By Barry Schwartz
Even with the price of copper at a record high, the outlook for copper has never been brighter. In 2011, the demand for copper should reach 20 million tonnes. This is approximately 700,000 tonnes more than what will be produced. Within the next two years, only 300,000 tonnes of incremental copper supply will hit the market - not enough to meet demand. The supply deficit will never catch up; China currently needs 7 million tonnes of copper a year, and its needs could very well triple to 20 million tonnes a year in the next quarter century. This will create a global copper shortage of more than 10 million tonnes each and every year.
Atomic Number 29 on the periodic table, a.k.a. copper, is the best-known conductor of heat and electricity. As a single Chinese family moves from a subsistence farmhouse into a brand new condo, it will acquire at least 90 pounds of copper. The air-conditioner, the gas stove, the washing machine, the flat-screen TV along with all the electrical wiring will contain considerable amounts of copper. And guess what? There are at least 600 million Chinese citizens who have yet to be urbanized. Don’t even get me started on India. Over the next four years it is estimated that Asia will spend $4 trillion on infrastructure (now that’s a stimulus plan). Just this week China announced a plan to modernize its electrical transmission network. All this will require millions of tonnes of copper.
As you can tell, we are bullish on copper. Our favorite copper idea is Inmet Mining (IEMMF.PK), which we have owned for our clients since 2001. Inmet will soon be called Symterra, as the company recently announced its intent to merge with Lundin Mining (LMC). The combined company will have a market capitalization of $9 billion and should be in a position to produce 500,000 tonnes of copper a year by 2017. The combined company will be debt-free and able to use its heft to make copper-focused acquisitions. In the meantime, its plate will be full as it will be working hard to bring Cobre Panama, a $5 billion copper project on stream. Cobre Panama has a potential to produce 275,000 tonnes of copper annually and will be one of the largest new copper mines this decade.
Disclosure: The author as well as clients of Baskin Financial Services Inc. own shares in Inmet Mining.