Copper Remains a Buy for Speculators

Speculative buying of commodities, including copper, may continue to gain traction as prices are pegged to rise amid a steady rebound in the global economy, especially in the United States. Although Europe’s financial outlook remains on shaky ground, geopolitical risks in Iran and across the Middle East are pushing up energy costs, and China’s economy is showing signs of slowing down, demand for the red metal is expected to remain steady.

According to Barclays Capital’s annual survey of institutional investors, copper ranks in third place as one of the so-called best performers in the commodities market. Crude oil came in first place with 22 percent of the votes, while gold secured 16 percent of the ballot, followed by copper with 13 percent.  More broadly, 56 percent of those surveyed are expecting to increase their commodity exposure over the next three years, compared to 45 percent a year ago.

“Despite the unprecedented events of the past four years, the reasons for investing in commodities and the long-term rationale have remained consistent over time. This is a strong vote of confidence in commodity assets,” said Kevin Norrish, Managing Director for Barclays Capital commodities research.

However, some copper traders are worried that supply is outstripping demand. Global copper production exceeded demand by 69,100 metric tons last year, according to the World Bureau of Metal Statistics (WBMS). That compares to a shortage of 175,000 metric tons in 2010. Yet even as China’s output of the red metal rose by 623.4 kilotons in 2011, production in Chile fell by 167 kilotons to 3,077 kilotons, and Japanese production fell by 221 kilotons, the WBMS reported. As for global appetite for the red metal, consumption worldwide rose to 19,509 kilotons in 2011 compared to 19,365 kilotons a year ago.

Clearly miners both large and small are not shying away from increasing copper production.

Company news

Ivanhoe Mines (NYSE:IVN) reported this week that its Oyu Tolgoi copper and gold mine in Mongolia is on track to begin production by the third quarter of this year.

“After achieving the scheduled milestones of the production of first ore and the production of the first copper, gold and silver concentrate this year, Oyu Tolgoi will ramp up to reach commercial production during the first half of next year,” CEO Robert Friedland said.

Similarly, over the next few years industry giant Freeport-McMoRan (NYSE:FCX) expects to increase copper output by 25 percent worldwide, or roughly one billion pounds per year, according to CEO Kathleen Quirk.

Speaking at the BMO Capital Markets Global Metals & Mining Conference in Hollywood, Florida this week, Quirk acknowledged that it is not easy to find new copper mines to tap into.

“It’s very, very rare to find a new copper deposit,” she said. “There’s been a lot of incentive in our industry to develop new supplies… but even though there are economic incentives to do it, it’s getting more and more challenging to find and develop new sources of copper.”

Junior mining news

Hunger for new copper sources may be precisely the incentive that junior miners are thirsting for, and there is no shortage of companies stepping up to explore and mine for the red metal. Toronto-based Thundermin Resources (OTC Pink:TUDMF) and joint venture partner Cornerstone Capital Resources (TSXV:CGP) said they have intersected 2.8 percent copper over a core length of 18.2 m in an initial diamond drilling program on their Whalesback copper mine, which was in production from 1965 to 1972.

As for Vancouver’s Cadan Resources (TSXV:CXD) and Mining Group, they reported favorable drilling results from their Tagpura and Maangob copper and gold mines in the Comval properties of the Philippines. Mining Group holds an 80 percent interest in Philco Mining, which holds the exploration permits on the Comval properties. Cadan, meanwhile, retains a 20 percent stake in Philco Mining, as well as a seven percent stake in Mining Group. According to Cadan Resources, the properties have a “conceptual or order of magnitude” potential tonnage range between 1 and 1.7 billion tonnes.

Meanwhile, Teuton Resources (TSXV:TUO) optioned its Tennyson gold and copper property in British Columbia to a private company within the Hunter Dickinson group for $7.5 million. Under the deal, Teuton will vend 100 percent of the Tennyson project in exchange for shares equating to $7 million, and a cash payment of $500,000 when the new company lists on TSX-V.

Securities Disclosure: I, Shihoko Goto, hold no direct investment interest in any company mentioned in this article.