copper price serves as red rag to a tiger

Copper price serves as red rag to a Tiger

Barry Fitzgerald
February 21, 2011

Every man and his dog is predicting that the copper market will be in (supply) deficit this year. So for the time being at least, the red metal is what you might call scarce, giving it a "store of value" hue usually reserved for gold.

It's no wonder then that the price marched to record levels this month of $US4.63 a pound. It's come off a little since, settling back at $US4.47 on Friday.

So there has never been a better time to be a copper producer. As luck would have it, ASX-listed Tiger Resources (ASX:TGS) is but a couple of months off becoming a producer from its Kipoi project in the Democratic Republic of Congo.

Now the DRC is not everyone's first choice as an investment destination. But it is fast recapturing its past status as a big copper producer, and unlike much of Africa, it has got a fair dinkum democratically elected government.

Kipoi's economics are proving hard to ignore in the lead-up to first production in April, as reflected in the run up in Tiger's share price from 25 cents five months ago to 53.5 cents on Friday.

Tiger has not updated the economic indicators on Kipoi since November. Back then it said that after capital expenditure of $31.5 million and assuming a copper price of $US3.50 a pound, Kipoi would pay back its capital inside four months.

With copper at near-on $US4.50 a pound, payback will be shorter still. That means that over the expected three-year life of "stage 1" mining at Kipoi (three years at 35,000 tonnes of contained copper annually from material grading a magical 7 per cent copper), Tiger is going to pull in one big chunk of cash.

The free cash will support the push for a much longer mining life from a solvent extraction and electrowinning (SX-EW) operation that brings in to play the rest of the (lower grade) resource that Tiger is outlining at Kipoi and its Sase prospect.

Tiger's story in the DRC is very similar to that of Anvil Mining (ASX:AVM), now a $1 billion company. Anvil has been a DRC copper producer since 2002 and is now spending $US400 million on its Kinsevere project, a 60,000 tonne-a-year SX-EW operation.

Interesting thing is that both companies have the commodities trader Trafigura as their major shareholder. In Tiger, Trafigura holds 28 per cent (fully diluted) and in Anvil, it sits at 35 per cent.

There have been whispers that it would make sense to bring Tiger and Anvil together. No action to report on that front just yet, but it could be a space worth watching as Tiger gets in to production and as Anvil beds down the Kinsevere projects.