Dr Copper is back in town

Following heavy selling of listed gold and silver stocks over the past week, among mining subsectors, listed copper miners can claim leading stock price performance over the past 12 months.

JOHANNESBURG - 

Known in some circles as "Dr Copper", in the belief that changes in its market pricing most accurately predicts forward changes in global economic activity, the orange metal now leads forward the best-performing global mining subsector, over the past 12 months, in the form of broadly defined copper miners. The change in the pecking order has taken less than five trading days, a period when investors have heavily sold off, in particular, gold stocks, and even more so, silver stocks. 

Gold bullion prices have fallen around USD 45 an ounce in less than four trading sessions, to around USD 946 an ounce. While the investible market value of listed gold stocks aggregates at about USD 261bn, the primary silver sector, led by Fresnillo, is a more modest USD 20bn; the number for listed copper stocks is around USD 120bn. 

Much of the investible market value in copper stocks is wrapped up in diversified stocks; Freeport-McMoRan, BHP Billiton, Xstrata, and Rio Tinto rank as No 2 to No 5 in global copper production. The top spot, occupied by Chile's State-owned Codelco, represents value not available to investors in the normal sense. 

Listed copper miners have shown a remarkable resilience during the so-called global markets crisis, underpinned by a commodity price that bottomed, in December 2008, at levels where the vast majority of copper miners were still making cash profits. In some related sectors, such as nickel and lead, miners were forced to scale back production on a huge scale, as cash losses bit deeply in. 

Aluminium remains the exception, being an area where cutbacks have been stubbornly low, sustaining the worst base metals price performance since early 2002, when the so-called commodities supercycle developed its first set of legs, before going out on a speed ticket around the middle of 2008. 

Quoted copper prices collapsed from record levels around USD 4.06/lb in mid-2008 to USD 1.28/lb, and have since soared by 77% to current levels around USD 2.26/lb. Copper made new highs for 2009 this past Tuesday followed by new year-highs on Friday for aluminium, tin, nickel and lead; it is only zinc, so far, that has not made fresh year-highs this month. 

The relatively robust standing of copper mining balance sheets has been emphasised by relatively few numbers of capital raisings from copper miners this year; gold miners, by comparison, have used strong gold prices as an underpin for raising billions of dollars worth of fresh capital. Just last week, as an example, Goldcorp raised USD 863m after selling convertible bonds. Some, however, of the biggest copper producers classified as diversified have been to the market this year, typically to partially resolve group debt issues only indirectly relating to copper operations. 

Thus Xstrata recently raised the equivalent of USD 6.5bn by way of a rights issue, and Rio Tinto just last week announced a USD 15.2bn rights issue. Earlier this year, Freeport-McMoRan, which also ranks as No 1 globally in molybdenum, and as a top gold producer, raised USD 750m. Copper producers with substantial expansion projects of quality have found the going relatively easy; African copper-gold miner First Quantum recently announced a USD 500m convertible bond offering, and Equinox, a Zambian copper miner, recently raised  CAD 184m in a rights issue. 

However, some earlier phase copper names in the Democratic Republic of the Congo and/or Zambia have faced some considerable funding issues, seen in and around Camec, Anvil, Metorex, and Katanga Mining; the latter stock is trading more than 90% off its 12-month highs, despite signs recently that it has resolved its funding issues, albeit on a considerably downgraded mining plan at its brownfields operations in the DRC. 

At the other end of the scale, top performing copper names may also be exposed to other metals, not least gold, as in the cases of Continental Mines, Philex, Corriente, Northern Dynasty, Seabridge, and Terrane. However, a good number of stocks with a heavy copper orientation have also performed exceptionally well, as seen in the cases of Antofagasta, Yunnan Copper, and Jiangxi Copper.

Opinions on the forward possibilities for the copper price remain, as ever, broad and varied. But just as the pricing of listed gold stocks has been saying, for some weeks, that dollar gold bullion prices were likely to shift down, the pricing of listed copper miners points to a metal price set to at least hold around its recent multi month highs. 

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