Thanks H.Last year about this time, I wrote the below post about...

Thanks H.

Last year about this time, I wrote the below post about larger companies wanting to boost their production profile whilst copper prices are (relatively) high. While copper prices are still historically high but equity prices very depressed, it is an excellent time for M&A. And whilst it is all very well and good for large companies to buy green and brownfields projects, that does nothing to capitalise on selling copper NOW. And new copper production, and independent copper projects and companies, are few and far between...

HGO do not wish to attract interest at this time - they will want to get into production, get cashflow positive, upgrade their reserves and demonstrate they have some value at Bird's Head and Sumba first. But that is what HGO want, not want other players may want for them... HGO has been tightly controlled and shorted for some time.

17/8/2010:

"I won't bog on about OZL's interest or lack thereof in HGO. But what is interesting is when you have a look at OZL, and where their growth is going to come from, it highlights the problem of long mine development time, and short commodity cycles.

OZL's Prominent Hill has a current mine life of 8 years. They are looking for extensions to that mine life of course. And they have recently invested in SFR. Now mine development these days is slow. Often closer to 10 years than 7 from wo to go. So, when OZL takes an interest in SFR, it will increase their potential for extra reserves, but will not affect their production profile for a long time. Even if OZL did end up taking over SFR (they may not), De Grussa would not start producing copper for another 5-7 years... So, just before Prominent Hill's current mine life is getting toward an end is when De Grussa would likely start producing. Maybe.

So, OZL's production profile, without acquisitions of producing assets, will remain flattish for the foreseeable future. (Excluding whatever organic growth they can squeeze out of PH).

So you can see the problem. By the time you identify that you are in a bull copper market, it is too late to find and get new copper discoveries to that market. You really need to be looking for and developing the copper assets during a bear market (when no one is interested), in order to meet the copper market when it turns bullish.

Kanmantoo may have taken a long time (and is still taking a long time). But it will get its copper to market soonish, during the current bull market. In Australia, there just aren't other near-term independent copper producers coming on line. So HGO is very well placed to meet the market.


And as for OZL. Yes, I understand their strategic goals - find assets producing, or capable or producing, 50-000-150,000tpa of Cu, preferably at low cash costs. Preferred region is Australia and South-East Asia. Know any of these? No, me either (well, not many that are 'available' anyway). They don't grow on trees. Ones that are producing (so will add to your production profile in the next 5-7 years) are even thinner on the ground. And, OZL is not the only player seeking extra copper production and extra copper resources.


So, there we have it. The Catch-22 of finding and selling copper in today's market. The cycles can be short, and finding the low-hanging fruit is hard. And by the time you realise it is a bull market, is is almost too late to start looking for it. You sometimes need to buy producing or near-term assets from those who were buying or developing it before you were.

Yaq"