Just received a "view of things": CopperThere’s nohiding from...

Just received a "view of things":

Copper

There’s nohiding from this copper rally, perhaps its gotten ahead of itself, butfundamentally, prices are still well below reinvestment levels. To get an IRRon a copper asset of 15% unlevered, which is what you need to justify theexpense and risk, then copper price needs to be north of $11,000/t. Then if itsbrownfield, it’ll take about 4yrs to come on stream (if on time but no minercan deliver on time at the moment), or 15-20yrs for greenfield.

Yesterday’scopper rally appears to have been prompted by Ivanhoe update showing that itfell well short of volume expectations. Q1 production came in at 86kt about 16% belowconsensus. So that’s another incremental bit of under supply in what is a tightmarket. The company did re-iterate full year guidance of 440-490kt but one hasto question that.

The issuehere is that the miss is attributed to power issues that effect the wholeregion, this is due to drought conditions constraining hydro power. Flagged grid instability as an issue in the Congo. Zambiaproduces c. 900ktpa of copper and the DRC produces about 2.5mtpa of copper.So if the whole region is suffering similarly, it’s a yet another big chunk ofcopper supply that’s set to drop out of supply demand balances. In the meantime demand is rising and a deficit this year is already expected…..

• In summary we’re in one of those fun commodity phases for copper where companies failing to deliver creates a lot of value….There will be more of these.

Goldman Sachs: It's the time for copper. Reiterates price targets.