Copper & Molybdenum
As incredible as it might seem, North American copper equities are currently discounting a long term copper price of US$0.66 per pound, according to the analyst cited in the Mineweb article shown below. To understand just what an absurdly undervalued situation that is, follow the link below these introductory comments to a previous post of mine entitled “The Fallacy of $1.50 Copper.”Needless to say, if a long-term discounted price of $1.50 is a “fallacy,” then $0.66 copper is insanity!
It is also interesting to note that, in this copper industry round-up, Mercator Minerals is the only primarily molybdenum producer that is included in its list.That goes to show just how unique ML really is.After all, even though ML’s copper production will be significant, astute investors know that MLwill have its molybdenum production credited to themessentially for free, as well as earning an additional profit for whatever price it receives for its copper above $2.00 per pound.
From Mineweb:
BASE METALS
OVERSOLD?
Copper miners slog it out
Listed copper stocks have posted sharp recoveries in the past eight days of trading sessions, as underlying metal prices remain underpinned by supply constraints, and bullish longer term factors.
Author: Barry Sergeant
Mineweb
Friday , 29 Aug 2008
https://www.mineweb.com/mineweb/view/mineweb/en/page36?oid=61025&sn=Detail
JOHANNESBURG -
Relative to other global resources sub-sectors, listed copper stocks have staged a sharp recovery in the past seven trading days, supported by copper metal's longer term outperformance of other base metals, and consistent with expectations, by certain analysts, that the global copper market will see annual deficits in several of the years ahead.
Copper metal prices more than quadrupled over the past five years, trading at records just above about USD 4.00/lb just months ago, and even at current levels around USD 3.42/lb, returns to miners of copper, the second biggest base metal in volume terms after aluminium, remain substantial.
In a detailed research note published this week, Royal Bank of Canada Capital Markets remarked that among global listed copper stocks, prices of North American names are now discounting long-term copper prices of USD 0.66/lb. This is less than half of RBCCM's long term copper price forecast - in 2008 terms - of USD 1.50/lb.
Noting that in the near term, copper supplies continue to struggle to keep up with demand and production continues to be affected by extraordinary disruptions, RBCCM anticipates a "modest deficit" in copper supply-demand for 2008. However, forecast surpluses in 2009 and 2010 are slightly higher versus one quarter ago due to a weaker demand forecast. RBCCM continues to forecast a return to deficits in 2011 and 2012, suggesting that, on balance, "the copper market looks set to remain historically very tight over the next five years.
There are further factors underpinning copper prices, not least electricity power shortages in China, and constraints common to the global resources sector, including rising input costs, and the phalanx of risks associated with progressing a project to a commissioned mine. In research published earlier this week, Citigroup noted delays on major committed copper projects are averaging 6 to12 months: "As recent additions were unable to offset depletion and 2007-08 demand growth, we do not expect new projects to materially alter the severely constrained copper supply picture".
The valuations of certain copper companies may also be impacted by the pricing of cobalt, an important by product of a number of copper mines, particularly brownfields operations under resurrection in Katanga Province, Democratic Republic of the Congo. On the basis of published targets by the various mining companies, global cobalt output looks set to at least triple in the medium to longer term. Dollar cobalt prices have halved in the past six months, but have shown recent signs of recovery.
Recent trades in copper metal have been influenced to an extent by the normal run of short-term events, and the usual economic and statistical data that hits markets, but rumours have dominated for some days as traders sit on apparently unchanged fundamentals. There have been numerous "sound bites" from Chinese brokerage "experts" that 50,000 ton of copper will hit Chinese shores next week.
A seasoned London trader puts it this way: "Though quite why, if true, anybody would wish to dump such a high volume of premium grade Chilean material into the exchanges warehouses is beyond us right now. However it just serves as an example of how thrilling things have become in the market's attempt at deciphering the next move".