Not so long ago, copper prospects were so bleak that many marginal copper mines closed. Just three years back, U.S.-based copper giant Phelps Dodge
What was selling during the third quarter of 2003 at $0.69 a pound hit an all-time high of $1.738 yesterday. Copper is off a little bit from that high, but at $1.63 a pound, it remains at historically high levels. The building boom in China has been a major catalyst, and the combination of heightened demand and decreased supply has produced outstanding earnings gains. That's true even for huge diversified natural resource companies such as BHP Billiton
Sending copper higher recently was a strike in July at copper miner Asarco, a subsidiary of Grupo Mexico. Already weakened by environmental cleanup costs, Asarco filed for bankruptcy protection yesterday. When its mines will come back into production is not known.
The obvious beneficiaries of these high prices are the major copper producers, a list that includes Phelps Dodge, Southern Peru Copper
There's profit for the taking in this market if copper prices remain elevated for a while, though better valuations might be in the offing when copper prices drop. It's worth noting, however, that mining is capital-intensive, and some miners, like Southern Peru Copper, are laden with debt. The miners with the stronger balance sheets are, of course, better positioned to reward shareholders over the longer term, and that will become even more evident when copper prices do decline. Patient investors may be rewarded.
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