Interestingly, the Fin Review today had an article where...

Interestingly, the Fin Review today had an article where Macquarie were suggesting commodity prices could fall in 2009 'another 50%'. They were suggesting prices of (US) Cu: $1-1.20/lb; Fe: $30/t and oil: $30/b and had SP targets (assuming such prices) of BHP $15 and RIO $30.

Assuming for a moment that these analysts aren't smoking crack (perhaps a silly assumption!) that should mean the AuD falls further - perhaps to 45-50c US. Copper at $1.20 US would only be marginally profitable for OZL unless (as Ken Galbraith argues) the costs of mining are mainly denominated in aussie dollars. I'm not so sure - obviously wages are but I don't even know how much of the PH and Golden grove costs they make up. And I imagine many other costs (equipment, other imputs etc) are 'hedged' in $US.

Cu at US$1.20 would certainly test OZL. With 300m net cash they could ride it out for 12-18 months (unlike many other non diversified producers) but I would be worried if they couldn't loss minimise at Century. I would like to see some up to date (aussie dollar, especially) figures on how far they can reduce costs - assuming Zn will stay around US$0.50 then costs of US0.60 are too high. Maybe management will put out a briefing to this effect - it would certainly calm investors!

Any thoughts? All opinions/criticisms welcome. I bought into OZL at $1 and again at 0.9 but fear it could go under $0.8 - perhaps as low as 0.55? - especially if Cu really was to fall another 50%. I still feel long term Cu at US$2 and Zn at US$0.8 will put OZL as a $2 company by 2011.