cheerful prognosis

Peter Campbell: Cheerful Prognosis for Dr. Copper
Source: The Gold Report 11/8/2009

Even if emerging economies' demands for copper were to falter, Jennings Capital Inc. Mining Research Analyst Peter Campbell sees plenty of polish on copper ahead. One big reason: Even a gradual climb out of recession will prompt North American and European manufacturers to replenish inventories as they begin restoring production to pre-crash levels. As for the copper companies themselves, he tells The Gold Report that some of the best bets lie with emerging producers that are prepared to augment diminishing supplies with new finds. Peter has his sights set on iron ore, nickel, aluminum and other base metals, too, but he calls copper "the best and clearest way by far" of participating in the evolving economic story.

TGR: If an investor is just getting into base metals, which would you suggest they consider?

PC: The clear winner in this case is copper. Copper has been known colloquially as the base metal with the PhD in economics. If you believe that we are going to have a sustained, albeit gradual, economic recovery, the best way to participate is with copper. I think that's the best bet for the entire commodity space going forward. It's also a very liquid, transparent and well-understood market with a large number of players.

Another metal you could potentially play, which I personally like a lot, is iron ore. But iron ore is controlled by three very large producers and sometimes it can be hard to find smaller stories that can really win at the iron ore game. They tend to get overwhelmed by these three large producers and are frequently overlooked. The iron ore market is also not nearly as transparent as the copper market.

TGR: Last March, Robert Friedland, the CEO of Ivanhoe Mines Ltd. (TSX:IVN) (NYSE:IVN), told investors at a conference to buy as much copper as they could. He basically said buy it, hold it, and you'll be able to retire on the appreciation of copper. How high can copper go?

PC: That's anybody's guess, of course. There was a time when $2 copper was unthinkable. Even $1 copper was a bit of a stretch back in the days when copper was 60, 70, 80, 90 cents. So we have to think much longer term here and understand that copper is an essential commodity for any developing economy. It's very supportive in many sectors, including home building, industrial production, automobiles, manufacturing, power generation and distribution. Economic activity is dependent upon copper, so it's an essential element of economic growth. Therefore, I'd have to agree that copper is the best way to play long-term economic growth too.

How much higher could it go? I think we've established in this last six or eight months that a new floor price for copper is more or less in the $2 range. I can pretty much tell you that it won't go too much below that. On the upside, copper briefly traded at $4 a pound in the last up-cycle. It would not be unreasonable to get there again.

If my inclination is right regarding the copper supplies versus copper demand, we could very easily have new peaks in copper pricing, just based on the simple fact that there's not enough new copper supply which could create a price shock to the upside.

TGR: Do you have some companies you're looking at that are bringing up new supply?

PC: I do...................(continued)

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