Junior, mid-tier copper projects close to fruition
Tue Jan 10, 2006 05:41 PM ET
By Rachelle Younglai
TORONTO, Jan 10 (Reuters) - Shortages of skilled workers and of heavy equipment are likely to cause delays as copper projects around the globe come on stream at a time of rising prices, low supplies and strong demand.
Companies attending a copper conference in Toronto said projects in areas from Botswana and Zambia to Mexico and Peru were being developed with relatively few problems despite the shortages. But costs were high.
"The bottom lime is that all the projects are going through very major capital costs and in that context, delays are going to be in order," said Terence Ortslan, an analyst with TSO & Associates.
"You have the capital issue, you have the availability of skills, people and the equipment. All will be developed, it's just that it will take longer than usual."
Companies set to contribute to growth over the next few years include Frontera Copper Corp. (FCC.TO: Quote, Profile, Research) , which has built a copper project in Sonora, Mexico that is expected to start producing in the latter half of 2006.
African Copper Plc (ACU.TO: Quote, Profile, Research) expects its copper project, Dukwe in Botswana, to start producing in 2007.
Equinox Minerals Ltd. (EQN.TO: Quote, Profile, Research) expects its Lumwana project in Zambia to start producing in 2007. It calls Lumwana one of the world's largest undeveloped copper deposits, expected to produce an average of 125,000 tonnes of copper per year over a "long mine life."
First Quantum Minerals Ltd. (FM.TO: Quote, Profile, Research) expects its Guelb Moghrein deposit to start producing in the second quarter of 2006 with a target of 30,000 tonnes of copper a year.
Development comes as the price of copper soars above $2 a pound amid concerns over supply levels. Copper futures closed at $2.1070 a pound on the COMEX division of the New York Mercantile Exchange on Tuesday, down from a new contract peak at $2.1220 a pound earlier in the session.
Spot copper closed at $2.1795 a pound.
"Copper is scarce and getting scarcer," said Clive Newall, president and director with First Quantum, who is bullish on the price of the metal, which is used in areas like plumbing and wiring.
INDUSTRY RIPE FOR CONSOLIDATION
With copper prices around record highs and other base metals at multiyear highs, many miners are sitting on hoards of cash and looking for opportunities.
"At the present prices there are a huge amount of cash flows in the mining sector," said Ortslan. "People are expecting and trying to figure out what corporate activity you are going to see. Right now the focus is on acquisitions and project development."
Analysts and metal players are calling for another round of consolidation after a year in which some of the larger base metal miners joined forces.
In 2005, Inco Ltd. (N.TO: Quote, Profile, Research) made a friendly bid for Falconbridge Ltd. (FALlv.TO: Quote, Profile, Research) to create the world's biggest nickel producer and BHP Billiton Ltd./Plc (BHP.AX: Quote, Profile, Research) (BLT.L: Quote, Profile, Research) won control of Australia's WMC Resources Ltd. (WMR.AX: Quote, Profile, Research) to create a major player in iron ore, coal, aluminum, base metals and stainless steel.
"Undoubtedly the (consolidation ) is going to continue," said Fraser Phillips, an analyst with RBC Capital Markets.
Phillips believes that consolidation wave will move down to the mid-tier level as some junior explorers and developers would be too small for heavyweights like BHP Billiton and Rio Tinto Ltd. (RIO.AX: Quote, Profile, Research) .
Some metal producers like Phelps Dodge Corp. (PD.N: Quote, Profile, Research) have used cash to distribute dividends to shareholders, but others like Teck Cominco Ltd. (TEKsvb.TO: Quote, Profile, Research) used cash surpluses to diversify into other markets.
"Because of the prices, the large companies that are producing have significant cash and cash flow," said Chariot Resources (CHD.TO: Quote, Profile, Research) chairman, Alex Black.
Chariot is developing a copper project in Peru that is expected to come on stream in 2009.
"There's a basket of companies that are primed for consolidation and we feel that we will be part of it," Black said. "There are many companies that would like a foothold in Peru."
($1=$1.16 Canadian) |
