Take physic, pomp

The future copper oligarchy

Here’s a piece from IKN349 which is a continuation of a theme we’ve had running at the Weekly. No matter what Canaccord says (still laughing guys) you need to avoid the medium-sized copper company space because they’re going the way of the dinosaur. Especially the ones up to their neck in debt.

PS: Just to be clear, the accurate word is “oligopoly”, but as the IKN Weekly coverage of this issue has developed I started using the word “oligarchy” as the descriptive. It’s a better fit in many ways. Read on…


Chile: Latest investment figures offer a window on the
future of copper

Some interesting figures
out of the Chilean cabinet ministry last week regarding the change in
investment dollars in its mining industry. The main point picked up by the
local media (25) offers few surprises, that the amount of investment dollars in
mining projects in the country has dropped considerably in the last four
months, but the details offer more.

According to the data-filled
report, in December 2015 mining projects under development in Chile were worth
a total of U$15.122Bn, down 29% from the U$21.347Bn registered in its last
beancount in August. The drop is due to three projects being shelved (the
on-off-on-off Antucoya owned by Antofagasta Minerals (ANTO.L) and  Actualización Esperanza, also ANTO.L), plus
the BHP Billiton OGP1 project, as well as other projects moving from development
into production and therefore off this count’s radar.

So far so normal, but when we look
at what’s left it becomes more interesting. Of the eight major works projects
left on the list (that U$15.122Bn total), four of them are Codelco projects
worth a total of U$10.531Bn. Add in the only other big ticket project, that of
BHP’s desalinization plant for La Escondida and there’s little else happening
in Chile.

Put simply—> If it weren’t for
the State-run Codelco, which has a business and economic agenda which is wholly
different from the normal capitalist-profit-only focus of a privately owned
multinational and often works its investments to a counter-cyclical economic
clock for national GDP reasons, plus a desal project that’s a no-brainer build
for La Escondida (it pays for itself a dozen times over even if copper drops to
$1.50/lb and stays there forever), there would be precious little growth in the
world’s biggest copper producing nation right now.

It also has me thinking about
bigger things, such as the way on which the copper production market is
concentrating to the mega-players and away from the small and medium scale
operations. I believe the Codelco policy of investment now is the right one, as
it would be very difficult for a big mining company to convince its
shareholders to keep the investment spigot running but for the nationalized,
Pride-Of-Chile Codelco keen on keeping its world number one status (11% of
world copper comes from them) it’s an easy sell which will give it the upper
hand in the world market come the day that copper moves back up on its cycle.
But aside from Codelco, it’s a window on how difficult it’s going to be for
smaller entities to keep competitive (look at the enormous debt troubles of The
IKN Weeky’s three touchstone stocks HudBay, Capstone, Copper Mountain, for an
obvious example) or even for junior explorecos looking for the Next Big
Porphyry in the Andes (or anywhere else) to compete efficiently. It’s far from the
first time I’ve mentioned this but it bears repeating (for one thing I’m seeing
a new batch of commentaries from higher profile anal ysts saying roughly the
same thing): Copper is going the way of iron ore, where three players (BHP,
RTZ, Vale) hold the market by its throat and can kill off competition in good
old-fashioned oligarchy theory style.

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