Codelco and BHP Look Beyond Current Copper Feeding Frenzy

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Researched by Industrial Info Resources (Sugar Land, Texas). In a hot and somewhat confused international copper market, the world’s largest producer, state-owned Codelco (Corporacion Nacional de Cobre de Chile) (Santiago), is reported to be cautious predicting output decreases in 2006 and 2007. But in April, Chile’s total copper production increased 8.7% to 442,641 tons compared to 407,118 tons in April of 2005.The company continues to move ahead with new projects and is building for an overall increase in capacity.

Investments by pension and mutual funds have driven the price to peaks approaching $9,000 per ton, and they see it increasing by as much as another 25% during the next twelve months, continuing on an upward path through 2008. Against this view, market scenario skeptics say that with an overbought surplus, the investment bubble will burst and margins will be strangled promoting a hollow market with buyers dropping and leaving a surplus without an immediate home and a price settling just above $6,000 per ton in 2007.

At Codelco’s Gaby at La Calama in Chile, Bateman Litwin’s (Amsterdam, Netherlands) solvent extraction business unit has a $40 million contract to design and build a 150,000 tons per annum copper solvent extraction plant located at Codelco’s copper oxides deposit. The E+P+C (engineering, procurement and construction) contract covers engineering, supply of proprietary equipment, construction, training, commissioning and start-up supervision. Bateman’s proprietary Settler technology will be used. The reverse-flow mixer-settler was developed and patented by Bateman Litwin. The plant will be designed for a total solution throughput of up to 3,500 cubic meters per hour with two parallel solvent rains.

The Gaby mine‘s initial specification was for 1.9 million tons of copper to be produced from 584 million tons of 0.41% grade ore over fourteen years and copper cathodes to be produced at a rate of 170,000 tons per annum. China’s Minmetals Non-Ferrous Metals is putting in an upfront payment of $550 million to secure the supply of 836,250 tons of copper over fifteen years. The capital will go into the development of Gaby, which is due to start operations in 2008. In February, Minmetals (Beijing) and Codelco signed a $2 billion joint venture agreement to mine copper resources in Chile, under which the Chinese company has the right to buy 25% of Gaby in 2009. Codelco may launch an additional 24% tender offer Minmetals could also participate in.

The 50/50 joint venture, Copper Partners Investment Company (CuPIC), will purchase 55,750 tons of copper cathodes per annum from Codelco over the next fifteen years. The deal brings China, the world’s largest copper consumer, and Chile, the world’s largest producer (37% of world total), together.

Another giant of world metals mining, BHP Billiton (NYSE:BHP ) (Melbourne, Australia), is conducting a pre-feasibility study on the Olympic Dam copper-uranium ore body in South Australia (taken over from WMC Resources in 2005). The study, due for completion at the end of 2007, will assess the prospects for a $5.2 billion to $7.5 billion expansion of the Olympic Dam that will triple the current production of copper to 600,000 tons per annum and uranium to 15,000 tons per annum.

Currently, the mine already ranks as the world’s fifth largest copper resource and the largest uranium deposit. The mine accounts for 40% of the world’s known uranium resources at 1.5 million tons. Further confirmations of expansion plans are expected in BHP’s annual report in September.

As debate on the copper market rages between optimistic euphoria and dire foreboding, both Codelco and BHP can anticipate reasonable security in the development of their resources. Even as China builds more smelters at home, cuts imports and targets the number one position in copper cathode production, Codelco has a long-term supply contract with an investor/partner. BHP, in addition to having supply relationships with China and the Asian market, can expect the uranium production from Olympia Dam to be the front-runner in a world that is currently on a nuclear power plant-building boom, which will cushion any quieter times experienced in the copper market.

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