Copper Prices Bring Good Tidings for BCL, African Copper

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Sep 14, 2009 (Mmegi/The Reporter/All Africa Global Media via COMTEX) -- AFNCF | Quote | Chart | News | PowerRating -- Following a grim start to the year, the clouds have cleared over the country's copper producers with international trends indicating the red metal is gaining value faster than other minerals on the global market.

Over the years, the price of copper has played havoc with mines' books, at one point weighing down BCL Mine and forcing the Selebi-Phikwe- based mine to rely on external funding of its operations. Prior to the global financial crisis, copper had been on a rally, enabling BCL Mine to ease its debt burden, while simultaneously driving the development of African Copper's Mowana Mine and Discovery Metals' Boseto Copper Project.

With the onset of global credit crunch late last year, and the resultant drop in demand for most minerals, including copper, the metal's value plunged by an estimated 60 percent by February 2009, forcing the collapse of the newly commissioned Mowana Mine, which found itself unable to sustain its operations or source further operating capital.

This week, shareholders at BCL Mine, African Copper and Discovery Metals had reason to smile with emerging statistics indicating that the red metal's price has ballooned by more than 50 percent since April and is presently trading above the US$6 300 per tonne mark. On Tuesday, the price of copper jumped to US$6 530 per tonne, prompting analysts to revise upwards their forecasts for the metal's value in 2010.

Driving the copper price is demand from China, higher uptake of houses in the United States of America (US) and stronger market confidence around the red metal's future value. China accounts for 23 percent of the world demand for copper, while the American construction industry is another major off-taker of the metal. Presently, it is estimated that the average American home contains around 180 kg of copper, with this set to increase as houses take up "structured copper wiring/smart wiring" technology.

Thus, the demand for copper in US becomes linked to households' emergence from the credit crisis, which originated in the proliferation of relaxed mortgage credit for American homeowners. The US automobile industry, another major market for copper, is also showing signs of strength, helping confidence in the metal. The average car contains two km of copper and alloy cables. The copper price rally has also been helped by the weaker US dollar, which has made metals priced in the dollar cheaper for holders of other currencies.

On the other hand, China in recent months has aggressively been buying up stocks of copper, taking advantage of the lower prices, to support its massive infrastructural development projects, which in turn are financed by the state and private funding. According to the World Bank, China is pressing on with its 10-point stimulus plan, which has an emphasis on infrastructure development and other investments.

China's central government has committed 0.17 trillion US dollars to the 10-point plan between 2009/10, with more coming from local governments and bank lending. After spending US$15.2 billion at the end of 2008 on the 10-point plan, the Chinese central government plans to spend US$71.32 billion this year.

"Stocks of copper at the London Metals Exchange (LME) were below 260, 000 tonnes on July 13, driven down by Chinese State and consumer buying, against levels above 540, 000 late February. Inventories have been rising since the middle of July and now stand at above 315, 000 tonnes, but this is unlikely to erode confidence in the copper market," Reuters said quoting commodities analysts.

In Botswana, African Copper, which restarted its Mowana Mine at the end of August, is well positioned to reap the benefits of the higher copper price. The junior miner - now empowered with a new mining contractor and specialised metallurgical and engineering team - is recovering higher grades of copper at its northwestern Botswana operation.

"The feed grade delivered from the pit from fresh ore exposure has been consistently +/- 20 percent above the forecast feed grade of 1.2 percent Copper. Similarly, the early average concentrate grade produced is 26 percent Copper, which is +/- 12 percent above forecast," African Copper officials said on Wednesday.

Mowana Mine boasts an inferred resource of 46.27 million tonnes of copper, with an expected production output of 5 000 tonnes per year, rising to 25 000 tonnes in three years'time.

Established copper miner, BCL Mine, is also well positioned to fully benefit from the higher copper price. The Selebi-Phikwe Mine's financial position has vastly improved this year, enabling to pay P29 million in tax to the Botswana Unified Revenue Services (BURS) for the first time. The Mine's books improved during the base metal boom prior to the recession, coupled with prudent financial management which meant that BCL had funds "saved over for a rainy day."

Another reason BCL Mine is well poised to leverage on the copper price, is that it has reduced its external debt and thus higher revenues from copper sales will directly impact profitability and longer term sustainability of the Mine."Our debts have gone down through negotiations with our debtors, which has allowed us to mark these funds as profits and pay tax. We are in a much better state than we have been since the Mine began functioning.

"We were able to negotiate and keep a lot of the money we made during the period of high metal prices and that's why we have not had to go back to government for funding," BCL General Manager Montwedi Mphathi said recently.Government and other external financiers such as the European Union (EU) strongly steadied BCL Mine during its turbulent times, with government pumping in P414 million between 2001/02 in emergency funding.

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