Metal Minings News

With gold nudging $1,000 per ounce, silver at 27-year highs and copper approaching record prices over $4 per pound, some metal industry analysts believe the current boom still has years to run.

Friedman Billings Ramsey raised its price forecasts for aluminum, copper, zinc and gold, citing the recent run-up in commodities driven by investment fund flows and dollar weakness.

The brokerage firm raised its 2008 aluminum price forecast to $1.27 per pound from $1.15, copper to $3.33 per pound from $2.94, zinc to $1.11 per pound from $1.00 and gold to $875 per ounce from $825.

Citigroup Global Markets also raised its copper price view to $3.00, aluminum to $1.20 per pound, nickel to $10 per pound and zinc to $1.05 per pound by the second half of 2008.

“Base metal prices are up on average 27 percent since the start of the year and copper has reached an all-time high at the same time as the U.S. heads into recession,” said Citigroup analyst Alan Heap.

“Even in a super cycle this is an amazing performance,” he wrote in a research note.

In such a hot sector, the question among analysts is how long can the boom last in a notoriously cyclical industry. This is one of the issues that will be explored by mining industry executives at the March 10-12 Reuters Mining Summit in New York, London and Sydney.

“We are in the camp that thinks the cycle will continue higher in view of the tremendous demand movement which should last well into the next decade,” said Evan Smith, co-manager of U.S. Global Investors Inc of San Antonio, Texas.

“This is not just a blip,” said Smith, co-manager of U.S. Global’s $1.6 billion global resources fund, about half of which is invested in mining stocks.

Brett Levy, a high-yield analyst at Jeffries & Co, agreed, saying he sees demand for metals continuing to be driven by China’s huge economic and infrastructure growth.

“The numbers (in China) are astounding. They still have another 200-to-300 million people they want to move from an agrarian economy to industrial.

“The question is, ‘Will the malaise in the U.S. drag the rest of the world into recession? Or will the U.S. right its ship and the rest of the world will sail well?’” said Levy. “It will take a while, but I think the U.S. gets its ship righted and the world won’t be in the doldrums.”

Levy said he was bullish on aluminum and relatively bullish on copper because no new major deposits had recently been discovered. “There’s a decent number of nickel projects and zinc has a pretty decent outlook,” said Levy.

U.S. Global’s Smith said emerging economies in developing countries would push huge growth in demand for base metals. “China and India are the big drivers and even with high growth rates, they are still so far behind in the infrastructure building process.

“Supply is the difficult thing,” he said. “That’s why you’ve seen copper go from 60 cents to $4.

“The cost of new mines will continue to rise,” said Smith, citing continued shortages of engineers, geologists and miners. In addition, steel prices and energy costs are high and there is port congestion in Australia and power constraints in South Africa, Chile and Brazil.

“There has been a recent surge in all commodity prices and it may be driven by fund buying,” said Smith. “But equities markets are not so good, nor housing, so investors are looking for safe-haven assets. In the longer term, the secular trend is intact and the cycle could continue well into the next decade.”

Base metals ended modestly higher today, as the US$ weakened, strikes continued in parts of the copper industry and data indicated that China’s economy continued to steam along. New record highs on oil also gave the complex some strength: mine costs will be pushed higher as the cost of running heavy equipment surges. Industry news was unambiguously bullish, with strikes continuing to affect both the mining and transport of copper mine output. China’s February retail sales climbed 20.2%, matching the fastest pace in at least 9 years, a sign that consumer spending may sustain the world’s fastest-growing major economy as export demand weakens. The figure was boosted by the fastest inflation in 11 years. Chinese money supply growth recorded its fastest pace in 20 months in January, at 18.9%. Japanese Q4 GDP was affirmed at 0.9% q/q, as exports helped the nation weather a housing slump. Chinese industrial output and US retail sales are important data released tomorrow.

Aluminium rose by $65 to $3,125, despite a second consecutive hefty rise in LME stocks. Copper added more than 1.4% to $8,400, as industrial disputation impacted on a number of stages of production. Stevedores began the second day of a strike at the port of San Antonio in central Chile. Codelco stated that it may use alternative ports to ship metal from the company’s El Teniente mine (its second-largest) during the strike. Grupo Mexico and a labor union resumed talks to end strikes that have idled the Cananea, Taxco and Zacatecas mines since July 30. Ok Tedi said workers at its mine remained on strike, stopped mining and shipping at the operation for a 2nd day. The company has asked the Department of Labour and Industrial Relations for assistance in resolving the dispute. Ok Tedi’s Managing Director confident the strike will be settled and that employees will return to work in the next 24 hours. Zinc tracked copper, ending almost 3% higher at $2,635. LME stocks have levelled out over the past fortnight. After a poor night in Asia, lead surged in afternoon trade, adding more than $130 in a few hours to end at $3,115. Nickel added 1% to $31,875, after selling pushed it lower in Asia. Stocks are drifting down here too. Tin posted a fresh record close. Provisional official figures show that Bolivian mine production of tin-in-concentrate fell by 9.6% to 15,966 tonnes in 2007, while refined tin output by the country’s two smelters also dropped to 12,251 tonnes.

Europe’s top copper miner KGHM KGHM.WA said its quarterly net profit more than doubled, benefiting from strong copper prices without the burden of unfavourable hedges. KGHM’s unconsolidated net profit rose to 792 million zlotys ($319.9 million) from a revised 327 million in the year ago period. Sales reached 2.91 billion zlotys, slightly below expectations of 2.98 billion. Net profit for all of 2007 stood at 3.8 billion zlotys.

KGHM said copper prices rose some 2.1 % on average in the fourth quarter to $7,239 per tonne. Last year’s figures were also weighed down by unfavourable hedging contracts which set the copper price significantly below market levels.

“In the fourth quarter of 2007 a copper price hedging strategy made up around 15 % of the company’s sales of the metal,” KGHM said in a statement.