Goldman Fraud Charge Hits Copper Prices

- April 20th, 2010

As news over impending fraud charges against leading commodities player Goldman Sachs hit the market last Friday, copper witnessed considerable downside. Risk averse investors jumped from their positions, sending copper plummeting to a three month low.

By Leia Michele Toovey- Exclusive to Copper Investing News

Copper As news over impending fraud charges against leading commodities player Goldman Sachs (NYSE:GS) hit the market last Friday, copper witnessed considerable downside. Risk averse investors jumped from their positions, sending copper plummeting to a three month low. Copper for three months delivery on the London Metal Exchange touched a session low of $7,610.25.

On Tuesday, copper was in positive territory, back peddling from the losses suffered on Friday and Monday. Three-month copper on the London Metal Exchange CMCU3 rose to $7,745 per tonne. Copper for May delivery on the COMEX was up 4.55 cents, or 1.3 percent, at $3.54 per lb by 10:10 a.m. EST

Copper’s rebound was fueled by realization that the SEC regulators had mixed opinions over the Goldman accusations. The copper market was met with other positive fundamentals including short covering, and a declining greenback.  The US dollar decline relative to the Euro after German ZEW institute’s April economic sentiment index came in strongly above forecast

Hiding behind the Goldman front, negative data is still weighing down copper. The demand picture in China is still uncertain, and the recent government moves show a further crack down on inflation. In an attempt to prevent a real estate bubble, China ordered developers not to take deposits for sales of uncompleted apartments without proper approval and barred them from charging “abnormally high” prices.

Both India and Australia, the first a strong consumer, and the second an important producer, are taking steps to prevent inflation.  India’s central bank raised interest rates for the second time in a month and ordered lenders to set aside more cash as reserves, seeking to slow the highest inflation rate among Group-of-20 nations. Concern that Australia’s mining boom will stoke inflation was a key reason the central bank raised borrowing costs toward “more normal levels” two weeks ago, and indicated that if necessary, the government will take further moves.

London Metal Exchange metal stocks fell by 350 tonnes to 507,525 tonnes on Tuesday. COMEX copper stocks were unchanged at 101,128 short tonnes as of Monday.

Company News

Copper producer Quadra Mining (TSX: QUA) said Tuesday it has agreed to buy FNX Mining Co. (TSX: FNX) in an all-stock deal worth $1.6 billion. The combination of the two companies will create a $3.5-billion, mid-tier base metals miner with assets in Canada, the United States and Chile. The deal will give Quadra access to FNX’s copper-nickel assets in the mineral-rich region of Sudbury, Ont. It also allows Quadra, an open-pit miner, to gain from FNX’s expertise in underground mining. In the merger of the two mining equals, FNX shareholders will receive 0.87 Quadra shares for each of their shares. Quadra shareholders will own about 52 percent of the new company, while the rest will be owned by shareholders of FNX.”The merger of Quadra and FNX is a springboard transaction that creates a leading intermediate copper producer,” said  CEO Blythe.  The new company will have a market capitalization of $3.5 billion and about $580 million in cash.

Analysts are predicting that Grupo Mexico (GIMMEX), the nation’s largest copper miner, will report a significant earnings increase in their upcoming Q1 results. Grupo Mexico will show benefits from its acquisition of Arizona’s Asarco, as well as the recovery of copper prices. Analysts estimate the company’s first-quarter net profit at $383 million, about 20 times year-earlier earnings of $19 million. Grupo Mexico won back control of Asarco in December, pulling the US copper miner out of bankruptcy by winning a drawn-out court battle and outbidding India’s Sterlite Asarco is now suing Sterlite for backing out of a $2.6 billion deal to end the bankruptcy in 2008.

The copper market is anticipating another earnings report, this time from  Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), the world’s largest publicly traded copper company.  The company will release its Q1 earnings before market opening on Wednesday. Analysts will look for cues that the slow recovery in the US economy is translating into improving demand for copper in key markets, such as housing and commercial construction.

Lundin Mining Corporation (TSX:LUN) is bracing itself for strikes at its Neves-Corvo copper and zinc mine in western Portugal and Spain.  The company received notice from the union representing Neves-Corvo employees that they plan a total stoppage of work from May 5, 2010 to May 12, 2010.  Management has yet to indicate how they will mediate the situation, however, they released a statement that they would “continue to focus on ensuring the long-term competitiveness of the mine and its position as a major contributor to the regional and national economy.”

With help from Assistant Editor Vivien Diniz

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