BHP Billiton sets its sights on copper after assessment of bull market
BHP Billiton has been wining and dining analysts on a tour of its copper assets, telling them that it expects to be producing an additional 350,000 tonnes of the red metal from 2015.
Olympic Dam in South Australia is not part of BHP's copper expansion plans for the simple reason that its $30 billion price tag is too expensive, even for the likes of BHP.
But expanding in copper BHP is, with the additional output to come fromthe South American and US mines in its portfolio.
The big copper push by BHP is backed by its bullish assessment of where the copper market is going. Others share its bullish assessment, as has been reflected in copper withstanding all of the global economic challenges that have made other commodities go weak at the knees. It is trading at $US3.75 a pound, which is as good as the producers can hope for when (on average) their cash costs of production come in at about $US1.60 a pound.
BHP -- and the broader market -- expects present global output of 15 million tonnes will continue to decline because of depletion of resources and lower ore grades.
Throw in some resource nationalisation, environmental constraints and operating cost escalation, and it is clear there has to be some big-time investment in new mines and expansions of existing operations with the supporting reserve base. Why, even Olympic Damwill have its day in the sun.
Marengo Mining
ALL of that is good news for Marengo Mining, which has been plugging away at its Yandera copper-gold-molybdenumproject in Papua New Guinea since 2005.
Its lowly share price of 10.5c does not reflect it yet, but things are about to come together very quickly for Marengo and its shareholders after seven years of grinding work.
A feasibility study into a $2bn development that would produce 80,000 tonnes of copper (in concentrates) and handy gold and moly credits is due this month.
It is expected to confirm robust economics, with cash costs of production of about $US1.50 a pound after gold and moly credits.
A six-year payback of capital for a project that has a resource base good for more than 20 years of operation gives a hint as to why billionaire financier George Soros has been attracted to Yandera. He has a 16 per cent stake.
While confirmation of robust economics in the feasibility study will be all well and good, the real action for Marengo comes in December when its funding solution is expected.
Chinese state-owned construction, smelting and mining group China Nonferrous comes back in December with its engineering, procurement and construction agreement under which it will tap Chinese funding sources for 70 per cent of Yandera's capital cost in return for a supply agreement covering 60 per cent of its production. Naturally enough, there are plenty of doubting Thomases out there that the Chinese willstep up to the plate.
They should remember that the Chinese are seriously short of copper units.
And they don't like being overly reliant on the likes of BHP and Chile's Codelco to fill their copper smelters.
A similar situation exists in iron ore (BHP, Rio Tinto and Brazil's Vale), which is why the Chinese have been busy building their own mines here and in Africa, as well as encouraging others to invest to break the grip of the big three.
Once the EPC arrangement with China Nonferrous is in place, things will happen in a rush at Yandera, with first production forecast for 2015.
All that at a time when competing projects in the region are falling over left, right and centre in recent months.
What all that means for Marengo's share price remains to be seen. Canada's ParadigmCapital has had a stab, setting a 12-month target of 50c a share.
THE AUSTRALIAN
MGO Price at posting:
10.0¢ Sentiment: LT Buy Disclosure: Not Held
