barrick offer c$8.15, page-27

I rate Rio a chance (20% chance) dj... Xstrata/Glencore 40% chance of making bid. I just it was Rio to maintain shares in a quality copper company lkisted on the ASX. Barrick can see the writing on the wall for copper.

My thoughts dj, revolve around....

There are no new/planned large scale mines (>200kT per year)with real cash costs much under $2/lb? Equinox is projected for 2011 to have a C1 cash cost of around $1.40/lb. As the scale of production increases in Zambia and Saudi the cash costs per lb for these assets will stabilise and most likely drop, especially as the higher % Cu from Saudi.

The best mines of scale on the drawing boards have around the $1.50-1.70/lb mark cash costs. New mine capital cost inflation is running at about 10-15%/year.

The rally in copper is not short term, at least a 2 decade process as China (currently consuming about 12% per head compared to the US per head) and India and other BRIC countries stream into the first world and the first world switches from energy delivered in liquid and gas form to across a copper cable, from copper wrapped generators to copper wrapped engines.

The older mines (C1 elephants) for example Escondida are facing increased costs (bottlenecks, political imposts) moving up to probably around $1.10/lb this year (my figure projected, maybe more given the drop in US dollar), and becoming more difficult to expand production without incurring higher costs. Production has dropped the last few years. Most of the older elephants are facing a similar scenario.

There is no rush, but large companies/countries do see it as important to strategically acquire long life large output copper assets that are able to satisfy the economics of today. The opportunity to buy at this level happens abot once every 5years.

Rio will not be ignoring the move, but it may not fit their profile as well as say Xstrata.