Copper Industry Trends and Fundamentals
The price of copper has improved significantly from a low on the London Metal Exchange ("LME") of approximately $0.60 per pound in November 2001 to a high of $3.91 per pound on May 11, 2006. As at June 12, 2007, the LME spot price for copper was $3.29. The Corporation believes that the current positive fundamentals for copper will remain in place for the foreseeable future.
Global economic growth is expected to be strong and drive demand for copper. Brook Hunt, an independent mining and metals industry consultancy, forecasts global industrial production to grow by 4.4% in 2007 and 4.1% in 2008, following a 5.2% increase in 2006. Over the five year period 2007-2011 Brook Hunt forecasts that industrial production will improve by 2.6% per year, as shown in the table below. The North American economy is forecast by Brook Hunt to grow by 2.3% in 2007, 2.5% in 2008 and 1.1% per year on average over the five year period ending 2011. Meanwhile industrial production in Western Europe is forecast by Brook Hunt to grow at the slightly lower annual rate of 0.9% per year over the period 2007 to 2011.
Estimated Annual Global Industrial Production Growth
China's strong demand for copper for infrastructure development, automobile manufacturing and electronic appliance exports is partly responsible for supporting high copper price levels. China leads all regions with industrial production forecast by Brook Hunt to grow at 16% in 2007, 13.5% in 2008 and 10.3% per year on average over the five year period ending 2011. China has historically been unable to meet its copper consumption requirements with domestic production and the resulting need for imports is expected to continue.
Estimated Copper Consumption Versus Domestic Production - China
Brook Hunt also expects other countries such as India and Russia to demonstrate strong industrial production growth for the foreseeable future.
Under these global industrial production growth rates Brook Hunt forecasts global copper consumption of 18.2 million tonnes in 2007 and 18.9 million tonnes in 2008. The growth in copper consumption is forecast at 4.1% in 2007, 4.0% in 2008 and 3.0% per year on average over the five year period ending 2011.
The Corporation believes that historical supply increases in the 1990s, together with a period of weak economic growth in the late 1990s, resulted in an over-supply of copper and thus a significant drop in prices which persisted until late 2002. Due to such lower copper prices, exploration and development activities were reduced during this period. However, due to the recovery in prices since 2003, Brook Hunt believes that there is now sufficient mine capacity currently under construction to meet potential medium term demand through to 2011 although longer term supply shortages still exist. The copper industry also finds itself competing for labour at both the operating and project design level, with experienced personnel in heavy demand. Labour shortages have been particularly acute in the project engineering sector where high demand across a number of industries has created significant capacity constraints in the sector.
Global Copper Mine Production (Brook Hunt Base Case)
Based on current production plans, the transition from positive to negative growth in Brook Hunt's base case mine output is expected by 2011 as production is lost either to mine closures or grade attrition exceeding committed incremental expansion or committed new project capacity. Base case mine production is thus forecast to decline by 1.8% in 2011 with mine output falling to approximately 17.6 million tonnes, which is approximately equal to the forecast demand for mine output. However, from 2012 onwards demand for additional mine production to meet increased market requirements for refined metal is expected to create an implied shortfall in mine output. This shortfall is expected to be satisfied by the reactivation of closed mines, new ore discoveries at currently producing mines, incremental expansions, or the development of greenfield projects.
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