Welcome to the Copper Thrust

Frik Els from Mining.com supplied the following commentary last Thursday:

“The International Copper Study Group’s data for November 2011 show a global copper production deficit of 119,000 metric tonnes after a significant jump in Chinese imports and usage. China’s net imports in October-November were 59% higher than over the same period in 2010, according to the group’s February 2012 Copper Bulletin. During the first eleven months of 2011, global usage grew by only 2.7% over 2010, but accelerated in October-November to 12% due to a jump of 38% in China. In comparison to China growth in the rest of the world was aneamic. The preliminary report shows in Europe, Japan and the US, usage declined as the year progressed ending down 4% in Japan and unchanged in the EU and in the United States. The copper mining industry continued to produce below capacity according to ICSG and in the 11-month period remained flat compared to last year. Concentrate production declined by 0.5% and solvent extraction-electrowinning (SX-EW) grew by 2.8%. Output in Chile, Peru and the US that combined accounts for almost 50% of the global production, was down by 2.8% compared to last year, while world number two copper miner China boosted output 12%. The ICSG reports shows mine production increased by 6.5% in Africa, 3% in Europe, 12% in North America and 7% in Oceania while it shrunk 3.5% in South America and 5% in Asia largely on the back of labour unrest at Indonesia’s massive Grasberg mine. “The average mine capacity utilization rate for the first eleven months of 2011 fell to 78.5% from 80% in the same period of 2010,” says the report. During the first eleven months of 2011 world refined production grew by 3.2% with huge variances in regional performance: “Primary production increased by 2% and secondary production (from scrap) increased by 9%. Production increases of 16% in Australia (recovery from 2010 operational constraints), 15% in China, and 38% in the Democratic Republic of Congo were partially offset by declines in Chile (4.5%), the United Sates (7%), Canada (15%), and Japan (15%).”

“Distinctions must be made with respect to copper production. On the mine side, many factors argue in favour of a considerable quantity increase during the coming years following the disruptions of production year 2011. The ICSG expects accumulated growth of 30.5 % in the production capacities for copper concentrates until 2015 with average growth of 6.9 % per year.
Because of the start-up of new projects and the expansion and reactivation of existing mines, Barclays predicts a 3 % rise in 2012 compared to the prior year. BHP Billiton and Rio Tinto are investing billions in copper mining in their Escondida mine and want to increase the annual output from 990,000 t to more than 1.3 million t by June 2015. In contrast to mine output, the output of refined copper is expected to remain weak in 2012 with low capacity utilisation levels, most recently 80 %, despite the 3.7 % average annual growth in smelter capacities. There were already production cancellations at two smelters in Japan and the Philippines in
January due to technical disruptions.”
(Aurubis AG: “Copper Mail No. 94”; February 21, 2012) 

Tom Albanese, CEO of Rio Tinto PLC  – the 3rd largest mining company in the world and one of the biggest suppliers of copper – anticipates as well that the copper price will remain strong in the mid-to long-term. Just one year ago, in an interview with the Australian Broadcasting Corporation, Mr. Albanese forecasted that mine supply will continue to drag behind demand – due to significantly decreasing ore grades and increasing production costs at all major copper mines worldwide (including Rio Tinto). Solely new copper mines would be able to bring the increasingly widening deficit towards equilibrium over the next years, Mr. Albanese said but admitted that the strongly increased prices will push the development of new copper mines, as in the case with Rio Tinto´s own Oyu Tolgoi deposit in Mongolia, besides other projects on the American and Australian continents. Yet at the same time he amplified that no new mines will be brought into production in 2011 and 2012 to have a chance to significantly change the huge deficit as it takes many years to develop a deposit towards a mining operation. Mr. Albanese expects over the long-term – the next 15-20 years – that the industrial demand for copper will more than double from 2010 levels.

Nonetheless, one of the most remarkable copper discovery and mine development of the last few years was the “Superpit” in Canada’s British Columbia owned by Copper Mountain Mining Corp. (TSX-Symbol: CUM). With an average mineralization of “only” 0.3% Cu, this porphyry copper deposit has been brought into production in September 2011 (resource >5 billion pounds copper). For the first 12 years, the mine is anticipated to produce around 100 million pounds of copper per year. Mitsubishi took over 25% of Copper Mountain (market cap: $528 million).

One of the companies we follow closely and have initiated coverage on is Anglo Canadian Mining Corp. (TSX-Symbol: URA), which is actively drilling their fully owned Princeton property which borders the south of the Copper Mountain Mine. The first ever drilling by the company at its “Combination Zone” (immediately south of the Copper Mountain claims) in late 2010 showed 0.7% Cu over 21 m at a depth of only 106 m (hole #6) and in late 2011, hole #21 returned 0.6% Cu over 38 m at a similar depth of only 108 m. Hole #6 was drilled vertical (-90°), whereas the most recent press-release (February 7, 2012) commented as follows:

“Discussions with Copper Mountain staff have led to the decision to drill future holes at minus 50 degrees, generally north, toward the Copper Mountain intrusive/Nicola volcanic contact. Most historic drilling by the company has been vertical.”

Click here to view the latest analyst coverage on URA (30 Jan, 2012) including a general article on “Porphyry Copper Deposits in the Course of Time.”

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