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Copper Prices Climb Most in 3 Months Amid Drop in Inventories

 

Sept. 12 (Bloomberg) -- Copper prices surged the most in more than three months in New York as inventories declined, signaling increasing demand for the metal used in wiring and construction.

 

Global stockpiles monitored by the London Metal Exchange fell 675 metric tons, or 0.9 percent, to 70,850 tons, the biggest drop since Sept. 2. Copper prices fell 4.2 percent last week as supplies climbed 9.2 percent.

 

``The reason the market was under so much pressure was the gains we saw last week'' in stockpiles, said Daniel Vaught, an analyst at A.G. Edwards & Sons Inc. in St. Louis. Some buyers see the drop in inventories as suggesting ``demand is getting back up to full speed,'' he said.

 

Copper futures for December delivery rose 4 cents, or 2.5 percent, to $1.644 a pound on the Comex division of the New York Mercantile Exchange, the biggest increase for a most-active contract since June 3 and the first gain in five sessions.

 

A futures contract is an obligation to buy or sell a commodity at a set price by a specific date.

 

Stockpiles have almost tripled since dropping to a 31-year low of 25,525 tons on July 22. Global demand for copper fell 2.1 percent in the first half to 8.27 million metric tons from 8.45 million tons a year earlier, the Lisbon-based International Copper Study Group said last week.

 

A rebound from last week's low spurred buying by traders who follow historical price patterns known as technical indicators, Vaught said. Prices touched $1.585 on Sept. 9, the lowest in three weeks.

 

``There is some technical buying in the market,'' with support at $1.58 to $1.60 a pound, Vaught said. ``To have the market close above that was probably interpreted as supportive'' on Sept. 9, he said.

 

In London, prices rose $60, or 1.7 percent to $3,605 a ton ($1.6352 a pound), after climbing as high as $3.639.

 

``Some late-day consumer buyers'' helped push prices in London back through the $3,600 a ton level, Michael Guido, director of hedge-fund marketing and commodity strategy in New York for Paris-based Societe Generale SA, said in an e-mail message. ``Many were looking to buy closer to $3,500'' a ton, triggering more buying as prices surged, he said.

 

In Shanghai, copper for delivery in November, the most actively traded contract, rose 90 yuan, or 0.3 percent, to settle at 34,610 yuan a metric ton ($4,275) on the Shanghai Futures Exchange when trading closed.

 

China's copper consumption increased 13 percent in the first half of the year, the International Copper Study Group said last week. China is the biggest user of copper.

 

Assessing Katrina Damage

 

Copper prices may trade in a tight range in the coming months as the damage left by Hurricane Katrina in the Gulf Coast region is assessed, some traders said. The hurricane devastated coastal areas in Louisiana, Mississippi and Alabama and left 80 percent of New Orleans submerged.

 

``As we get closer to the mid- to late-fourth quarter and even the first quarter, we'll start to see how much rebuilding we need,'' said Scott Meyers, an analyst at Pioneer Futures Inc. in New York. ``The next big move is going to be up, and it is going to be related to the hurricane.''

 

Copper may trade in a range of $1.59 a pound to $1.65 a pound over the next two weeks, Meyers said.

 

Construction is the biggest use for copper. The average house contains about 400 pounds of the metal, according to industry estimates

 

http://www.bloomberg.com/apps/news?pid=100...mmodity_futures

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In reply to: melanie on Wednesday 28/09/05 04:17pm

Hey Melanie,

 

Thanks for the link {was an interesting read} regarding Molybdenum. I to are very

 

bullish on this magnificent new age metal, I researched ASX listed companys last

 

weekend and Only came up with four reasonably serious explorers/producers with

 

an interest in Moly they are : Moly Mines {MOL},Marengo Mines {MGO},Daguilar

 

Gold LTD {DGR},Degray Mining LTD {DEG} and if there are any other companys that

 

others know of please don`t hesitate to post as I`d be very interested.

 

Cheers Radd. http://www.sharescene.com/html/emoticons/biggrin.gif

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In reply to: radd on Wednesday 28/09/05 06:52pm

Radd, there is Havilah Resource's (HAV) copper-gold-molybdenum discovery 100 km w. of Broken Hill, "Kalkaroo". PacMag (PMH) are re-constituting and also have copper-gold-molybdenum project (conditional) in a deal with Giralia Resources (GIR). Queensland Ores Ltd (QOL) has a tungsten and moly. project.

 

(posted for research info.)

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Base-metal bargains may be good as gold: experts

Strong demand, short supply good news for these cheaper metal alternatives

By Myra P. Saefong, MarketWatch

Last Update: 7:30 AM ET Jul 20, 2007

 

 

SAN FRANCISCO (MarketWatch) -- Gold's getting pretty expensive these days, so why not take a look at the cheaper metal alternatives? Some base metals may be downright bargains.

Nickel and zinc prices have dropped from their recent peaks, but the future for both points to strong demand and short supplies, say experts. Copper, tin and lead have potential as well.

"The long-term story for the base metals remains the same: Demand for metals continues to increase steadily," said Lawrence Roulston, editor of Resources Opportunities. Meanwhile, "production growth is constrained by the long lead times to develop new production and by the shortage of high-quality development projects."

And "demand for base metals is incredible," said Phil Flynn, a senior analyst at Alaron Trading. "Scraps are as good as gold."

'Demand for base metals is incredible. Scraps are as good as gold.'

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâہ¡ÃƒÆ’‚ Phil Flynn, Alaron Trading

"All metals have small inventories, which means any supply disruption can lead to a price bump," said Dr. Harlan Meade, president and chief executive officer of both Selwyn Resources Ltd. (CA:SWN: news, chart, profile) and Yukon Zinc Corp. (CA:YZC: news, chart, profile) .

Base metals are even likely to find support from the rally in oil prices, "since the principle in economics is simply supply/demand fundamentals," according to Cary Pinkowski, chief executive officer of Vancouver, Canada-based CP Capital Group and director of Centrasia Mining (CTMHF : centrasia mining corp com

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He said 15% to 20% of all mining costs are related to fuel and "costs will move higher for all mining projects, causing the prices to increase here."

"Any [base metal] pullback is an opportunity to buy a stock or negotiate aggressively for a property," said Pinkowski, whose company focuses, in part, on evaluating mining projects.

Nickel charm

That said, nickel's looking good in the long term.

Prices already dropped to about $32,000 per metric ton recently from a peak of around $54,000 per metric ton in May, according to LME data.

"Nickel is getting to look like a bargain now," said James Finch, senior editor at StockInterview.com. "The metal has lost all its gains for 2007 and has retreated to November 2006 levels."

"Nickel bulls capitulated and the nosedive appears likely to reverse over the next few months," he said.

The Chinese haven't stopped using nickel [and] the government may soon nullify its export tax rebate on steel products. If this occurs, stainless-steel pricing could firm and then rebound in the fourth quarter and into 2008," he said. "This would help nickel rebound."

And the "negative sentiment" for nickel has "shifted too far, too fast," Pinkowski said.

He said a rule change on the LME was partly to blame for the decline in nickel prices.

The LME implemented new rules aimed at preventing collusion between dominant players, and there's a threshold at which long positions are required to lend to the rest of the market, he explained.

"The rules are meant to tighten leasing of the metal, forcing hoarders to lend," he said. "This extra supply has seen the warehouse supply almost double in the last six weeks."

But looking further ahead, the world economy's demand for stainless steel will drive nickel demand, he said. And not just in Asia. Pinkowski expects the hybrid car market to grow significantly.

Also, take a look at how much investment bankers have been wrong in the past few years, he said. They are counting on some very large nickel laterite projects coming on stream over the next few years. Laterite is defined as a red soil produced in rock decay.

Those types of projects are "much more expensive and challenging," Pinkowski said. "This perceived supply may not be as great as people think it will be."

Earlier this week, Rosbaltnord.ru reported that Norilsk Nickel (NILSY : jsc mmc norilsk nickel sponsored adr

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NILSY240.00, +12.65, +5.6%) , the world's largest producer of nickel, plans to spend around $1 billion in its facilities in the Kola Peninsula in Russia by the year 2020.

That confirms what Norilsk "may portend for the nickel price," said Finch. "Norilsk and Barrick Gold (ABX : Barrick Gold Corporation

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ABX34.50, +0.22, +0.6%) are both developing projects in Kola."

Zinc promise

Then there's zinc.

Zinc prices trade around $3,500 per metric ton on the London Metal Exchange. That's down from more than $4,500 in December of last year but two years ago, they were trading below $1,500.

"Zinc inventories are at critically low levels now," said Pinkowski.

Back in December, experts pointed out a supply deficit for 2006 as well as a price rise of almost 270% between 2004's spot prices for high-grade zinc and the mid-December 2006 level of around $4,400. See archived Commodities Corner.

'Just three years ago, [zinc] inventories were over 10 times greater than they are today.'

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâہ¡ÃƒÆ’‚ Thomas Winmill, Midas Fund

"Demand for the metal, used to galvanize steel, is growing as world demand is expected to exceed supply this year by 20,000 tons, according to an analyst at Economic Intelligence Unit," said Thomas Winmill, portfolio manager of the Midas Fund (MIDSX : Midas Fund

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In reply to: schwenki on Saturday 21/07/07 08:00am

This commidity bull market is just warming up, next leg up is now playing ............................

Growth of sales to India outpacing China: BHP

24 Aug, 2007, 2233 hrs IST, AGENCIES

 

 

 

MELBOURNE: BHP Billiton, the world's biggest mining company, said growth in sales to India is outpacing gains in China as the southern Asian nation requires more coal and nickel to meet rising demand.

 

BHP is raking in higher sales from India than it did six years ago from China, which now accounts for a fifth of revenue, incoming Chief Executive Officer Marius Kloppers said here. BHP is still looking to invest in bauxite and iron ore projects in India, he said.

 

India's government plans to spend 450 billion dollar by 2012 to build new roads, ports and power stations and accelerate growth to 10 per cent from an average 8.6 per cent in the past four years. BHP said it has as much as 50 billion dollar of projects it could develop to feed rising demand.

 

"Everybody in the industry missed the Chinese growth story, and what BHP is doing now is to set themselves up for the next stage when India could go on the same growth path," said Mark Pervan, a commodity strategist in Melbourne.

 

"They've built the business for Chinese demand, and what they want to do with the $50 billion of projects is to prepare for the new emerging economies like India."

 

BHP's sales to China jumped 47 per cent in the six months ended June to $5.29 billion from a year ago. Its sales to India surged 56 per cent in the same period from a year ago to $1.14 billion, according to figures provided by BHP.

 

China accounted for 20.4 per cent of BHP's sales in the second half, whereas India only contributed to 4.4 per cent of sales, BHP spokeswoman Samantha Evans said.

 

China, the world's largest consumer of metals, will continue to want more metals and iron ore, Kloppers said. India will need energy commodities such as coal, as well as metals, he said.

 

 

 

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In reply to: vind on Saturday 25/08/07 07:35am

THE REALITIES OF THIS SECULAR BULL MARKET IN COMMODITIES ........ BY LAWRENCE ROULSTON...... The big question on everybodyÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s minds at this moment is: Where are we in the commodity cycle?

 

Everybody connected to the mining industry thinks of the industry as always going in cycles of boom and bust. We have now had seven years of boom. For that reason, some people are saying that we have reached the end of this cycle.

 

The issue that is most on the minds of every investor at this moment is the state of the U. S economy. The fear is that the economy will go into recession and that will slow down the whole world, resulting in metal prices plummeting.

 

We have all heard the word recession so often that people believe it is real. The popular press repeatedly reports that someone or other has warned that the economy might go into recession. As a result of that media blitz, 60% of Americans think that their country is presently in a recession.

 

The reality is that the American economy is still growing. No doubt, growth is slower than everybody would like - 2% a year rather than 3% are 4%, like people became accustomed to.

 

But, economic activity in the United States is still expanding and is forecast to continue to expand. The economic forecasters best suited to make predictions continue to project positive growth. Slower, but nonetheless positive growth. One example is the Organization for Economic Cooperation and Development. Their comprehensive projection, published in December, shows U.S. growth this year at 2.0%, down from 2.2% last year.

 

I know, there is an argument that says that the figures are being fudged, and there really isnÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t growth.

 

In terms of metal prices, it doesnÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t really matter whether the U.S. economy expands by a couple of percent or declines by a couple of percent. The rest of the world is continuing to grow. In fact, much of the rest of the world is booming, and is forecast to continue to boom.

 

The OECD report forecasts that growth in China will slow to ONLY 10.8%, slightly less than last year. China is now the fourth largest economy in the world.

 

Some analysts are still naÃÆâ€â„¢ÃƒÆ’ƒâ€Â ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒ¢Ã¢â‚¬Å¾Ã‚¢ÃƒÆ’ƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¯ve enough to believe that the strength in the Chinese economy is based simply on making stuff to export to the United States. Therefore, the projected slowdown in the United States would cause the Chinese economy to crash.

 

Anybody who has spent any time in China will realize how ludicrous that belief really is. The professional forecasters have factored in the slowdown in the American economy and still project the Chinese economy to grow at 10.8% this year. China is by far the worldÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s largest consumer of metals.

 

In a single decade, China has gone from obscurity to become the fourth largest economy in the world. India and most of Southeast Asia are also booming. Three billion people are modernizing at the same time. It will not stop any time soon.

 

There has never been anything like this in history. There is no precedent for the economic forecasters. No pattern to plug into a computer model.

 

Yesterday, Frank Holmes gave a very revealing presentation in which he showed figures for the amount being spent on infrastructure around the world. There are hundreds of billions of dollars being spent on infrastructure. China and India are at the forefront. The rest of Asia is also spending. Oil exporting countries, awash in cash, are building roads and ports and new cities. Russia and parts of Latin America are booming. (See the presentation: Infrastructure: A Global Opportunity at www.usfunds.com )

 

So far, we have just seen the first wave ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ the build up of infrastructure. That process is continuing, perhaps even accelerating. Added on top of the infrastructure wave is the beginning of a second wave ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ hundreds of millions of wealthy consumers who are just beginning the life-long process of accumulating material possessions.

 

Demand for metals is rising steadily as more and more of the world enters the modern era. The rise in metal demand is likely to accelerate as growth in infrastructure continues and at the same time the number of consumers in the world is soaring.

 

Rising demand for metals over the past few years has pushed the metal prices higher by multiples ranging from three times to more than 10 times their levels at the start of this decade.

 

Economic theory would hold that higher metal prices would lead to reduced demand. The reality is that every pound of metal that the mining industry can deliver is being consumed.

 

Now, letÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s look at what is happening on the supply side of the mining industry. Economic theory holds that higher prices will lead to investment by the industry and that will increase production. In previous cycles, that is exactly what happened.

 

Reality shows that economic theory is half right in this cycle. Mining companies have invested enormous amounts ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ tens of billions of dollars. Yet, production has barely increased.

 

Looking closely at what has actually happened in the industry, it is clear why production is flat. Almost all of the new investment has been directed to buying existing production.

 

Companies have grown their production capacity by buying other companies. Noranda was bought by Falconbridge, which was then bought by Xstrata. Inco was bought by CVRD. Alcan was bought by Rio Tinto. BHP is now trying to buy Rio Tinto. CVRD is now trying to buy Xstrata. And on and on throughout the mining industry.

 

Those corporate takeovers donÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t create even a single new pound of production capacity. Investment in new mines has barely offset depletion ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ that is, older mines are running out of ore and are being shut down.

 

LetÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s look at copper as an example. In 2000, the mining industry produced 15 million tonnes of copper metal. Last year, the industry produced 16 million tonnes of copper. While world economic activity was growing at 4-5% a year, production capacity grew by barely 1% a year. It is not surprising that the price of copper increased more than five-fold.

 

Part of the reason that the mining industry chose to buy existing mines rather than developing new ones is that they had little choice. During the down part of the metal cycle, there was little effort devoted to exploration and development. When prices began to move up, there was little in the development pipeline. In order to grow production, mining companies had to buy other mining companies.

 

For decades, geologists have been scouring every part of the earthÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s surface. The big, high-grade metal deposits that were sticking out of the ground were found, and over the years were developed, and in many cases have now been mined out. For example, in the 1980ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s, the Chilean copper belt was developed. The largest and some of highest grade copper deposits in the world were developed one after another. Not surprisingly, the copper price fell. In 2000, it reached $0.60 a pound, the lowest price, in real terms, ever.

 

Today, there is no Chilean copper belt waiting to be developed, or a comparable belt for the other metals. The deposits now under consideration are lower grade, more remote, deeper and in general more difficult than mines that operated in the past. There is also a great deal more political uncertainty, putting many areas of the world off limits.

 

Several years into this cycle, there are projects ready to go into development. Yet, the industry is still not doing much to develop new mines. The reason is that there is still an unrealistic view of the future.

 

The bankers and bean counters and analysts have adopted an entirely unrealistic view of the future of the metal industry. That view has stopped most projects from going ahead.

 

For example, in forecasting prices, analysts take the average metal prices over the past couple of decades and project that average a couple of decades into the future.

 

There are a couple of fundamental fallacies in that approach. First, the figures are all measured in simple U.S. dollar terms. Yet, the value of the dollar has greatly depreciated over the past couple of decades. It is down roughly 40% against the Euro in the past five years, for example. Even if an average price from the 1980s and 1990s made sense, which it does not, at the very least, it would have to be adjusted for the declining value of dollar.

 

As I noted a moment ago, the low hanging fruit has been picked by the mining industry. The easy to develop and the cheap to operate deposits are gone. The financial world must come to grips with the concept that cost, and therefore metal prices, have shifted upwards in a fundamental and long term way.

 

In evaluating development projects, revenue is based on long term average metal prices projected 20 years into the future. Yet, capital and operating cost estimates take into account todayÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s prices. There is a fundamental mismatch between costs and revenue and that is extremely detrimental to the viability of projects.

 

Are all of those analysts really so far off base? The short answer is yes.

 

Here is one example. Over the past few years, the mining industry has sold metal forward. That is, they have shorted their own products ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ in a way that has cost shareholders billions and billions of dollars of lost profits.

 

If those analysts canÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t get the price forecasts right for the next 6 or 12 months, how can we rely on them to forecast for 20 years into the future.Another example: CanadaÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s nickel industry was sold off a couple of years back based on projections of nickel at $8.00 a pound. The Swiss company Xstrata and the Brazilian company CVRD are still laughing at the Bay Street bozos who evaluated those deals for the Canadian companies.

The objective of all this economic analysis is simply to get a sense of whether demand for metals will continue to increase at a faster pace than the supply of metals. That is clearly the case. IÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢m not suggesting for a moment that metal prices will go higher from the present levels. I just donÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t know.

 

But, what I can tell you with certainty is that metal prices will remain well above long term trends for many, many years, or more likely, forever. Certainly long enough for investors to make huge gains off the small companies that hold the deposits that represent the future of the mining industry.

 

Furthermore, the mining industry has a critical need for new metal deposits that can be developed into mines. Just to maintain the present production levels, the mining industry needs new mines each and every year. The junior companies that are finding and developing those deposits represent outstanding investment opportunities.

 

At some time, there will have to be a realization that the long term forecasts for metal prices donÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t make any sense.

 

The first thing that will happen is that companies with existing production will get an immediate re-rating.

 

Secondly, development projects will be re-evaluated. Companies that hold large, advanced stage metal deposits could see their values multiply.

 

In time, the gains should be reflected throughout the exploration and development sector for companies that have credible management teams and realistic prospects of finding and developing new metal deposits.

 

This period of uncertainty represents a buying opportunity in a long term bull market for metals.

 

To read further articles from Lawrence Roulston, and to find out how you can be exposed to the legendary 10 Bagger potential Resource Opportunities frequently provides, CLICK HERE.

 

*****

 

Cheers ....

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