stars might allign for cdu

With CDU moving inexorably closer to being a significant copper (and cobalt and gold and rare earth etc) producer over the next couple of years, thoughts turn to what the price of these important commodities will be in coming years.

While arguments over grades, offtake agreements, company secretary CVs, share price manipulation, the colour of WMs undies etc will no doubt continue until we start mining, it might be worth a brief look forward to what will be important when we inevitably start selling the product that comes from our hole in the ground.

Remembering that the price of copper (etc) in 2011 has no material bearing on the profitability of our mine or the dividends that we expect to be paid, it only impacts upon the confidence of those willing to buy now and wait for production. It is in fact the relevant commodity prices in the years from 2013 onwards that are critical to CDU and this is where things start to look interesting. With tightening supply and falling stockpiles, higher copper prices seem likely in the short to medium term.

I note an article from yesterday which discussed the subject (URL at the end if this post). Some interesting things to note in this are:

Supply from the worlds biggest copper producers is dropping quickly due to declining grades. This includes:

- Grasburg (Indonesia) - expected to be down 17% this year
- Escondida (Chile) - expected to fall by 10% this year
- Top 8 publicly listed producers (Globally) - down 8% in Q1, 2011

Average copper grades worldwide have fallen from 0.9% to 0.76% between 2002 and 2009.


While the long term demand for copper inevitably grows we see not only a fall in supply in real terms but also rapidly falling grades across all producers. The economics of mining are such that as the grades of mines deteriorate some of them simply become uneconomic to continue mining unless the price rises further. This means further decline in supply which in turn pushes up the price of the commodity. The increasing prices keep marginal produces running for a little longer but obviously this equation favours producers with higher grades of ore because as the price rises their margins become even larger.

Present indicators may signify that the relevant commodity prices may move favourably for CDU in its first few years of mining. Nothing is for certain in this industry and the share price indicates how focused on the risks that investors are but those that have sat tight may just get a bonus if the stars align for production in 2013.


http://www.fnarena.com/index2.cfm?type=dsp_newsitem&n=634008DC-A822-E2E3-AA27F39DADCDE959