RG: One of the things I've learned is that I'm not particularly good at forecasting prices. The forward strip markets, the futures prices on the London Metal Exchange, incorporate the aggregate of expectations and are better at forecasting prices. That seems to be calling for a steady increase in copper prices over the next 10 years.
RG: At the beginning of every year, copper mining companies publish their production goals, and typically up to 2005, they achieved that. One of the ways they did that is by tucking away some high-grade ore so they could kick up the pounds if needed at the end of the year. But since 2005, the world's copper industry has consistently produced 7% less copper than planned. One of the reasons we've had these shortfalls is that those areas of high-grade ore don't exist anymore. They've been mined out.
That is why we have a supply side issue at existing mines. When it comes to building new mines, not only are we not finding sparkling new copper deposits at the rate we used to, but also it takes longer to get mines into production—12, 15, 20 years—because of new environmental compliance regulations.
That is why this isn't a typical cycle. This is a cycle constrained by government compliance and governmental regulations.
TGR: Can the junior companies fill that demand in the coming cycle?
RG: Many juniors have superb projects, but they're lacking financing. Banks generally want to lend to big companies. So the juniors are sitting, waiting to be taken over or engage in a joint venture with a big company. But big company shareholders often do not want to see their companies underwriting big new expansion projects. They'd rather see that cash returned to them.
TGR: What are the companies that have some money to move projects ahead?
RG: First Quantum has become a big company by growing internally and through the recent takeover of Inmet Mining Corp. That big company interest will allow Cobre Panama to come on stream roughly as planned.
NovaCopper Inc. (NCQ:TSX; NCQ:NYSE.MKT) has an equally good project. In fact, it's smaller and higher grade. It's in Alaska, which many people would consider to be a more stable jurisdiction than Panama, but it can't yet get full financing. The project continues to be studied and permitted, but we don't have the financing to bring it all the way through to production yet. The company has managed to get enough interest from investors that it's staying alive, but it doesn't have financing all the way through to production.
Nautilus Minerals Inc. (NUS:TSX) is a small company, but it was able to find financing, largely through partnering. One of those partners is the government of Papua New Guinea, which is in for 30% of that project at the bottom of the ocean off the country's coast. That has provided enough financing to move the project all the way through to production.
TGR: Has Nautilus answered the risk question associated with underwater mining and proved it can be economical?
RG: Nautilus is merging mining technology and deep ocean oil and gas drilling technology. I have confidence that the engineers have figured out a way to make it work.
read all: http://www.mining.com/web/salman-partners-economist-calls-bottom-in-copper/
