IBT :Potential suitors for DMPrintEmailShareText Size
By Manikandan Raman | September 21, 2010 9:37 AM EDT
China, world's largest consumer of copper, is looking primarily at Canada to gain new resources of the red metal with their new found wealth, eager to gain new resources, and Government backing.
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REUTERS
China, world’s largest consumer of Copper, is looking at Canada to gain new resources of the red metal with their new found wealth, eager to gain new resources, and Government backing.
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Current demand for copper, the metal heavily used in power and construction, has reached an annual rate of about 18,700,000 tonnes per year.
Moreover, China currently consumes 39 percent of the world's copper production but holds only 6.3 percent of the world's reserves domestically, the key reason it has been purchasing stakes in copper assets, particularly concentrate producers.
Driven by strong Chinese demand, Copper prices on the London Metal Exchange almost touched a five-month high yesterday. On the London Metal Exchange, copper for delivery in three months were trading at around $7,700 a metric ton ($3.50 a pound).
"Copper and tin have "the greatest price upside" among base metals. In the case of copper, robust demand for the metal over the summer has resulted in a counter-seasonal decline in inventories," analysts at Barclays Capital said in a recent note to clients.
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Barclays expects copper prices to average $8,000 per metric ton in the fourth quarter of this year at the London Metal Exchange, which would translate into roughly $3.60 a pound.
"The fundamental reason why we like copper over other metals is due to the supply/demand picture. On the supply side, we estimate that production will have to increase 600,000 to 1,000,000 tonnes per year in order to keep up with demand," CIBC analyst Ian Parkinson wrote in a note.
Refined copper imports by China rose 22 percent in August to 267,153 tonnes as per the latest report by General Administration of Customs.
In the report released from Chinese customs, August imports were up by 19% from July to 224,723 tons. In the January-August period, the world's largest copper consumer imported 2.05 million tons of refined copper, down 11 percent from last year.
China requires copper to continue the national development programs that are underway in copper intensive industries such as residential home building, electricity infrastructure, and transportation.
As a resource-scarce nation, China ahve started to acquire resource-potential projects mainly in Canada. Chinese companies have announced or completed purchases of 17 North American companies during the past year, according to Bloomberg.
The latest evidence of China's quest to gain additional copper resources in Canada came on September 17, when China's Jinchuan Group Ltd. agreed to buy Vancouver-based junior copper-gold explorer Continental Minerals Corp. for $432-million.
Continental's key property is the Xietongmen copper-gold project in China, which is projected to produce 116 million pounds of copper, 190,000 ounces of gold and 2.4 million ounces of silver per year.
Jinchuan had earlier bought a Canadian junior miner, Crowflight Minerals, in April for $140 million.
Attractive Canadian Junior Copper Miners
In this scenario, Canada's junior copper companies would attract a lot of takeover interest from China, where the smelting capacity is expected to grow at 11.6 percent for the next five years.
"For this reason (higher smelting rates), we believe China will show a preference for projects that will produce concentrate and not finished metal," Parkinson said.
In 2010, lot of Canadian copper miners has gone into the hands of Chinese firms.
China Railway Construction Corp. and Tongling Nonferrous Metals Group Holdings Co. bought Canada's Corriente Resources Inc. in August for $662 million.
In March, Canada- based Northern Peru Copper Corp., were acquired by China Minmetals Corp. and Jiangxi Copper Co. for C$455 million. In June, China Sci-Tech Holdings has acquired copper miner Chariot Resources for C$244.5-million.
"It is clear that the junior copper universe could provide much of the needed copper for the next leg-up of supply growth," Parkinson said.
"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," the analyst said.
Parkinson said that Duluth Metals Ltd., Polymet Mining Corp. and Western Copper Corp. could be most attractive to potential suitors.
The so-called junior mining companies, which have yet to begin production, topped a list of more than 160 companies when ranked by attributes including share price and the size, quality and likely production cost of their assets, Parkinson wrote in a note to clients.
These stocks are "sure to gain attention from foreign interests or mid-tier producers looking to improve their long- term growth profile," Parkinson said.
Duluth Metals, which owns 60 percent of the Nokomis Project in Minnesota, has the highest-grade copper. Antofagasta Plc bought the other 40 percent of the Nokomis Project in June.
Toronto-based Duluth also ranks third in the size of its resources and has the third-lowest likely cash cost per pound, according to CIBC.
Polymet, which also plans to mine in Minnesota, has the lowest cash costs among the companies in the CIBC survey. The miner also would have the most production per dollar of capital expenditures.
Vancouver-based Western Copper holds significant gold, copper and molybdenum resources and reserves in four Canadian properties. Western Copper's key asset is the Casino Project, which contains 8 million ounces of gold, 4.4 billion pounds of copper and 475 million pounds of molybdenum in proven & probable reserves.