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China’s lukewarm economic growth may have been enough to keep investor hopes up in recent weeks, but it seems that the most recent news has finally impacted copper. Despite recent indications that China’s economy will soon be greater than that of the United states, Reuters reported today that Chinese data was weak again, as the nation’s purchasing manager’s index increased only barely from 50.3 in March to 50.4 for April.
In response to expectations for less than substantial growth in China, the red metal has fallen overall this week, and continued its decline today as copper for July delivery fell 0.2 percent to $3.215 a pound today on the Comex division of the New York Mercantile Exchange, according to the Wall Street Journal. This follows a 0.8 percent drop for copper futures yesterday on the Comex.
Copper on the London Metal Exchange tumbled slightly as well, coming in at $6,662 on Wednesday, according to Reuters.
The Financial Times reported yesterday that, according to recent figures prepared by the International Comparison Program hosted by the World Bank, the US economy could slip behind China’s this year. The estimates used a new method that takes purchasing power parity into account, bringing the estimated date at which China would surpass the United States back from 2019, and suggesting that the GDP for China was 87 percent of that of the US three years ago.
So what does it mean for Dr. Copper if the soon-to-be largest economy in the world isn’t growing as quickly as everyone would like? As Beijing CITIC Securities economist Sun Wencun told Reuters, “[t]he economy is showing slight improvements due to recent policy measures but there is no sign of a bottoming out, and the trend of slowdown is continuing as the sluggish property market weighs on related industries.”
The PMI figures showed a slight pick up, but Zhiwei Zhang China economist at Nomura also told Reuters, “[w]e do not believe the economy has passed a turning point,” meaning that a marked increase in copper demand does not look certain any time soon.
Not so bad?
Still, Standard Bank commodities strategist Leon Westgate told the Wall Street Journal, “[t]he Chinese data wasn’t great, but neither was it terrible. It looks like copper is going to dig in its heels around these levels.”
Indeed, according to the Journal, some investors and analysts remain confident that copper prices will be supported by high production costs, and continue to bet on a support price of between $2.80 and $3 a pound, a level which has held in past years. That price marks a boundary at which copper production would become not economically viable for many miners, forcing a correction of the global surplus via mine closures and operational reductions.
Forward motion
Rio Tinto (NYSE:RIO) still plans to move ahead with its Oyu Tolgoi project in Mongolia once it completes negotiations with the Mongolian government, as the UK Telegraph reported. The talks are expected to conclude in September, and began last year on government concerns that cost-over-runs would prevent Mongolia from collecting its share of profits from the Turquoise hill project.
Kincora Copper (TSXV:KCC) also expects to resolve an issue with the Mongolian government soon, in its case, regarding an issue surrounding the revocation of 106 mineral exploration licenses in November of last year, including those held by Kincora.
Mongolia’s change of heart following the tightening of its mining restrictions last year is telling in light of the copper glut. The Telegraph states that Rio Tinto’s mine alone could account for 20 to 30 percent of Mongolia’s economy, suggesting that there is a significant level of economic dependence on copper exports and copper mining for some countries despite lower prices for the metal.
Company News
Southern Copper (NYSE:SCCO) released its first quarter results, and reported losses in sales and net income for the first three months of 2014. Driving the decrease in sales was a lower price for the red metal, leading to an 11.8 percent drop from the previous quarter, and a decrease of 20.4 percent for Southern Copper’s net income. However, the miner reported increased copper mine production for Q1 of 2014, reporting a rise of 9.2 percent or 13,683 tonnes in a year-over-year comparison.
Blackthorn Resources Limited (ASX:BTR) announced results from its optimized prefeasibility study for its Zambia Kitumba copper project. Highlights included a projected life of mine of 11 years with an internal rate of return of 21 percent. Overall, results from the study have significantly boosted the development potential of the Kitumba Copper property as a major project, and Blackthorn will now move forward with a definitive feasibility study to further improve project economics at Kitumba.
Aston Bay Holdings Ltd. (TSXV:BAY) announced Monday that it plans to conduct a non-brokered private placement amounting to as much as $300,000. The placement will consist of roughly 400,000 flow-through units at $0.25 each and up to a million non-flow-through units at $0.20 per NFT unit.
VMS Ventures Inc.’s (TSXV:VMS) Reed Mine in Manitoba has achieved commercial production. VMS announced that the project was completed ahead of guidance and under budget, and the company expects to advance cash flow as the sale of copper and zinc concentrates to begin to pay back VMS’s project loan. Reed Mine averaged 60 percent of full production tonnage over the past 90 days, and 27,407 tonnes of ore were mined in the month of March.
Securities Disclosure: I, Teresa Matich, hold no investment interest in any companies mentioned.