extract from...Barry Fitzgeraldby:Barry FitzgeraldFrom:The...

extract from...

Barry Fitzgerald

by:Barry Fitzgerald
From:The Australian
March 05, 201312:00AM


Copper stocks and Mandarin videos

THE copper space has become interesting in the last month or so as well. Junior and mid-tier copper stocks have plunged in response to nervousness about the future direction of the red metal.

But as mentioned last week, copper is the pick of the bunch on the price expectation front amongst the analysts. While iron ore is broadly expected to fall between 20-50 per cent by year end, the expected price retreat for copper is much more subdued. As it is, copper has weakened in recent days to $US3.48 a pound. But it is not the end of the earth, as some of the share price treatments out there might suggest.

At its current level, copper is all of 3.6 per cent down on its average for calendar 2012. So the feeling is that unlike the iron ore stocks, the wall of selling seen in the copper stocks is probably overdone.

The only ones celebrating the current situation would be end-users in China and India where the electrification of the world's most populous nations has only just begun. Securing long-term supplies is still very much on their radar. All the better then that the western world is treating junior to mid-tier developers of copper as if they were trash.

Rex Minerals (ASX: RXM) is a case in point. It is down by 22 per cent in the last two weeks against that 3.6 per cent fall in copper. It has now got an enterprise value of about $50m, which is arrived at after deducting its $45m in cash from its market value yesterday of $95m. It is a wonder that OZ Minerals doesn't take it over for the fun of it if nothing else.

We say OZ because it is cashed up and, like Rex, has South Australia as its focus. But as low as Rex has gone, there has been little to no chatter about the potential of a bid from OZ. Chinese interest in Rex is another thing though. And so it is noted with interest that there is a new video on the Rex site selling its wares. It's in Mandarin (http://goo.gl/ZIXrA).

Rex's pitch to the Chinese comes as its Hillside copper project (70,000 tonnes a year, or 110,000 tonnes on a copper equivalent basis after counting in gold and magnetite) is all dressed up and ready to go but for the sake of the required $900m in capital expenditure. It is as tough as anyone can remember out there for a junior to raise that sort of funding, which explains much of the share price pressure for Rex.

But for those prepared to take a Chinese sort of perspective by looking beyond the current squeeze on equity and debt financing for new projects in the care of juniors like Rex, it could be a time of time of happy pickings.

As an aside, which really isn't one, it is worth noting that most of what OZ once owned is now

owned by China's state-owned MMG following OZ's drastic restructuring and refinancing in the wake of the September 2008 start to the GFC. Also, it was following the GFC that PanAust became 20 per cent owned by China's state-owned GRAM, a group that has proved long-term term and supportive. It's been happy pickings for the Chinese in the OZ and PanAust cases.

http://www.theaustralian.com.au/business/opinion/storm-warning-extra-production-no-guarantee-against-price-plunge/story-fnciil7d-1226590289940