Because of its properties, such as high ductility, malleability, and thermal and electrical conductivity, and its resistance to corrosion, copper has become a major industrial metal, ranking third after iron and aluminum in terms of quantities consumed.
Power transmission and generation, building wiring, telecommunication, and electrical and electronic products—these applications account for about three quarters of total copper use. Building construction is the single largest market, followed by electronics and electronic products, transportation, industrial machinery, and consumer and general products.
Commodity prices of copper continue to trend upward, with the New York Mercantile Exchange’s COMEX spot price recently reaching a record-high monthly average $3.50 per pound for May delivery [on April 26]. Supply troubles, strong demand, and automated fund trading systems — all these factors are expected to keep the copper market surging higher.
Leading world miner BHP Billiton, Ltd./Plc. (NYSE:BHP) said difficulties finding personnel and mine equipment as global demand for minerals soared was restraining supply across the industry
Mine capacity utilization has fallen to its lowest level in recent years, compounded by industrial unrest at mining operations in Congo, Chile, Mexico, and elsewhere, too.
Global inventories of refined copper held in metal exchange warehouses continued their downward trend in April 2006. Stocks of the key industrial metal in LME warehouses totaled 117,950 tons, equivalent to about 2-1/2 days of world consumption and down from almost 1 million tons in April 2002.
The International Copper Study Group said in its latest forecast that growth in use would result in a production surplus in 2007 of only about 55,000 tons.
Economic growth is accelerating in China, the world's biggest user. On April 20, 2006, China's President Hu Jintao said that the economy grew 10.2 per cent in the first quarter up from 9.9 per cent in the fourth quarter.
Additionally, Chinese copper demand might increase 8 per cent to 3.9 million tones this year exceeding production by 1.05 million tones, according to the government-affiliated China Non-ferrous Metals Industry Association.
And the third variable feeding copper’s pricing volatility is alleged to be hedge funds out of New York and London. In letter sent to to the LME and the Financial Services Authority on February 5, 2006, the International Wrought Copper Council said the buying was forcing copper prices to extreme levels, causing financial difficulties for copper users. The council also argued that the copper price did not reflect industrial supply and demand. It questioned whether the exchange should continue to be the recognized reference price for the industry.
Shares in copper miners tend to mirror the LME price rise.
The 10Q Detective is proffering Continental Minerals (OTC: KMKCF), a junior exploration company as our speculative copper pay dirt play. KMKCF is the operator of the recently discovered Xietongmen copper-gold deposit located near the city of Lhasa in Tibet.
The Xietongmen Property hosts a porphyry copper-gold deposit with significant mineral resources that were outlined by drilling in 2005. Given that the deposit is amenable to open pit mining, there is excellent potential for expansion, too.
The comprehensive program in 2006 will encompass extensive drilling to fully assess the resource potential of the property, as well as engineering, environmental and socio-economic studies, and community and stakeholder engagement activities. The objective is to collect the data necessary for a feasibility study and environmental and social impact assessments. The studies are targeted for completion in 2007
The Xietongmen property is located in a rural area. The nearest village is two kilometers from the property and its economy is based on agricultural activities. The nearest commercial facilities (food, fuel, accommodation) and population center is the city of Rikaze, located 53 kilometers from the property. Other supplies and equipment are available 260 kilometers away in the city of Lhasa, which is the transportation and commercial center of Tibet.
Nonetheless, the project is well located for development. A paved highway and hydro-generated electric transmission lines pass near the southern end of the property. Logistical supplies, including fuel and food, are readily available in Rikaze. The paved highway makes it easier, too, for heavy equipment and other vehicles to access the site.
The infrastructure also touts a railway system to Lhasa, completed in 2005, which connects to multiple copper smelters and other industrial centers located throughout China. The Chinese government has initiated construction of a railway extension from Lhasa to Rikaze, with an expected completion date in 2010.
On April 13, 2006, KMKCF announced its intent to merge with Great China Mining, Inc. (OTC: GCHA), its partner in the Xietongmen Copper-Gold Property. A successful merger will unify 100% of the property and will give KMKCF interests in the three other properties, totaling 109 square kilometers, which surround the Xietongmen Property.
Based on drill core assay results from 62 vertical holes, initial resource estimates total more than 106 million tons containing 2.49 million ounces of gold and 1.15 billion pounds of copper. Still to be answered, how much is recoverable? And, what is the demonstrated economic viability of the entire property?
The two catalysts for an upward move in the share price of KMKCF are (1) event-driven, based on exploration results and (2) the commodity price of copper, for the share prices of copper mining companies tend to move in sync. with the contract price of the metal itself.
The 10Q Detective reminds our readers that (a) any investment in KMKCF shares is not suitable for conservative investors and (b) the COMEX/LME price(s) of copper have been highly volatile in the past year.
“ This is a perfect storm. If oil takes a dive, there are going to be a chain of margin calls going through the copper market, and then we'll find there are no buyers," says David Threlkeld, a veteran copper trader. "Copper will implode overnight. This is like flipping condos in Miami, the last one holds the bag."