And I’m still recommending the company as a strong buy.

Freeport-McMoRan is one of the world’s biggest copper miners, with 12 producing mines in Indonesia, North America, and South America, along with exploration projects in Africa.  As of December 31, 2008, consolidated recoverable proven and probable reserves totaled 102.0 billion pounds of copper.  As copper prices rise, the value of the ore they have in the ground increases, resulting in a higher stock price.

Freeport-McMoRan is well positioned to capitalize on rising demand for copper.  The company’s copper production totaled 4.0 billion pounds last year, while gold production totaled 1.3 million ounces.

I expect a full recovery in the demand for copper and much less supply.  Copper is at $2.80 per pound and it could easily go over $3 per pound in a couple of months.  Production of copper can’t keep up with demand, as production at existing mines is dropping and a smaller number new mines start production.  Falling scrap supplies are also leading to lower copper inventories.

Copper is one of the best conductors of electricity.  It doesn’t corrode easily and it’s bendable and strong.  Copper is used in every industry and is absolutely necessary to sustain our society.  It’s widely used in construction, coinage, electronics and automobiles, and the price is closely tied to economic activity.  Economic activity is showing signs of a recovery and copper prices will benefit.

China, the world’s biggest metals user, should also help revive copper prices with a new wave of government stimulus spending, leading to steady construction and infrastructure activity.  Copper demand is already picking up in China during its peak construction season.  It also appears that China desires to triple its government copper reserves.

Other countries are also increasing spending on infrastructure projects like roads and bridges as well, which will boost demand for the copper used in wires and pipes.

Worldwide government stimulus spending programs spur economic growth and encourage higher copper consumption.  Copper will benefit from the “reflation trade”, which is playing out due to central governments attempting to stimulate the economy by increasing the money supply.  This “reflation” can cause inflation and benefit copper prices, and therefore FCX.

Freeport-McMoRan (FCX) stock looks good from a technical perspective as well.  The 50-day moving average is rising (a bullish indicator).  Moving Average Convergence/Divergence (MACD) and relative strength is bullish.  And the stock recently broke a double-top chart formation which is very positive, see the chart below:

I recommend you own some Freeport-McMoRan stock (FCX) as a long-term core holding for your stock portfolio.  Also, I have my eye on a new round of call options on Freeport-McMoRan that have the potential to produce gains of 200% or more as the stock moves higher.

My Options Power Trader takes all the guesswork out of selecting the right options contracts.  I will send you all the details on the options contracts that have maximum profit potential with limited downside.  There are many opportunities in these fast moving markets for options profits.  Click here to find out more about the Options Power Trader.

Best Wishes,

Ted Peroulakis

Source: Freeport-McMoRan Is Off to the Races

Shares of Kaminak Gold added C$0.055 to close at C$0.18 after the junior announced that it picked up an option to earn 100 per cent in three projects located in the White Gold area of the Yukon.

Moly miner Roca Mines added C$0.065 to close at C$0.40 on no new developments.

Charles Fipke-led Metalex Ventures reported that the third vertical hole drilled on a kimberlite discovery in Angola hit kimberlite at 12.2 metres depth and the drill is still in primary kimberlite at 141.8 metres depth. Metalex is hoping that the eroded parts of this pipe are the source of the abundant high-quality alluvial diamonds being mined downstream. Metalex ended the day up C$0.10 at C$0.69.

On the copper front, shares of Anvil Mining added C$0.26 to close at C$1.39 after the company closed a C$34.5 million financing priced at C$1.15 per share. The funds will be used on its Kinsevere copper mine project in the Democratic Republic of Congo.

Phoscan Chemicals surged C$0.10 to C$0.43 on no new developments. The cash rich company holds the Martison phosphate property in Ontario.

Kinross Gold (NYSE:KGC) has agreed to take down 10 million of the 14 million shares of Fortress Minerals being offered at C$0.25 per share. The proceeds will be used on the Svetloye gold Project in Far Eastern Russia. Fortress ended the day up C$0.06 at C$0.35.

A rising tide lifts all boats seems to be the saying of the day. The euphoria has junior exploration companies once again talking about spinning off assets to unlock value. This suggests that the go-go mentality is coming back into the sector….perhaps way too soon. Unemployment numbers for Canada and the United States are due to be released on Friday so some caution is warranted. We shall see what Tuesday trading has in store.

Source: Resource Stock Roundup:Tuesday, May 05th, 2009

This from The Sovereign Society:

Records were broken in 2008 – money-losing records from an investor’s perspective.

U.S. stocks will record their worst calendar year since 1931. As measured by the S&P 500 Index, the broader market tanked 40% this year while the Dow Jones Industrials fell 36%.

U.S. stocks are already “dead money” since 1996. They’ve shown no net gain at all – including dividends. The ongoing market environment is eerily similar to another period of dismal returns – from 1966 to 1982. During those 16 years, the Dow and S&P 500 Index posted zero profits. Adjusted for soaring inflation, the markets actually recorded a loss.

Global equities as measured by the MSCI World Index posted its worst year since inception in 1969. International equities fared even worse with European and Japanese stocks down more than 45% and the MSCI Emerging Markets Index clobbered – down 53% in 2008.

World Markets Got Trashed in 2008

For stocks, the ongoing bear market has resulted in record mutual fund outflows as investors continue to dump their holdings and run for cover into money market funds.

Unfortunately, money market funds are now paying barely any yield at all since the Fed slashed interest rates to effectively 0% on December 16.

Only Treasury bonds, European and Japanese government bonds yielded a profit for investors in a wickedly harsh year for investors. As a currency investor, naturally you already know that the Japanese yen was also a winner against the dollar and euro as the “carry-trade” came to a crushing halt.

So Much for “Diversification”

With the exception of super-safe and low yielding U.S. Treasury bonds, yen and gold, the entire gamut of assets from stocks to non-Treasury bonds all plummeted in 2008.

Commodities, certain currencies, fine art and hedge funds all succumbed to brutal price declines. Overall, 2008 was the first losing year for U.S. and global stocks since 2002 and the worst period to be invested in financial and hard assets in more than 75 years.

Stop-losses rang out like pinball machines in 2008. Diversification across sectors, industries, countries and currencies proved futile. Almost everything was pummeled. By October 10, a panic gripped world markets as the threat of systemic collapse threatened the viability of the banking system.

Chaos to the Rescue

In late 2007, I introduced the TSI Chaos Portfolio, to my Sovereign Society readers. It’s a U.S.-based portfolio of six equally-weighted investments, including short-term Treasury bonds, gold, Japanese yen and reverse-index funds that bet against the S&P 500 Index. Recently I added a seventh safe-haven – short-term German government bonds.

This cost-effective strategy dominated my recommendations in 2008 rising more than 17%, including dividends.

For growth investors, hedging your market exposure is vital in a secular bear market. I continue to like the TSI Chaos Portfolio in 2009 even though the stock market has probably suffered the bulk of its declines at this point.

Volatility will remain rampant in an uncertain economic environment marked by growing consumer credit woes, massive government bond issuance to support gargantuan fiscal spending plans and weak corporate earnings. Investors must hold downside market protection.

Short Most Commodities, But Stock Up on Gold & Silver

Starting in October 2007, I recommended my Commodity Trend Alert (CTA) subscribers begin to bet against oil and gas stocks as a way to hedge against the energy sector. At the time, oil prices were racing to US$100 a barrel and the oil stocks were in the midst of a multi-year bull market. We all know how that story fared in 2008.

Since peaking in July, the benchmark CRB Index has crashed more than 50% as the entire commodities complex continues to aggressively deflate in a rapidly slowing global economy.

To protect our natural resource exposure in CTA, I immediately issued a series of reverse-index purchases betting against commodities. We were most successful betting against industrial metals or base metals, as copper and other metals collapsed. That position, still open, has gained a cumulative 80% since August 2008.

And since September, CTA has been riding a broad commodity index to the basement as part of our reverse index strategy – up more than 60%. We also maintain hedges against gold, oil, gas and long-term Treasury bonds.

Gold has also been a strong performer compared to most other assets in 2008.
Significantly, gold is the only asset that is completely outside the credit system and the only asset that has no liability.

In 2008, spot gold prices gained a modest 1% – not much in absolute terms but certainly impressive compared to other plunging assets. Silver, more of an industrial metal and therefore more vulnerable to broad economic trends, declined 18%.

Looking ahead to 2009, growth investors will only reluctantly return to stocks. Losses have been massive for investors since late 2007 as mutual fund redemptions hit records.

Stocks might indeed offer better values compared to mid-2007 after plummeting more than 40% from their highs. But domestic consumption in the United States, Japan and Europe is depressed and likely to remain under threat as unemployment rises and savings rates begin to rise again.

The correlation between a higher savings rate and corporate earnings is negative. It’s difficult to be bullish on earnings when the world’s largest economy will remain mired in a period of sluggish growth, debt retrenchment and rising job losses. The same is true for Japan and Germany – the second and third largest economies, respectively.

This is not the time to be aggressively buying stocks. Odds are prices will get cheaper again following any bear market rally. That’s certainly been the case every time stocks have rallied off their lows since October 2007.

Instead, make sure your portfolio includes gold, portfolio hedging strategies and income from high quality investment-grade corporate bonds in 2009.

Source: Rising from the Ashes: The Three  Investments You Need to Own for 2009

This from The Rude Awakening:

The panic in this market is incredible. It’s leading to some absurd valuations. Particularly among the smaller-cap stocks. These stocks have really been hit hard because they have less liquidity than large cap stocks.

When waves of selling sweep through the stock market, they might rock a large cap stock from stem to stern. But the same waves will capsize a small cap stock. So the conditions in the financial markets are very scary right now for any investor who’s holding small-cap resource stocks. But unless we slip into some global depression, these stocks will come back – and come back with a vengeance.

I, for one, can’t wait until earnings season, when we’ll get fresh numbers and updates on the companies I’ve been recommending to the subscribers of my investment service, Mayer’s Special Situations. I’m betting that the earnings power of many of these companies has not changed all that much in the last 90 days – at least not as much as their tumbling stock prices would have you believe.

So I’d like to highlight some stocks that look like particularly deep values right now.

NGAS Resources (NASDAQ:NGAS). Recent price: $1.47. I like the long-term outlook for natural gas. As T. Boone Pickens, the 80-year-old billionaire investor, says, “Natural gas is the fuel of the future.” It is clean-burning, and we have a lot of it in America. The estimates for U.S. shale plays are up around 840 trillion cubic feet of gas – the equivalent of more than 140 billion barrels of oil – or more than half the stated reserves of Saudi Arabia. Energy independence? Seems to me you have to look at natural gas.

NGAS has plenty of acreage. It also owns 636 miles of pipelines. It owns the critical infrastructure to bring its gas to market. The proved reserves alone – some 102 billion cubic feet of gas – ought to fetch $10 per share for a potential purchaser. The pipelines, at only 10 times pretax earnings, come in at about $65 million – or $2.50 per share. So infrastructure assets – which are becoming increasingly expensive to build – easily cover your entire investment in NGAS, since the shares trade for about $1.48 as I write. And I haven’t even put any value on the undeveloped acreage. The net asset value (NAV) per share on NGAS is somewhere north of $12 per share.

NGAS has some debt, which we have to watch. It has $95 million in debt, but it is not due until 2010 and 2011. If natural gas prices stay low for a long stretch of time, this debt could cause some problems. The value of the assets in NGAS, though, offers a lot of protection.

OM Group (NYSE:OMG). Recent price: $18.63. This is another one that baffles. OM Group had a great quarter ending June 30, and the shares surged 18% the day it announced earnings and nearly got to $40 in the ensuing rally. We got our shares for $30. Today, they are about $19. Amazing.

OM Group makes all kinds of chemicals, powders and materials, mostly from three metals: cobalt, nickel and copper. You can find the original recommendation in letter No. 25. That thesis is still intact, and I won’t rehash the whole thing here. Except I will point out that the company now trades for 3.5 times earnings. Predicting where these earnings will go from here is almost impossible. But I’m comfortable with the cobalt story and the metal’s growing use in batteries and aerospace. And at these prices, you can be wrong on earnings and still come out looking good.

Cobalt prices have tumbled to $13 per pound, compared to about $35 one year ago. As a result, earnings estimates are all over the map – ranging from $1.90 a share on the low side to $5.00 on the high side. For perspective, OMG earned $5.00 in 2007, when the cobalt price averaged $29 a pound. So maybe 2009 is a bad year. But the cobalt price will rebound eventually, and when it does, OMG will rebound as well. I should also point out that OMG has no net debt and plenty of excess cash, yet trades for less than half of stated book value.

The market is factoring in a very gloomy outlook for OMG, even though the most recent quarter gave us nothing but positive news (remember that 18% single-day gain). The market seems to have forgotten that and thrown out OM Group’s shares with all other commodity names.

Canadian Superior Energy (AMEX:SMX). Recent Price: $1.01 I was in Manhattan recently for the Value Investing Congress. The West Coast Asset Management team was there. They made a presentation on a few ideas they like. Someone asked them about Canadian Superior, which was their favorite idea about six months ago. They still like it and said that since their presentation, Canadian “has done nothing but knock the cover off the ball.”

I agree. Since we’ve owned it, Canadian has delivered good news on the exploration front and overall good results. These bits of news have, at times, sent the shares up as much as 20% in a single day. But those gains soon melted under the barrage of broader bad economic news and the market’s overwhelming sell-off.

As long as natural gas prices remain in the can, it seems as if market sentiment won’t turn much on the natural gas names. The market has just stomped on all of them and pushed share prices to really cheap levels. I think Canadian is a steal and gives you legitimate 10 times potential from its current price of only $1.00 per share. We picked up shares in June, and you can find the full write-up in letter No. 24.

Altius Minerals (TSX:ALS). Recent price: C$4.10. Altius owns a portfolio of royalties and prospects in Newfoundland and Labrador. This stock has tumbled to the sort of valuation extreme that I have rarely seen during my carreer. In fact, it is so statistically cheap that it is the kind of stock I have only read about in the dusty financial history books on the Great Depression. It’s something Ben Graham might’ve stumbled on in 1934.

The stock sells for less than its net cash!

The stock market currently values Altius at C$127 million. But as recently as June 30, the company had $187 million in cash. And that’s not its only asset. Nor is the company losing money. It’s actually adding to that cash pile. No surprise that insiders are buying. Plus, the company announced it would buy back 10% of the stock. So at the current price, in theory, you can buy the company for $127 million, drain the company treasury to get your purchase price back and still have $46 million left in cash, plus all the assets for free.

Altius, like all the stocks I have I highlighted here, look really, really cheap, with big upside.

I believe that’s really all we can do as investors. We can’t say what other people will pay for the stock or when they might pay more than they do today. We can only find these anomalies and wait for the market to correct the gaps, as it does over time.

I know that for the last couple of months, the stock market has been a very treacherous place for investment capital. On the other hand, cheap is cheap. And some of the stocks I’ve mentioned above are “Depression-style” cheap. I am not trading in and out of the market, trying to pick tops and bottoms. I believe such an effort is futile. Instead, I look for deep values and collect good bets.

Over time, we’ll get paid. But in crazy markets like this, we have to realize it might take a little while. We’ll have to be patient and build low-cost positions in these stocks. These are the times when you plant the seeds of monster future returns.

All bear market cycles turn eventually – as even this one will.

Source: Shooting Stocks in a Barrel, Part II

Nickel sagged from the pre-dawn hours all the way through, closing at its intraday low of $4.3681/lb., down 8 cents. Zinc was in the green until the noon hour, but then it too sold off, ending at its intraday low of $0.525/lb., down nearly a penny. Aluminum had another weak day, shedding a penny and a half to $0.7575/lb., while lead gave up just over a penny, to $0.4837/lb.

Copper was off, albeit perhaps not as much as might have been expected considering the selloffs in other markets, as well as the gloomy news that keeps piling up.

In addition to the grim purchasing managers’ indexes from the US, Europe, Russia, China and South Africa, India’s exports in October fell for the first time in seven years. And economists at JPMorgan Chase estimate that industrial production will decline in developed markets this quarter by the most since 1980.

Perhaps adding a little support to the red metal, and about the only bright spot to be found, was a modest stockpile decline, as inventories monitored by the LME fell 450 metric tons yesterday, to 291,200 tons. Inventories remain nearly 50% higher than September levels, and at their highest since January 2004.

Even as Barclays Capital in London was writing that, “Very weak Chinese and Indian manufacturing data bodes ill for metal consumption,” the governments of those countries were making moves designed to help. Both China and India lifted some price controls yesterday, in a desperate effort to sustain their recent powerful growth trend.

China’s Yunnan province also moved to support prices by purchasing 1 million metric tons of base metals, including 150,000 tons of copper, but to little avail.

Aluminum fell to a 3-year low as LME inventories shot up another 20,850 metric tons, to 1.82 million tons. That brings this year’s stockpile gains to 96%.

In company news, Norilsk Nickel, the world’s top producer of nickel and palladium, said it will cut output of the metals, as well as platinum. Nickel output is expected to fall to 298,000 metric tons this year from 300-305,000 tons, palladium output to 2.764 million ounces from 3.00-3.05 million ounces, and platinum output to 625,000 ounces from 710-720,000.

Output will drop again next year, and capex will be off 34% this year and a projected 48% in 2009.

Source: Base Metals Goin’ Nowhere

This from Investment U:

Consider that your computer could contain up to 38 separate chemical elements and that all of those elements needed to be mined and refined. Everything from cell phones to housing supplies requires massive amounts of raw materials.

Our modern lifestyle encourages us to buy the latest products, all made with increasing amounts of technology – and more raw materials.

But industrialized nations aren’t the only players clamoring for these commodities. Developing nations around the world are pounding the table for more of everything. They want what the industrialized west has had for years. And they want it now.

And that’s just the problem. There isn’t enough of it being produced fast enough to satisfy everyone. An imbalance exists between producers, supplies and the market. It means that there will be an inevitable correction.

Prices will skyrocket for base metals and commodities. And for investors aware of this “supercycle,” the rewards and returns could be immense. Here’s what you need to know about the international demand for commodities – and how you can profit from their price explosion.

Supplies Are Low – And Demand Remains High

The whole idea of a supercycle, of higher commodity prices, remains well intact. Even with the recent slowdown, a massive supply/demand imbalance exists in the marketplace right now.

And nothing has emerged to change that story.

“It is a mistake to assume that current volatility within the commodities sector is proof that the prolonged rally in commodity stocks is running out of steam,” says Ian Henderson, manager of the JPM Natural Resources Fund.

“It is also misrepresentative to attribute it to a change in the basic fundamentals of supply and demand… In reality, it is the self-perpetuating irrational market sentiment in itself which is causing a sell off…”

In the short term, however, we’ll likely continue seeing a softening of commodity demand, along with a decline in prices. But that’s okay because stock prices already reflect the new paradigm in which mining companies are operating.

Mining companies sit at extraordinary valuation levels right now. So buying now ensures that you’re grabbing shares at rock-bottom prices.

But in order to make the most of the opportunity, you need to look above the forty-ninth parallel, to Canada – the world’s investment hotspot for profits from the bull market in metals.

Simply put, Canada is the preeminent leader of the world’s mining sector. According to Paul Stothart, Vice President of Economic Affairs at the Mining Association of Canada,

“About 19% of the total global spending on mining exploration was for exploration within Canada’s borders, well ahead of Australia at 13% and the U.S. at 8%…”

Consequently, Canada’s mining industry will be crucial to satisfying the world’s needs because of its experience and technological capacity. And Canada’s mining-friendly laws only add to the country’s investment appeal – a far cry from other resource-rich countries where regulators are downright hostile. But it’s not just the producing nation that we need to worry about.

Fact is, the United States, Europe and Japan are no longer the only countries vying for the world’s resources. Other countries with young, blossoming economies are now demanding an increasingly larger piece of the pie.

The BRICs (a conceptual coalition of emerging superpowers, which includes Brazil, Russia, India and China) encompass over 40% of the world’s population and hold a combined GDP of $12 trillion dollars, which makes it the largest entity on the global stage on almost every scale.

These countries are in the midst of an unparalleled building boom that is consuming resources like never seen before.

In China right now, a city the size of Philadelphia is springing up every 30 days. (It is estimated that China will need enough structural steel to build a Manhattan’s worth of new buildings every year for the next two decades.) And within another 20 years, China’s economic output is likely to be greater than Japan’s, greater than Germany’s, greater, even, than the United States’.

In short, these countries are going to be fueling international growth for years to come. They’re hungry for the new resources needed to continue their astronomical growth.

Solid Growth at a Deep Discount

Now that you see the potential, there are plenty of ways to profit from this commodities boom. You could trade futures… stockpile gold coins… even buy a copper mine. Unfortunately, none of these approaches – for obvious reasons – are very practical. They don’t make sense for the majority of investors.

But that doesn’t mean that we can’t profit like the titans of Wall Street. The recent turmoil in credit markets – and corresponding volatility in the stock market — has handed us an extraordinary profit opportunity for a number of companies

So we’re advocating a more direct approach to mineral profits. With such a pure supply-and-demand opportunity, a more pure play on precious metal prices is warranted for the largest gains. Accordingly, we’re going straight to the source and recommending buying shares of the mining companies themselves.

Lundin Mining Corp. (NYSE:LMC) is a Canadian mining company with facilities located around the world, which is run by its namesake, the Lundin family. They are easily the most important family in mineral and energy exploration finance around the world.

They amassed a fortune in commodities – valued in excess of $4 billion – when oil cost about $20 a barrel and gold traded for $300 an ounce. By having an innate ability to spot value. In fact, just about everything this family associates with ends up being a massive commercial success.

The Lundin family’s flagship mining operation is trading in the $1 to $2 range, which is about 70% off of its October 2007 high, thanks to the recent commodity cool-off. That means that investors who buy now will get this incredible mining operation for less than half of its book value. Even better, our analysts say that the book value should be much higher than it is, which makes the case for investment here even stronger.

Furthermore, LMC has no debt, which gives it an incredible edge over most other industry players. It can fund its growth entirely on the cash it generates from operations – and not have to rely on the credit markets.

Fact is, the credit crunch is far reaching. And tighter lending practices have meant fewer loans to risky mining ventures. That leaves most miners in a pinch – but not LMC.

Lundin Mining is a phenomenal play on base metals, specifically copper, nickel, lead and zinc. Its operation includes six mines around the world, including five key mines in Portugal, Spain, Sweden and Ireland. Here are some highlights of these massive and highly productive mines:

• Zinkgruvan, Sweden: The primary metal produced is zinc, with lead and silver as byproducts. Costs have been reduced by 22% over the last year and new copper production is scheduled to begin in 2010.
• Neves-Corvo, Portugal: It’s an underground copper and zinc mine. Last quarter’s sales surged 52% over the same quarter a year ago. And it just approved a new program to profitably process mine tailings, which should substantially improve margins. (Mine tailings are the materials left over after processing the ore.)
• Aguablanca, Spain: This nickel and copper mine recently bumped operating efficiency up 46%.
• Galmoy, Ireland: About 100 miles from Dublin, the lead and zinc mine benefits from having a sound infrastructure already in place.
• Aljustrel, Portugal: The lucrative zinc mine is still ramping up capacity, which gives us an opportunity to get in on the ground floor.

What’s more, Lundin Mining has a few up-and-coming operations in the pipeline that are showing incredible promise, too.

One is the world class Tenke Fungurume copper/cobalt project in the Democratic Republic of Congo. It’s being touted as the largest and richest known copper/cobalt discovery in the world, covering almost 600 square miles of the Katanga Province. This blockbuster mine has an expected life of 40 years. And is projected to be in the lowest quartile of operating costs for copper producers.

The reasons for owning Lundin are numerous, but in spite of its enviable (and growing) inventory of proven reserves, shares can be had for a steep discount. The company is valued at $2 billion, which is only 0.63 times its book value. Even better, the forward price-to-earnings ratio is a measly 5.73, despite the company’s mines having a growth rate around 30% to 35% a year.

The market’s been noticing Lundin’s value as well. In recent days, a takeover bid has emerged that could drive share prices higher if it’s approved. However, in light of the number of merger agreements that have gone unfulfilled, there may not be a takeover.

Regardless, of whether it happens or not. These developments should serve to remind you that while the market may not see the value in Lundin, it’s competitors do. And so do we.

Source: Unearth Big Gains from the Commodity “Supercycle”

This from Taipan Daily’s Emerging Markets blog:

Right now, copper spot prices are an anemic $1.65 per pound. That’s an amazing drop from above $4 back in June.

And yet, one Chilean copper mine is actually expanding.

The mine is called Dona Ines de Collahuasi. It’s Chile’s third largest copper mine and is located in an historical copper mining area. Back in 1880, a large, high-grade copper and silver vein was found. It’s one of the world’s largest copper resources.

Right now, the mine produces roughly 440,000 tons of copper a year.

But the mine has just approved a $64 million project that will increase annual output by 30,000 tons. And that’s just the first expansion.

At the end of the first quarter of 2009, a $750 million expansion plan will boost production to 650,000 tons a year. After that expansion is complete, the mine intends to increase production to a full one million tons of copper a year by 2014.

That’s an astounding move.

And one that will need some major financial backers, particularly if copper prices don’t recover. It’s a good thing some big companies own this mine.

I’m talking about Anglo American (Nasdaq:AAUK) and Xstrata (LON:XTA), each with a 44% stake. There’s also a Japan’s Mitsui (Nasdaq:MITSY), owning 12%.

The CEO of the mine, Jon Evans, told the newspaper Diario Financiero, “The mid and long-term plans are the same, therefore our expansion plans are also the same.” Which may pay off in the long run… If it can survive depressed copper prices.

And copper prices have continued to fall, despite a huge cash injection by China to its economy. China is the largest user of many of the industrial metals, like iron ore, aluminum, zinc, and, of course, copper.

So with China’s economy slowing (albeit to 7.5%), the country will use less of those materials.

Now, China’s been part of the reason why copper prices had more than doubled since 2002. If Chinese demand continues to slow, that could mean a long time before we see copper prices begining to climb again.

Which would mean that Anglo American, Xstrata and Mitsui will have to wait for the returns on these major expansion.

But it would also mean that they’d be ahead of the game once things begin to turn around… If they can afford it.

Source:Copper: Chilean Investment Still Expanding

This from Taipan Daily:

“Dr. Copper” is known as the metal with a PhD in economics.

This is because the use of copper is so widespread throughout our lives. Most of the appliances in your house use copper: the fridge, the dishwasher, the microwave, and the washing machine just to name a few.

By the time you add up the electrical wiring, pipes and so on, the average home uses 400 pounds of copper. And your car? Another 50 pounds.

We also know that, on average, 40% of annual copper consumption goes to building construction.

So copper prices have something to say about global construction trends.

As you can see from the chart, copper went on an extended bull run starting in 2003, topped out below $4.00 per pound, and then fell off a cliff.

The severity of the drop was registered almost all in one month – October 2008. That’s an indicator as to what degree the entire global economy slammed on the brakes as a result of the credit crisis.

But now that copper has retreated back to 2005 levels – and other base metals back to 2003 levels – what does it mean?

I can think of two plausible explanations. Either the global infrastructure boom is well and truly dead, or the panic-driven sell-off as a result of the credit crisis was overdone.

China Picks Door #2

On Sunday, November 9th, China sent a clear message that infrastructure is not dead. We still need it, China said in so many words, and we’re going to build like crazy.

In more official terms, Beijing approved a 4 trillion Yuan “stimulus plan,” with most of the funds slated for infrastructure spending between now and 2010. (In dollar terms, 4 trillion Yuan is roughly $586 billion.)

Not everyone was impressed by the news. While some called it a major development, others shrugged. China was going to spend this money on infrastructure anyway, the shruggers said. The announcement was meant more as a booster shot – a tonic for global sentiment.

My view, though, is that it doesn’t really matter whether China’s “mass stimulus plan” is truly a big shift or just new gloss on an old agenda.

The point is, that money – more than half a trillion dollars –  will be spent on infrastructure. Beijing has confirmed it aggressively and openly: the global building boom is not dead.

We Still Need It

Everything the world needed before the credit crunch, it still needs now. Bridges, roads, ports, airports, refineries, you name it. And China, a country sitting on $2 trillion in reserves, has just pledged to open up the checkbook and spend like crazy.

It’s true we don’t need any more houses in the U.S. or Britain just now – but even in the aftermath of the housing bust, countries like China and India and Brazil are on a residential upswing.

And by the way, what we do need in the U.S., and need badly, are repairs and upgrades.

America’s infrastructure – everything from sewer pipes to interstates – is on the verge of falling apart. We are looking at long-term repair and upkeep charges that run into the tens of trillions.

Basic Comforts

In sum, I like the base metals here. (I like precious metals too, but that’s a different story.) If you’re looking for good, safe places to put your money, I would consider some of the well-run base metal producers.

To recap:

• Base metals (also known as industrial metals) have been unduly crushed by the credit crisis.

• The market is acting as if the global infrastructure boom is dead and buried.

• China’s 4 trillion Yuan (nearly $600 billion) “mass stimulus plan” says infrastructure spending is not dead. Maybe they were going to build like crazy anyway… but that’s the point.

• It’s the world, not just China, that has plenty of building left to do. In due time we will see a return to global growth, and a return to pre-crisis trend patterns.

• The U.S. might have a housing glut, but we are looking at huge outlays on the maintenance and upkeep side of things. The longer we put off these repairs, the more pressing they become.

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A Quiet Oil Hedge

Oh, and one more thing. Another modest benefit of base metal producers is their negative correlation to oil prices.

In other words, if you’re holding any long energy positions in your portfolio – and who wouldn’t be with the bargains out there now – you have exposure to slumping oil prices right?

As heavy users of diesel fuel and electricity, the base metal miners can actually benefit from weak oil prices (which lower their production cost).

As I said, not a huge factor… but a modest diversification benefit for an energy-biased portfolio.

The “Lethargy” Strategy

When will base metals prices start to rise again? I don’t know. But I’m not buying these producers for a trade, so I don’t have to know. I can be patient.

In the past Warren Buffett has joked that “lethargy” (laziness) is a key component of his investment strategy. I’m taking a page from the Buffett book here.

In practice, that means I’m on the lookout for high quality base metals producers with strong balance sheets, plenty of cash in the bank, good cash flow, smart management, and low share prices to boot.

When you come across a company with the above characteristics, you can just buy a good chunk of shares, throw the position in a drawer, and sit back to wait for the inevitable double or triple.

Source: What China’s “Mass Stimulus Plan” Says About Where to Invest Now

After all, the commodities boom fed off global prosperity. India, Russia, Southeast Asia were all rolling in dough during peak commodity prices.

It was the overall scope of commodity consumption that gave rise to the term “Commodity Supercycle.” And that consumption was fed in large part by liberal credit.

The problem, however, is that there’s simply no more credit to feed the beast – despite trillions in government bailouts.

As a result, it could still be too early to get back into commodities with the expectations that prices will rise again any time soon.

While China’s $586-billion massive infrastructure build-out will certainly consume plenty of steel, cement and oil, the country remains in a deflationary cycle.

China is literally attempting to dig its way out of this deflationary cycle with new construction projects. Other statistics coming out of China argue that the $586 billion package may not be enough on its own – and that China is more reliant on the global economy than construction projects for true economic growth.

Housing prices continue to decline, manufacturing is shrinking and the trade surplus is on the rise.

Building new roads, railways and airports won’t really affect the trade surplus, raise manufacturing output and make the cost of living much cheaper than it is today.

So if you believe that China’s stimulus plan could drive up commodities worldwide you may be in for a rude awakening.

Commodity prices will only go back up after governments find a way to inject new cash into their respective economies.

Nickel fell until mid-morning, before rallying back a little bit to close at $4.2018/lb., down better than 26 1/3 cents. Zinc had a pleasantly good day, rising fairly steadily to finish at $0.5101/lb., up more than 3½ cents. Aluminum also pushed higher, adding more than a penny and three-quarters, to $0.8918/lb., while lead moved up modestly, tacking on less than a penny, to $0.558/lb.

Once again copper failed to gain much traction, although it came well off its lows for the day (and a fresh 3-year low), as fear continues to dominate. The metal is now down 58% since July.

Even producers are getting pessimistic. Copper’s swift and savage fall has ushered in “the end of the supercycle” for the metal, says Jose Pablo Arellano, the executive president of Chile’s Codelco, the world’s biggest copper miner. Arellano expects that the market will remain depressed until the international economic situation begins to show signs of improvement.

Not that the selloff isn’t general. The Reuters/Jefferies CRB Index of 19 commodities yesterday hit its lowest level since February 2004, and the Bloomberg World Mining Index of 162 companies has shed $493 billion in value since the bankruptcy of Lehman Brothers in September.

“As long as we have uncertainty about the overall financial system, this is probably not yet the bottom for base metals,” said Christoph Eibl, of Tiberius Asset Management in Zug, Switzerland. “People just don’t want to own any commodities that have a high correlation to overall economic developments.”

On the supply side, copper inventories monitored by the LME continued to advance, adding 1,500 metric tons to 209,250 tons, while aluminum stockpiles jumped 3,475 tons to 1.5 million tons, their highest level since February 1995

In company news, Canadian miner Teck Cominco (NYSE:TCK) reported that net profit fell a worse-than-expected 13% in the third quarter, primarily because of the price declines in commodities. However, Teck also raised its outlook for 2008 capital spending by 26%, to about C$1.1 billion.

Source: Base Metals Mostly Stabilize