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Gold/Mining/Energy : Precious and Base Metal Investing -- Ignore unavailable to you. Want to Upgrade?

To: russwinter who wrote (549)	11/8/2001 6:27:47 PM
From: russwinter	Respond to of 39344

BHP Billiton surprise large scale cut of two lower cost copper mines. There is also 84,000 oz /year in gold as a by product of these mines. Unfortunately no silver: New York, Nov. 8 (FWN) - BHP Billiton "is clearly keen to be seen taking a leadership role" in the copper industry following the surprise production cuts at its relatively low-cost Escondida and Tintaya mines in South America, says Australia's Macquarie Bank. According to Macquarie's "Commodity Report," BHP Billiton "must be hoping that other leading copper producers follow suit. Chilean copper producer, Codelco (the world s biggest copper producer), and the relatively high cost Asarco operations owned by Grupo Mexico will now come under the spotlight," it said. * * * "BHP Billiton announced that it was cutting copper production at its Escondida and Tintaya mines by 170,000 tonnes per year for a six-month period in order to reduce the oversupply to the market," Macquarie said. "The action is unusual (almost unprecedented) in that the Escondida mine is very low cost, and the two mines were not seen as likely candidates for production cuts. Cash costs of production at the Escondida mine are well below current LME prices, and the Tintaya mine, although much higher in cost than Escondida, was seen as a less likely target for closure than several other producers," it noted. COPPER CONCENTRATE MARKET TO RECORD DEFICIT IN 2002 "The main impact on the copper market will be to tighten the copper concentrates market, and ensure that the concentrates market is in deficit through the first half of 2002. After allowing for this latest cut, we now forecast that the concentrates market will be in deficit by 100- 150,000 tonnes in 2002, compared with our previous forecast of a modest surplus for the year," Macquarie said. Industry consultants, Brook Hunt, stated in its assessment of the cuts that the copper concentrates market will now be in deficit in 2002, with the first half of the year being "extremely tight." Brook Hunt added that "more closures are still likely which would further exacerbate this projected tightness." Prior to these production cuts, it had appeared that negotiations for copper treatment and refining charges (TC/RCs) between miners and smelters would result in a rollover of last year s terms of $75 per tonne and 7.5 cents per pound. These cuts, together with the prospect of more cuts to come from other producers suggest that terms could actually move in the miners favor, perhaps dropping below $70 per tonne and 7.0 cents per pound, Macquarie said. MORE CUTS NEEDED TO PLACE FLOOR UNDER MARKET "Are these cuts enough to make us bullish about copper? No, we still need to see some evidence of demand improvement for that to be the case. Indeed, the fact that BHP Billiton has decided to take the unusual step of reducing production at a relatively low cost operation such as Escondida could be taken as a signal that the company believes that demand is going to remain weaker for much longer, and that without additional cuts, there will be a massive stock-build in 2002," Macquarie said. "Nevertheless, the cut is undoubtedly a positive move for the market particularly if the other major copper producers follow suit. We believe that another 100-200,000 tonnes per year of production cuts is still needed to place a floor under the market. However, with BHP Billiton taking a strong lead, such cuts are perhaps more likely," it argued. "Phelps Dodge has already made production cuts (not entirely voluntarily), and BHP Billiton has taken a proactive step of making early cuts. It now remains to be seen whether the other major copper producers will be keen to step forward and do the same," Macquarie concluded.