spp, page-20

Hi Woodgnome. We're all worried about PNA surviving, how about us surviving in this heat!

I'm not suggesting we're due for an imminent stock market recovery. But what I do know is the mood of the market has without doubt improved. For example, the jobs data coming out of the US on Friday would have lead to a 500 pt sell off late last year. Yesterday, it actually lead to a rally. Therefore, the market is seeing the glass as half full and starting to look ahead to what could be hopes of a recovery. What I would agree with is that it's very early to be calling when the recovery will come. But the fact that the punters feel like it's a chance of coming (and the world is not going to end) is a good sign in itself.

The employment numbers, while very public, are not all that relevant for us here and now. They are a lagging economic indicator and only tell us how bad things were last month, not this month. I suggest that we didn't need a set of numbers to tell us how bad this were in the last quarter of 2008. In the midst of a crash, the market will be driven by lagging indicators. When there are signs of an improvement in sentiment, they are often not given so much weight. I just have a feeling that we're getting to that stage now.

You can bet that the POC will remain volatile for some time. But my view is that the fundamentals of the copper market didn't justify a price of below 1.30. The mass liquidation of any asset at any price to get cash, in my view, knocked it down too low. If you had any doubt where the POC is heading (i.e. up or down), you'd surly look to the drivers of the market, the Chinese. And guess what, they're starting to buy up at these low levels. There are a number of factors that none of us are aware of which drive the markets - but that's a fair sign for me that better (albeit only slightly better in the short term) times are ahead. Bring in the Obama package and other similar infrastructure spending around the world and you have a good environment for prices to move higher after being oversold.

Why is 1.30 for copper a significant price. The 0.90 being discussed is a cash cost, not a total cost of production. You can probably add another 0.30 to whatever their cash cost is to get their total cost (including interest). This figure doesn't include the repayment of principle on loans (of which PNA has to repay $30m p.a). So I'd think that the actual POC they need to sustain some exploration, repay interest and debt obligations and run the administration side of the business would be closer to 1.40 than 1.30. This is clearly just estimates based on my basic modeling, so don't take it too seriously. But I don't think too many copper producers would survive at prices between 1.10-1.30 for an extended period.

The other thing to consider is how important copper is for world growth. The Chinese rely so much on copper that they don't want too many producers to go bust, because can you imagine what the price will go to when the world economy does recover? There will simply not be enough copper production around to sustain demand. This wouldn't be a good result for many countries (imagine how much it would cost the Chinese and Indians to build a new city if copper was $6 - you might laugh, but it could happen in 5 yrs if most of the world producers go bust and there is no finance to search for and develop new mines). Probably another reason why the Chinese and others are buying. They're looking past 2009!!

Sorry for the essay, hope this makes sense. Again, just an opinion. Time will tell what actually happens.