.com/news/Copper-swiftly-becoming-new-capress-1720911585.html?x=0