Copper Ore

International Copper Ore

 Availability

General Situation:

 The international financial situation has resulted in a reduction of the availability of many raw materials within the market place as a whole. This is a position that has been brought about by several factors.

 The slowing of the world economy has not reduced the cost of production of raw materials; the costs of labour, machinery; operational overheads and freight have all either remained stagnant or have marginally increased over the past two years. When these factors are combined with the resultant effects associated with the mergers of several of the larger international mining conglomerates and with the large number of acquisitions, mainly by Chinese companies; the effect has been a stabalizing of the market.

 The present international stock-piles have remained relatively steady over the past six months with only minor fluctuations due to the buying of reserves by the Chinese Government. The Chinese Government presently hold reserves of approximately one million metric tons of copper. There are no plans for an increase of this stock-pile.

 The acquisition of copper assets, the mergers presently in progress of some of the larger mining companies and the reduction of the buying from China for stock-piling has all led to a slowing of production. Many of the companies that have been acquired by Chinese interests have been acquired not to supply the world market as a whole but more specifically to supply an individual producer within China. This is a significant point as it relates to the control of the market price by controlling the levels of production to meet the user requirements. This will have a longer term effect of increasing the cost of raw materials to all buyers other than those who actually own the raw material assets.

A further aspect to be considered is the reduced confidence of the international banking system and the reluctance to provide funding for new mining projects.

These factors have all resulted in reducing the available supply of copper ore on the world market and as a consequence raised the market price at a slightly higher level over the past six months.

Regional Production and Availability:

 The price of copper ore across the marketplace is influenced by local factors as well as international considerations. Factors such as the resource size, production capacity and, localized costs all marginally affect the market price. These factors however are largely confined to the smaller producers.

Philippines, Indonesia & South East Asia

 The production capacity of the Copper mining operations in the Philippines is limited by the resource reserves. Most of the operations are of a smaller scale with monthly production capacities of between 100 – 1,000 metric tons per month with little potential to increase production beyond these limits because of the limited resource. The ore produced from these sources is typically 15 – 25 percent.

 The area of South East Asia comprising of Vietnam, Cambodia, Laos and Thailand is also influenced by the scale of the resource reserves and local factors such as transportation infrastructure. While there are a number of small to medium scale operations with a production capacity of copper ore with a copper concentration of around 20 – 25 percent none have the potential to supply in volumes greater than 2,500 metric tons per month. The emphasis of these producers is to supply a higher grade of ore typically above 30 percent. This tendency influences the asking price and subjects that price to the LME rates. The ore from such sources if best suited to smaller scale end users who are interested in a higher concentrate product.

 Suppliers of copper ore from the regions of Indonesia fall into two main categories. The first being small scale operations with limited resource and limited production capacity and the second being large scale operations owned and controlled by major international companies who sell the ore in large volumes at a price relative to the LME rates. To possibility to negotiate individual supply contracts with such companies is extremely limited. The terms and conditions relative to any supply contracts are predetermined and are non-negotiable.

Australian Copper Ore Producers

 The resources of copper ore within Australia are extensive. The entire continent of Australia has in recent years been subject to an intensive geological survey that has effectively identified all of the available resources of raw materials. The result of this survey has been the establishment of a large number of operations involved principally in the exploration and identification of the individual resources. The various companies involved have all secured tenement rights to the majority of these resources however, only a few companies are actually in the production stage.

 The down-turn in the international economy has made the availability of funding for such development projects difficult to obtain. As a consequence of this situation he majority of the companies that hold the tenement leases for the reserves are actively seeking international joint venture arrangements to provide the funding required for production. Almost without exception these, largely Australian owned companies, are looking to China as a source for funding.

 The majority of the copper mining operations within Australia that are currently in production are controlled by international companies such as BHP, Rio Tinto and Exstrata. The ability to negotiate supply contracts with such companies is extremely limited and the regulation of the price for the ore, if at all available, is also a matter that is non-negotiable.

African Copper Supplies

 The production of copper ore across the continent of Africa is increasingly coming under the control of a few larger international companies. Those copper mining operations with good resource a rapidly falling into the hands of the major players. This is particularly so in South Africa, Tanzania, Zambia, Nigeria and The Congo.

 Within a period of five years it can be expected that all of the known resource of good quality and size will be under such control. This will limit the potential to establish supply contracts at reasonable rates that are below the market price.

 It is still possible to establish supply contracts with a few of the medium sized operations within some regions of Africa that are not presently controlled directly by the major international companies; although, this is a situation that will not exist for much longer.

 The African companies are all very much aware of the international price for their copper ore and also recognise the international situation of the economy and understand fully the true value of their resources. As a consequence they are not

Prepared to negotiate a price that is significantly below an accepted international level. Such African companies that hold such resources are also aware of the international trading, payment and shipping structures and are extremely reluctant to deviate from such arrangements.

 The essential point here is that there are a few companies with a production capacity of between 10 – 20,000 metric tons per month that are able supply a copper ore with a concentration of 20 – 30 percent however, the asking price is almost beyond negotiation.

Iran, Pakistan, Turkey, Kazakhstan & Russia

 The supply of copper ore from these regions is subject to both political and economic conditions. While Pakistan and Iran both have good resources of copper ore the political situations raise issues of the reliability of supply.

 The main copper mining operations in Turkey, Kazakhstan and Russia all are well known and are increasingly under the control of the major international Mining companies. This effects the regulation of price and the capacity to supply is also increasingly controlled from these sources.

 The geographic location of the mining operations within these regions also has a significant effect upon the logistics of supply to an Asian market. The costs associated with shipment make the resource an expensive consideration even if the cost of the resource was supplied at a reasonable rate. Most of the production from these regions is supplied to end producers in Europe and in western Russia. There is little resource available for supply to the Asian market.

South America

 The largest resources of copper ore in South America are to be found in Chilli. However, it should be noted that almost without exception these resources are controlled by either America or Canadian interests. While the resources themselves are extensive the ability to negotiate any supply contracts below a regulate price as influenced by the LME is almost non-existent.

 Copper ore reserves in Brazil are almost exclusively under the control of Vale, and are again subjected to the same influences of pricing and supply control as those in Chilli.

 A final option for supply of copper ore from South America exists with Argentina. It is possible to obtain good, reliable supplies from this source although,

the price is not a matter for negotiation nor, to a large extent are the terms of payment. This area does however represent the best option for a buyer seeking a large volume of supply.

Summary:

 The present international economic situation and the increasing levels to which the world’s copper ore reserves are coming under the control of the few major companies will in the very near future make the options of a buyer and the ability of the buyer to influence the price and payment structure extremely limited. This is especially so if the buyer wishes to have supplies of more than 2,500 metric tons per month.

 As a consequence of these considerations, a buyer should be looking at the market place now to secure all possible resources that are of a reasonable capacity and are not presently under the control of the major international companies.