Best of the Week
Most Popular
1.Stocks Bear Market Apocalypse Imminent Crash Gets Nuked Again - Nadeem_Walayat
2.Gold And Silver – A Reality Check - Michael_Noonan
3.The Killer Ape, Human Evolution, Artificial Intelligence and Extinction End Game - Nadeem_Walayat
4.Stock Market S&P 500 Volatility-Based Price Probability Range - Richard_Shaw
5.A Stocks Bear Market Is Now More Likely Than Not - Richard_Shaw
6.Money Supply and the Fed’s Serious Inflation Risks - Zeal_LLC
7.More Selling for Stock Market, Gold? - Brad_Gudgeon
8.Gold, Silver Precious Metals: a Critical Week Ahead - Rambus_Chartology
9.Gold Price Change in Character - Gary_Savage
10.Advice for Biotech Investors: 'Hold Your Powder' 'til Winter - TLSReport
Last 5 days
Dr Copper Back from the Dead - Time to Buy or Blink - 8th Oct 15
Glencore Rout Blamed on Short Sellers Playing With CDS - 8th Oct 15
The Real Reason for the Refugee Crisis You Won’t Hear About in the Media - 8th Oct 15
US Stocks: The [Trend]Line Between Bull and Bear Market - 8th Oct 15
Bundesbank “Reassures” Re. Gold Bullion Reserves as Deutsche Bank Shocks With €6 Billion Loss Warning - 8th Oct 15
How Our Aversion To Change Leads Us Into Danger - 8th Oct 15
Moving Stem Cell Research Forward: Bernie Siegel of the Genetics Policy Institute - 8th Oct 15
Stock Market VERY IMPORTANT Turn Date - 7th Oct 15
The 5th Convergence…An Economic & Financial Superstorm That Will Devastate America - 7th Oct 15
Summers Grades Janet Yellen's Fed Performance 'Incomplete' - 7th Oct 15
Gold Versus Central Banks Paper Ponzi - 7th Oct 15
QE3 is Over Get Ready for QE4 - 7th Oct 15
How to Profit from Government Mandates in Biofuels - 7th Oct 15
A Key Oil Price Trend That Everyone Is Missing - 6th Oct 15
Stock Market Turn Appears to Have Been Made - 6th Oct 15
Designing a Dividend Growth Portfolio for a Specific Retirement Yield Objective - 6th Oct 15
Peter Schiff Predicts Gold Price Breakout - Video - 6th Oct 15
Theresa May Declares War on Immigration - Conference Speech Full Transcript - 6th Oct 15
Is Russia Plotting To Bring Down OPEC? - 6th Oct 15
Target Date Funds As Aid In Retirement Investment Portfolio Design - 6th Oct 15
Stocks Bear Market Apocalypse Imminent Crash Gets Nuked Again - 6th Oct 15
Redesigning Internet and Facebook to Explore Their Full Potentialities... - 5th Oct 15
Nightshades Curb Your Enthusiasm - 5th Oct 15
U.S. Recession Watch, High-Yield – Rising Defaults - 5th Oct 15
The Social Challenge to Find Humanity in Capitalism - 5th Oct 15
Fed Interest Rate Hike: "I don't care. It doesn't really make much of a difference" - 5th Oct 15
Gold Rose 2.2%, Silver Surged 5.4% After Poor Jobs Number On Friday - 5th Oct 15
Gold, Silver Precious Metals: a Critical Week Ahead - 5th Oct 15
Stock Market Correction Still in Force - 5th Oct 15
Gold Price Change in Character - 5th Oct 15
Putin’s Blitz Leaves Washington Rankled and Confused - 4th Oct 15
More Selling for Stock Market, Gold? - 4th Oct 15
Gold And Silver – A Reality Check - 3rd Oct 15
Stock Market Primary IV Still, or Primary V Underway? - 3rd Oct 15
The Oil Industry’s Day of Reckoning - 3rd Oct 15
U.S. Interest Rate Hikes Keep On Slippin' Into the Future; Treasury Yields Sink Again - 3rd Oct 15
China's Stock Market Crashing; Time for Panic or Restraint - 3rd Oct 15
SPX Stocks Bulls Struggle to Regain the Upper hand... - 2nd Oct 15
The Two Faces of Stock Market Volatility - 2nd Oct 15
Money Supply and the Fed’s Serious Inflation Risks - 2nd Oct 15
Stock Market How Bad Can This Get, And How Fast? - 2nd Oct 15
A Worrying Set Of Recession Signals - 2nd Oct 15
Negative Jobs Report Sents SPX, TNX Lower - 2nd Oct 15
Don't be Fooled by the Recent Equity market Rallies. Its a Bear Market, Stupid! - 2nd Oct 15
US Bond Market - How to Fix This - 2nd Oct 15
Survival Secrets from Colorado Resource Investing Front Lines - 2nd Oct 15

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

Why Copper Is a Critical Metal

Commodities / Copper Nov 14, 2012 - 03:33 AM GMT

By: Critical_Metals_Repo


Best Financial Markets Analysis ArticleCopper is often referred to as "Dr. Copper," the metal with a Ph.D. in economics. Yet most analysts don't view it as a critical metal. In this interview with The Critical Metals Report, Mickey Fulp, author of The Mercenary Geologist, gives his thoughts on why the experts are wrong and why copper should be considered a critical metal.

The Critical Metals Report: In the past, there has been some confusion about the term "critical metals." What do you consider to be critical metals and why?

Mickey Fulp: Critical metals are the major metals that are used globally in industrial applications and are essential for world economic health. They include iron, aluminum, copper, the various iron alloys, zinc, lead, tin and uranium. These are the real "critical metals," the ones that enable the world's economy to function.

TCMR: So your classification of a critical metal is based on the need and the supply and demand, is that correct?

MF: It's based on the fact that they have major tonnages mined and processed and are essential to industry and world economic health. Critical metals either trade on worldwide markets through spot, futures and options or they trade as bulk dry commodities, as iron ore does.

TCMR: One that most people don't classify as a critical metal is copper, but you do. What are the supply and demand fundamentals that you think make copper critical right now?

MF: Copper's always critical. In my opinion, some so-called experts have bastardized the idea of what critical metals actually input to our industrial society. Copper is absolutely one of the critical metals because it is so tied to the functioning world economy. For example, you can't transmit electricity without copper. Ask the people in New York and New Jersey right now if transmission of electricity is critical.

TCMR: As you're looking at the price of copper, what are the indicators that you watch for? Is it global gross domestic product? Is it the Shanghai Exchange warehouse inventory data, Baltic Dry Index, bulk dry materials shipping rates?

MF: All of the above, plus London Metal Exchange warehouse inventories, which are the largest in the world; COMEX inventories, which are the third largest; the total world inventory, the Bulk Dry Index, which indicates shipping rates of commodities like copper; LME canceled warrants, which is inventoried copper designated for immediate delivery; monthly demand for the metal from China and world mined copper and refined copper production. At this juncture, China drives the world copper market, consuming somewhere between 35–40% of supply.

TCMR: What are you seeing in those indicators, particularly out of China?

MF: We've been in a holding pattern for copper and that's reflected in the range-bound prices seen for most of the last year, with prices between ~$3.30–3.90 per pound (lb). The same can be said of the world's economy—we can't say if it's especially healthy, or especially sick, or more likely, just has the "blahs."

This summer I wrote a "Mercenary Musing" called "Long-Term Fundamentals of the Copper Market"; I'm very bullish on the long-term copper outlook. "Short-Term Fundamentals of the Copper Market" followed about a month later. In it, I was equivocal on the direction of copper in the short term, and by the short term, I'm generally looking one to six months out. So now we're four months into that time frame and I still have the same view of the copper market. It's relatively healthy, but it is not robust.

TCMR: It's lingering at the bottom end of that range you talked about, at roughly $3.47/lb today. Do you see it staying there? Do you see anything changing in those indicators we talked about?

MF: Copper has dropped something on the order of $0.30/lb over the last month or so; the major reason is the "net longs" have come out of the market. Traders have been unwilling to risk speculative money in something that is obviously one of the most speculative markets on earth, and that's the futures and options market of copper. I don't think that what's happened over the last month in any of the metals is so much due to supply-demand fundamentals as it was geopolitical reasons connected with the U.S. elections.

TCMR: So you think it's the U.S. political situation, and not the China situation that's driving the recent decline?

MF: Absolutely. All financial markets were in holding patterns in the month leading up to the election.

TCMR: The International Wrought Copper Council (IWCC) recently predicted a 281,000-tonne surplus in 2013. Do you agree with that, and if not, what's your projection and why?

MF: I'm not a copper analyst per se, but I do understand copper supply and demand fundamentals. I don't make projections like that; I'll leave that for the analysts whose full-time work is analyzing a particular commodity. This supposed 281,000-tonne surplus, do you know how many days of world copper use that is?

TCMR: Tell me.

MF: About five days of global demand. The world uses somewhere between 55,000–60,000 tons of copper per day, or well over 20 million metric tonnes (200 Mmt) of copper a year. Current warehouse inventories only account for about eight days of world supply.

These projections always assume a certain amount of supply disruption every year such as labor strikes, accidents, infrastructure failures, weather, etc., usually something on the order of 5–10 days of world supply. So this 281,000-tonne surplus is basically calling for a balanced copper market. The IWCC is saying we're going to have another year largely in supply-demand balance. The copper market has been in supply-demand balance for the last five years. So what else is new?

TCMR: So you still think that $3.50–4 range is intact?

MF: For the next few months, I might expand that range to $3.30–4/lb. But if you look at overall supply costs, including operating, infrastructure and general and administrative costs, they probably average about $3/lb for producing copper worldwide. Therefore, it's a safe bet to say that if prices go below $3/lb, then supply starts coming off the market drastically and the price will go up.

TCMR: An SEC decision on a proposed JP Morgan copper exchange traded fund (ETF) has been delayed again, at least till December. Could such an ETF really take as much as 30% of official inventoried copper off the market and if so, what would that do to prices?

MF: It does not surprise me that it's been delayed once again because of the possible economic effects on the copper market and given the ability now for a single entity to exert significant control over inventories. If 30% of the copper stored in warehouses is not available to the market, prices could skyrocket.

The real concern here is that physical ETFs for industrial metals could be disastrous for the supply-demand fundamentals of the market. I personally do not think that this ETF is going to come about. If it does, then we will have even more manipulation of the copper market than at present. I don't think that would be good for a healthy supply-demand balance.

TCMR: Do you think the copper market is manipulated?

MF: All markets are manipulated. Duh.

TCMR: By whom?

MF: By large speculators with vested interests in that particular market. Get used to it. Learn to live with it. Our task should be to learn to speculate, trade and profit within the paradigms that we are given.

TCMR: Do you think the copper market is manipulated more than other markets?

MF: No. It is more speculative than most other markets though.

TCMR: If 30% of warehoused copper were to go away, that would make it even more vulnerable.

MF: Absolutely. Think about what that will do if you take 30% of official warehouse inventories, the short-term surplus waiting for a buyer, off the market. Obviously, with less of a buffer, the general overall effect would be increased prices. For example, look at precious metals ETFs. They have been one of the biggest drivers for price increases over the past few years.

TCMR: What countries would you say are the biggest users of copper and what are the biggest supplier countries? And are there any projects in particular you're watching?

MF: The biggest supplier of mined copper is Chile. The U.S., Peru, China and Indonesia are other big miners. The largest suppliers of refined copper are China, Japan and Chile, reflecting where the smelters are. The biggest user is China. Numbers two, three and four are Western Europe as a whole, the U.S. and Japan.

One of the future wild cards will be India because it is the world's second-largest country in terms of population. Lots of people still don't have electricity and a big portion of their electrical grid went down briefly last summer. Copper demand is going to be driven number one by China and number two by the rest of Eastern Asia; that would include mainly India and Indonesia. Further out, it will be sub-Saharan Africa. About 25% of the world's population still can't turn on a light switch at night. That's one of the reasons I'm a long-term bull on the copper market.

TCMR: Are most of the producers long established, or are there some new projects that have the potential to change the supply-demand fundamentals going forward?

MF: There are new projects coming along, but for the most part they are either brownfield projects or they are much lower grade than we are seeing for current producers. The problem is we cannot find enough good copper deposits to replace the reserves that are currently being mined.

Established producers are mining lower and lower grades at higher cost and, based on supply and demand fundamentals, copper prices must continue to rise over the longer term. But by the same token, operating and capex costs are keeping pace or exceeding the price increases. So, as Brent Cook is very fond of saying, the world uses a Bingham Canyon every year, about 17 Mmt of newly mined copper and that does not include 4-5 Mmt of scrap supplies and recycled copper. We have to find more and more and that's hard to do with world use growing at an average of 4% per year since 1900.

TCMR: Is technology making it easier to find underground sources?

MF: There are some new tools such as deeper-seeing geophysics tools and remote sensing satellite imagery. The problem is that we've found the outcropping copper deposits in the world. So now we have to discover new, deeper, potentially mineable underground sources.

To be successful, that process comes from a combination of very good multi-disciplined work and new interpretations by companies going back into previously explored districts, specifically places like the southwest U.S. and Chile. So we are making new discoveries employing boots-on-the-ground geology, advances in satellite technology, geophysics, data processing and, as always, drilling.

TCMR: Is there a project that interests you right now?

MF: The company that attracts my attention is Curis Resources Ltd. (CUV:TSX.V; PCCRF:OTCPK). It's a company I cover and hold a share position in.

Curis is developing a new in situ recovery (ISR) project in southeast Arizona. It will be the first greenfield ISR project in the world. Curis has received a permit for a test mine facility and construction will start soon. The stock has been beaten up unmercifully and I think it has very good upside.

TCMR: It looks like it's at $0.67/share right now. It was much higher, almost $4/share back in 2011. Do you think it could reach its previous highs, and if so, what would send it there?

MF: That's not my current target price on it. I started covering the stock about a year ago when it was trading in the $0.90 range. I had the opportunity to cover it much earlier, and declined because it was overbought. It finally got to a price where I thought it had significant upside, i.e. a double in 12 months or less. That has proven not to be true because the company had some permitting difficulties, which have now been resolved, and then got hit by a negative publicity campaign in a very bad junior market. The stock got as low as $0.36/share this summer. At its current trading price, I consider it a buy.

TCMR: When we're talking about the catalysts for the stock, you said it should be in production soon. When do you think it will be in production?

MF: The current projection is that the Florence project will be producing copper from the test mine facility sometime in the second quarter of 2013.

TCMR: Is this a site that you've visited?

MF: Yes.

TCMR: What did you see when you went there? How do you like the management team?

MF: It's a Hunter Dickinson company, so there's no doubt about the management team. It has a good share structure and has the ability to finance. There's not much to see when you go look at an ISR project though; they simply are well fields, tank houses and water impoundments. At Florence, there's flat desert, a few hills and some irrigated fields. We did look at the core and at an old well field and facilities that were developed by BHP around 1990, which abandoned it due to poor copper prices at the time.

TCMR: Copper is a new field for a lot of investors. What advice would you have for someone thinking about getting into the space?

MF: Investors need to find and stick with good, fundamentally strong companies. Unless you are a much more speculative gambler than I am, the futures and options copper markets are not something that I consider a small investor can profit in.

I'm a long-term bull in copper and so I'm always looking for good copper projects. I certainly want them to be in the lowest quartile of operating costs to reap windfall profits during the good times and to weather low prices during the bad. I picked Curis because their projections for operating costs will be some of the lowest in the world as an in situ recovery project and not a big open-pit or underground mine.

TCMR: Thank you for your time.

MF: It's always my pleasure.

Michael S. "Mickey" Fulp is the author of The Mercenary Geologist. He is a certified professional geologist with a Bachelor of Science in earth sciences from the University of Tulsa, and a Master of Science in geology from the University of New Mexico. He has 35 years' experience as an exploration geologist searching for economic deposits of base and precious metals, coal, uranium, oil and gas and water. Fulp worked for junior explorers, major mining companies and investors as a consulting economic geologist for 20 years, specializing in geological mapping, property evaluation and business development. In 2007, he went from the sell- to the buy-side as an analyst, writer and speaker.

Want to read more exclusive Critical Metals Report articles like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators and learn more about critical metals companies, visit our Critical Metals Report page.

1) JT Long of The Critical Metals Report conducted this interview. She personally and/or her family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Critical Metals Report: None. Interviews are edited for clarity.
3) Mickey Fulp: I own shares of the following companies mentioned in this interview: Curis Resources Ltd. I personally and/or my family am paid by the following companies mentioned in this interview: Curis Resources Ltd. pays a fee to sponsor my website. I was not paid by Streetwise Reports for participating in this interview.

Streetwise - The Gold Report is Copyright © 2012 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

The Gold Report does not render general or specific investment advice and does not endorse or recommend the business, products, services or securities of any industry or company mentioned in this report.

From time to time, Streetwise Reports LLC and its  directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

101 Second St., Suite 110
Petaluma, CA 94952

Tel.: (707) 981-8999
Fax: (707) 981-8998

© 2005-2015 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History