Street Comments
Copper Sector
The doctor is busy. The price of copper has increased by over 33% since June 30, even as the International Monetary Fund
predicted slower world economic growth, investors grew worried about a double-dip recession, and as China tightened liquidity.
China uses two-fifths of global copper production for its internal use or in exported products. Bloomberg highlighted how
global exchange inventories have dropped 22% this year, heading for the largest slide since 2004. Demand will outpace supply
by 367,500 metric tonnes next year, according to the consensus Bloomberg estimate. A Bank of America Merrill Lynch analyst
forecasts that stockpiles may drop to an all-time low of less than one week’s usage. Goldman Sachs and Morgan Stanley both
rate the commodity as a top pick. Relative to other base metals, the Canaccord Genuity Base Metals and Mining team likes
copper best and believes the global copper market will be in deficit again from 2011 for several years. Much of the trouble is on
the production side. For example, BHP Billiton (BHP) said production at Escondida, the world’s largest copper mine, will drop
as much as 10% in the 12 months ending in June because of lower grades. In October, Freeport-McMoRan (FCX) said its
copper sales from North America would drop to 1.1 billion pounds this year from 1.2 billion pounds in 2009, while sales from
Indonesia will probably decline to 1.2 billion pounds from 1.4 billion. “The major copper reserves that are being produced today
come from 100 year-old mines, with few exceptions,” commented Freeport Chairman James Moffett. Canaccord Genuity Base
Metals Analyst Orest Wowkodaw’s favoured senior names are Quadra FNX (QUX) and Inmet Mining (IMN), and his
favoured developers are Augusta Resource (AZC) and Baja Mining (BAJ).