Friday, April 29, 2011

Barrick bid suggests copper will be the new gold

Reuters reported that soaring global demand for copper makes the metal a better bet than gold and explains a surprise bid by Barrick Gold Corporation for copper miner Equinox Minerals. Barrick's USD 7.68 billion offer for Equinox trumped one by Minmetals Resources.
Minmetals bowed out of the battle for the copper miner which has been involved in takeover tussles of its own with smaller miners saying Barrick's bid was too rich. The move signals a shift by Barrick away from a near-pure gold play into a more diversified mining company, highlighting the positive demand outlook for industrial metals in an improving global economy.

Mr Pinaki Rath MD of Gold Matrix Resources said that "Perhaps copper is the new gold. The long-term prospects for base metals look good. The risk of rising interest rates as world economies shift from the highly accommodating monetary policy adopted during the global financial crisis to more normal conditions could cap the upside for gold while industrial appetite for copper would support prices.”

Both copper and gold prices have hit record highs this year copper on the London Metal Exchange touched an unprecedented USD 10,190 per tonne in February while spot gold rallied to a record USD 1,518.10 an ounce as recently as Monday. And demand growth from emerging economies like China which currently consumes 40% of world copper output or around 8 million tonnes will keep prices firm while miners struggle keep up.
Mr Judy Zhu analyst at Standard Chartered Bank in Shanghai said that "For at least the next three years we are still very bullish on copper as the market will remain in deficit over that period, even under the most conservative global demand forecasts. And there is a possibility that this deficit could be more prolonged if demand grows faster than expectations. Copper is highly exposed to Asia and urbanization in China and India will provide upside momentum for at least the next 10 years and perhaps as long as 20 years."

Both copper and gold markets have seen a huge turnaround from their lows in the post Lehman Brothers financial meltdown with copper prices up threefold from lows struck in December 2008 below USD 3,000 per tonne. Gold prices have risen by a more modest 120% in the same period.

Mr William Adams analyst at FastMarkets said that "It's not a bad time to diversify if you are a gold miner. There are lots of reasons to be bullish on gold, at the same time copper has a stronger long-term outlook. Over the next five years I am by and large bullish and wouldn't be surprised if copper saw an upper range between USD 10,000 to USD 12,000.”


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