Aur Resources Buys Copper Options on Bet Metal Set to Rebound
Toronto, Oct. 31 (Bloomberg) -- Aur Resources Inc. is betting
the price of copper is set to rebound after dropping to the lowest
level in almost 14 years.
The Toronto-based copper-mining company, with a stake in a
Quebec mine and operations in Chile, purchased the right to buy
206 million pounds of copper at 83 cents a pound over the next
three years, matching its future production already sold.
``We believe copper will be higher in the future and that we
will make money on our call options,'' Chief Financial Officer
Ronald Gagel said in an interview.
The company can make money on the options by reselling the
copper at market prices if it climbs above 84 cents a pound. If
the price remains lower, Aur is still guaranteed the 83 cents a
pound at which it had already agreed to sell the copper it will
produce over the next three years, and it doesn't have to exercise
its option to buy.
Aur spent an average of 45 cents to produce a pound of copper
in the third quarter.
The cost of the option to buy the copper averaged about 1
cent a pound, or just over $2 million, Gagel said.
Copper for delivery in three months was down $18, or 1.3
percent, to $1,374 a metric ton, or 62 cents a pound, on the
London Metal Exchange, a 22 percent decline this year. Demand for
copper for pipes and wires from users such as electronics and
construction companies has declined as economies slowed.
The average world cost of producing a pound of copper, if
financing costs are included, is just under 70 cents a pound,
meaning most companies sell their copper now for less than it
costs to produce it, Gagel said.
``If it stays at the level it is there's going to be tons of
bankruptcies declared -- not us -- but a lot of other people will
go bankrupt in '02 and '03,'' he said.
Expectations for a rebound in copper prices were damped
however, after Grupo Mexico SA, the third-largest producer, didn't
announce plans to cut production this week. Phelps Dodge Corp.,
the No. 2 producer, said last week it will cut its output by 16
percent next year.
Aur shares fell 5 cents, or 1.8 percent, to C$2.70 in
midafternoon Toronto trading.
--Joe Schneider in the Toronto newsroom (416) 681-6791 or
jschneider5@Bloomberg.net /dcm |
