miners united on copper, split on spending

SANTIAGO - The world's biggest copper miners agreed on a lot on Wednesday: the outlook is bright for a commodity that has rebounded faster than others; China's low per capita consumption shows strong demand ahead; and supply constraints will continue to dog the market for years to come.

But they failed to find common ground on the most important question of all: whether now is the time to throw off last year's restraint and plough ahead with big spending.

That division has important implications for a copper price that has more than doubled over the past 15 months, surging to a post-crisis high above $8 000/t on April 6.

It is nearly within 10% of its record $8 940/t reached in July 2008, a dramatic recovery unmatched by other assets, brightening the mood in sharp contrast with the lowly prices that cast a gloom over last year's CRU/CESCO event.

Investors seeking signs that miners were rushing to capitalize on those prices by ramping up production and greenlighting new project got instead a mixed picture, one that may keep them pricing in a weaker supply scenario.

Global miners Rio Tinto and Xstrata staked out the most bullish corner, confident they will forge ahead with multibillion dollar projects to ramp up output worldwide as Chinese demand remains strong and signs of recovery emerge elsewhere.

"Largely what I see is that everybody who can produce copper is producing copper, and executing projects," Andrew Harding, Rio Tinto's head of copper division, told Reuters. "My expectations for that are pretty well satisfied that people are doing as much as they can."

Harding said that although Rio Tinto may struggle in the near-term to maintain its annual production rate of 800 000 t as ore qualities decline, it will receive a major boost in 2013 with the $5-billion Mongolian Oyu Tolgoi project, for which a final investment agreement was sealed last week.

Xstrata Copper CEO Charlie Sartain laid out aggressive plans to expand output by 60% to 1,5-million tons annually by 2014, spending billions of dollars in mining powerhouse Peru, including its Antamina copper joint venture.

"Over the next four or five years we will be investing around $14-billion in organic growth," Sartain told Reuters Insider on Wednesday.

CAUTIONARY TALE

But not all agree that the industry is in top gear.

"Most of the projects that are known to the market require a long-term (copper) price of $2,20/lb to move ahead, and the industry is not yet convinced that copper could be at that level in the long run," Antofagasta Minerals CEO Marcelo Awad told Reuters earlier in the week.

While his company invests, he says others are unable to get project financing from banks unwilling to bankroll anything that's not profitable above $2/lb -- nearly half current US Commercial Exchange (Comex) futures prices, which stand at more than $3,50/lb all the way out to 2012.

Richard Adkerson, chief of the world's No. 2 copper miner Freeport McMoRan, counts himself an optimist, but says he's concerned enough about the US economic recovery to hold off ramping his operations back to full speed.

"We are facing is a world where China is very strong and has created a copper price that would justify all of our capital expenditure, but two-thirds of the world's copper markets -- the US, Europe and Japan -- remain weak," Freeport's chief executive, told Reuters Insider TV.

"And so, when you have the price supported solely by China, we are just not real comfortable in going all out right now."

Adkerson said Freeport's investment budget for 2010 of $1,7-billion was up from 2009 but still 30% shy of 2008 levels.

BHP Billiton, which operates the world's biggest copper mine Escondida in northern Chile, shared a more cautious view, acknowledging high prices will likely continue down the road.

BHP is thinking of cutting investment in the world's biggest copper mine, Escondida, as they see capital costs rising sharply after the crisis, he said

The company could cut an expansion project in Escondida to $2,5-billion, said BHP head of base metals Diego Hernandez, from a previously reported was worth $5 billion.

Hernandez said he is "happy" with current prices but not yet optimistic.

"The industry's cost structure requires in the higher prices in medium-and-long term because projects now have lower grades and higher costs," Hernandez told reporters. "I think these prices are bit too high."