Having lost assets in the DRC in difficult circumstances, First Quantum has filed the best legs in Zambia, and reap the results of efforts

London- and Toronto-listed First Quantum this week posted solid results for first-quarter 2011, and headlined its objective to produce 300,000 tonnes of copper in 2011 as a whole, and 200,000 ounces of gold, extracted as by product from two of its copper mines.

First Quantum's founding base of business, the central African copperbelt, straddling Zambia and the Democratic Republic of the Congo, has recently come into focus with the bid by Barrick, the world's biggest gold miner, for Toronto- and Australia-listed Equinox, which mines copper in Zambia, and is due to start mining copper in Saudi Arabia, where it also holds interests in gold-base metal projects. Barrick already produces copper, but is the first major gold miner to consciously bid for a copper miner.

Good copper miners are making very good money. Cynics may well point to Barrick's spin off of African Barrick Gold in 2010, which was listed in London, and in which Barrick remains the biggest shareholder. The apparent contradictions are explained mainly by the above-average stock market valuations commanded by gold stocks, and the relative undervaluation of copper stocks, which can produce genuinely impressive cash flows and profits.

The African copper belt boasts some of the world's highest in situ copper grades, and, in some cases, by-product cobalt, gold, or silver, and even uranium. First Quantum pioneered the resuscitation of the ruined once-nationalised copper mines in the central African copper belt, when it acquired Bwana Mkubwa in Zambia in the mid-1990s. First Quantum was soon mining just across the border in the DRC, at Lonshi, and achieved rapid growth on both sides of the border, attracting interest and investment to the broader area.

But the DRC has proved a bitter pill for First Quantum, which saw its in-build KMT operation in the copper-rich southern Katanga Province seized in 2009, and onsold via a British Virgin Islands (BVI) shell structure. During 2010, First Quantum's Frontier mine was shuttered after further action by DRC authorities. It can be noted that upon the shuttering, various expats were noted on the mine premises, not least Tim Henderson and John Gross, who are, apparently, GM and metallurgist at a Glencore interest in the DRC, known as Mutanda Mine Mumi Copper/Cobalt Project. Approached at the time, early September 2010, for comment, Glencore politely declined.

Both the KMT and Frontier cases are now in international arbitration, in Paris and Washington, respectively. First Quantum is separately suing London-listed ENRC over its announcement that it acquired a majority stake in KMT, via the BVI conduits.

Some kind of revenge seems to be on the menu on the Zambian side of the border. First Quantum recently highlighted the award to it of fresh mining permits in Zambia, which continues to attract foreign investment despite heated debates, and action, and some retraction, on tax issues, over the past few years. In Katanga Province, the only major miner present at the operational level until recently was Freeport-McMoRan, the major shareholder in and operator of Tenke Fungurume, an inheritance, as such, from an earlier acquisition by Freeport-McMoRan.

Earlier this month, First Quantum hosted a high profile groundbreaking at its Trident project in Zambia, where over 140,000 meters of drilling has been completed in more than 380 holes. Based on First Quantum's internally-generated resource estimates, the group is proceeding with the design of a project at Trident that could produce 150,000 tonnes of copper a year, initially, and then expand to 300,000 tonnes of copper. First Quantum is also headed towards producing material amounts of nickel, in Australia and Finland. While First Quantum heads back to its roots with Trident, its expansion from a small base in the mid-1990s has seen it become one of the world's most-demanded copper stocks.

The first major miner to make conscious moves on the central African copperbelt, at least at the operational level, is Brazilian supergroup Vale, the world's No 2 miner, which recently bid for Johannesburg-listed Metorex, which operates in both the DRC (Ruashi) and Zambia (Chibuluma and Sable Zinc). Vale already has an interest in Zambia's Konkola North, which, according to Vale, ranks as the second-largest known resource on the Zambian copperbelt. This is an underground mine with estimated nominal production capacity of 44,000 metric tonnes a year of copper in concentrate, with production scheduled to start up in 2013. This project is part of a joint venture with Johannesburg-listed African Rainbow Minerals.

Early in 2009, Vale acquired a 50% interest in a joint venture with ARM for CAD 81m, with the objective of looking at developing nominal production capacity of 65,000 metric tons of copper a year, at Konkola North and Kalumines. The joint venture also holds extensive further exploration interests.

And then there is Toronto- and London-listed Katanga Mining, which was bailed out by Glencore in 2008 and 2009, in the wake of turmoil in markets generally. Early in 2008, Katanga Mining completed its merger with Nikanor, which held the giant KOV pit, adjacent to Katanga Mining's Kamoto interests.

London-listed Nikanor raised USD 380m in cash upon listing in July 2006, and USD 777m a year later. Upon the business combination of Nikanor and Katanga Mining, USD 446m in cash was returned to Nikanor shareholders, as a capital repayment, or special dividend. The prime beneficiaries were the three major Nikanor founding shareholders: Beny Steinmetz, the UK-based Gertner family, and Daniel Gertler.

JP Morgan Cazenove, pushers of the Nikanor float, were keen to remind investors that the KOV deposits boast one of the highest-grade major copper ore bodies in the world, with 172m tons of indicated mineral resources at an astonishing grade of 5.09% copper, plus a wonderful grade of 0.49% cobalt.

And yet Katanga Mining continues to burn cash, even after yet another rights issue in 2009, which raised USD 245m, entrenching Glencore as the controlling shareholder. During first-quarter 2011, Katanga Mining produced copper metal and concentrate of 18,385 (first-quarter 2010: 12,458) tonnes and 635 (889) tonnes of cobalt. So-called C1 cash costs for the first-quarter 2011 were USD 1.82 (USD 1.34) per pound of copper.

In a filing on 31 March 2011, Katanga Mining described its New Phase 4 expansion which, once completed, is expected to result in total plant capacity of 310,000 tonnes of copper a year. How this is to be financed is yet to be fully described. Equity investors in Katanga Mining have seen the company's issued shares increase from 78m in 2008 to 1.9bn at this point in time.

Katanga Mining
USD m	1Q11	1Q10	2010	2009	2008
Operating cash flow	60	81	167	-180	-45
Capital expenditure	-51	-31	-218	-118	-439
Free cash flow	9	50	-52	-298	-484
Equity raised				245
Cash on hand	44	127	30	77	32
Debentures	-124	-117	-120	-113	-258
Net debt	-81	10	-90	-36	-227

For some investors, a pall remains over mining in the DRC, particularly in Katanga Province, not least on the kind of reception that the spat between First Quantum and ENRC has been given by parts of the London-based media. While Vale has shown something of an appetite for becoming involved in Katanga Province, its focus in the broader region is without question to the east in Tete Province, Mozambique, where Vale is busy commissioning the USD 1.7bn Moatize coal mine, alongside Toronto- and Australia-listed Riversdale's deposits.

Moatize holds resources of more than 1bn tonnes; Moatize I has a nominal production capacity estimated at 11m tonnes of coal, 80% coking. The coal will be transported along the Linha do Sena railway to the historic Beira port. Earlier this year, the first train seen in 25 years arrived at Moatize town.

At Beira, the Mozambique government is building a new facility to handle an additional 18 to 24m tonnes of coal a year. Other transnational companies with a presence in Tete include ENRC, Nippon Steel, Jindal and ETAStar.

Vale, also a global leader in logistics, has bought a 51% stake in Sociedade de Desenvolvimento do Corredor do Norte SA (SDCN), which controls the Corredor de Desenvolvimento do Norte (CDN) and the Central East African Railways (CEAR). CDN holds a concession over 872km of railroad in Mozambique; CEAR holds a concession over 797km of railroad in Malawi. The "first prize" in the network would be access to Katanga Junction, which has historic railroads running in literally all directions. The vast majority are rusted and ruined.

Riversdale and Tata earlier this year bought the balance of shares in Benga Power Project, a USD 1bn investment progressing to initial production in 2013-2014, to produce around 550MW of power, with the objective of increasing to 2,000MW. The miners are also looking at barging along the Zambezi River, following precedents from decades ago.

Riversdale is, of course, headed towards delisting with transnational miner Rio Tinto now holding more than 70% of the shares in Riversdale. At the same time, Rio Tinto has sold out of the huge Chapudi coking coal deposit in South Africa, to Coal of Africa Limited. With corporate action in South Africa and Katanga Province likely to remain subdued for the foreseeable future, which could be quite a while, more corporate action with a Zambian focus could be on the cards.

Which leads back to First Quantum, with its plans to grow to a remarkable 1m annual tonnes of copper, as early as 2015, from the 2011 outlook of 300,000 tonnes. The Kiwara PLC acquisition - now called Sentinel copper and Enterprise nickel - with USD 1bn of capex should add 400,000 tonnes a year of copper, plus, First Quantum has discovered a significant nickel orebody on the Zambian property, 150km from its flagship Kansanshi Mine.

First Quantum
USD m	1Q11	1Q10	2010	2009	2008
Operating cash flow	379.3	164.7	731.3	562.6	765.4
Capital expenditure	-189.3	-44.8	-357.6	-361.8	-460.3
Free cash flow	190.0	119.9	373.7	200.8	305.1
Cash on hand	1486.4	548.4	1344.9	919.2	176.2
Debt	-530.9	-608.0	-613.1	-630.0	-385.7
Net cash/debt	955.5	-59.6	731.8	289.2	-209.5

With the Ravensthorpe project in Australia (acquired from BHP Billiton) targeted to produce around 40,000 tonnes a year of nickel from the end of 2011, plus Kevitsa in Finland, at 10,000+ tonnes a year from mid-2012, First Quantum is building a significant nickel stream.

The bottom line is that First Quantum has put the disappointment of losing its DRC assets far behind. First Quantum has firmly emerged as a challenger to London-listed Antofagasta's place as the No 2 base metal company in the world behind Freeport-McMoRan. When Barrick officially opens operational offices in Zambia, the game could well be on.

Selected DRC/Zambia stocks

Copper-cobalt	Stock	From	From	Value
	price	high*	low*	USD bn
NFC	CNY 33.27	-24.1%	200.8%	3.273
First Quantum	CAD 127.92	-13.8%	165.4%	11.397
Katanga Mining**	CAD 1.97	-9.7%	239.3%	3.881
Equinox	CAD 8.09	-4.0%	163.5%	7.356
Metorex	ZAR 7.13	-4.2%	132.2%	1.057
Anvil**	CAD 6.08	-15.8%	129.4%	0.989
Mwana Africa	GBP 0.07	-51.0%	5.8%	0.061
Tiger Resources	AUD 0.53	-18.0%	200.0%	0.377
African Copper	GBP 0.04	-45.7%	0.0%	0.049
Africo**	CAD 1.16	-35.6%	52.6%	0.086
Caledonia	CAD 0.11	-37.1%	100.0%	0.057
African Eagle	GBP 0.11	-33.6%	206.9%	0.074
Geovic***	CAD 0.55	-44.4%	31.0%	0.059
El Nino Ventures	CAD 0.15	-21.6%	383.3%	0.018
Averages/total		-25.6%	143.6%	28.733
Weighted averages		-12.7%	171.2%
Gold stocks
Banro**	CAD 3.40	-22.9%	112.5%	0.670
AngloGold Ashanti	USD 45.59	-13.8%	19.8%	17.379
Randgold Resources	USD 79.90	-24.9%	13.9%	7.273
Mwana Africa	GBP 0.07	-51.0%	5.8%	0.061
Mexivada****	CAD 0.12	-36.1%	15.0%	0.006
Gilla Inc.	USD 0.02	-82.0%	42.9%	0.001
Loncor Resources**	CAD 3.29	-12.3%	406.2%	0.196
Diversified
Freeport-McMoRan	USD 50.67	-17.4%	80.3%	48.004
OM Group	USD 36.91	-7.5%	68.0%	1.144
Vedanta	GBP 21.70	-17.5%	20.9%	9.411
Lundin	CAD 8.83	-5.2%	203.4%	5.310
ENRC	GBP 8.69	-24.5%	8.4%	18.253

* 12-month ** DRC only *** Cameroon **** Congo-Brazzaville
Source: market data; table compiled by Barry Sergeant

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Copper prices in London on Wednesday climbed along with other LME base metals, supported by the weakening dollar and optimism about the prospects of the U.S. property market.

Three-month copper on the London Metal Exchange rose 1 percent to $9,437 a tonne by 0727 GMT. Copper rose 1.3 percent in the previous session, snapping a six-session run of losses.

"Perhaps the market took some solace in the U.S. housing numbers and reacted positively to it. However, it could be that it is rebounding from the day before when it got a bit carried away with S&P's threat of a U.S. sovereign credit downgrade," OSK-DMG's Chief Group Economist Thomas Lam said.

U.S. housing starts rose 7.2 percent in March to a seasonally adjusted annual rate of 549,000 units, and permits for future home construction also picked up. A typical U.S. home consumes around a fifth of a tonne of copper. [ID:nCAT005413]

Following Tuesday's strong numbers, there was a sense in the market that Wednesday's data could beat forecasts for a 2.5 percent rise in existing home sales for March.

Upcoming holidays -- with London closed for four out of the next eight trading days -- could also lead to brisk trade.

"The Easter weekend is coming up, so traders may be doubling up to clear up positions, causing base metal prices to rise in the meantime," Macquarie Bank Research Analyst Bonnie Liu said.

Copper was also supported by a weaker dollar, which dipped 0.4 percent against a basket of currencies , falling back towards a 16-month trough of 74.617 set last week.

Financial markets stumbled on Monday, sending copper to its lowest in around a month, after ratings agency S&P warned that it may downgrade the United States' AAA debt rating unless it can bring its budget deficit under control.

Shanghai's most-active copper futures contract SCFcv1 rose 1.9 percent to 71,060 yuan a tonne.

Technically, Shanghai copper could rebound into a range of 71,120 to 71,660 yuan per tonne, while LME copper could rise further to $9,488 per tonne, according to Reuters technical analyst Wang Tao.

"LME copper prices have been moving within a range of $9,000 and $10,000, only breaching that upper limit once in February before falling back quickly," Great Wall Futures Analyst Li Rong said, adding that the market may be due for an upward correction in the fourth quarter.

LME copper stocks rose 175 tonnes on Tuesday, to 451,950 tonnes, their highest since June, equivalent to a little over eight days of global supply.

In industry news, BHP Billiton reported a 19 percent jump in copper output for the March quarter, up from a year earlier when production had been disrupted by a mine accident. [ID:nL3E7FJ411]

ALUMINIUM, NICKEL RISE

LME aluminium rose 0.9 percent to $2,738, extending Tuesday's 1.5 percent rally. It touched a top of $2,741 earlier in the session, its highest since August 2008.

According to technical charts, a bullish target has been established for aluminium at $2,779 in the near term.

Earlier in the day, China ordered central and provincial authorities to stop approving the construction of new aluminium smelting capacity. [ID:nL3E7FK0JH]

China had an annual capacity of around 20 million tonnes in 2010, around 40 percent of the world's 50 million tonnes, Reuters Metal Production Database shows.

The market expects Chinese aluminium output to exceed consumption by 1 million tonnes. A concerted, effective crackdown would cut that, and if maintained, could turn the country into a net importer, with the potential to lift global prices.

Previous efforts by Beijing to rein in the sector had started to bite during late 2007 and 2008, but were relaxed during the financial crisis and in some cases replaced by incentives to expand output as China strove to maintain employment and growth.

The latest circular on the subject, however, read slightly tougher than usual, citing that individuals could be asked to take legal responsibility if state policy was not followed.

LME nickel prices rose 1.7 percent to $25,725.

"The rise in nickel prices seems to have more to do with strong physical demand than the short-term effects of the weaker dollar and better outlook for the U.S. property market. The utilisation rate in China is pretty solid, but production has also started to increase, so I don't expect prices to rally too much," said Macquarie's Liu.

Base metals prices at 0727 GMT
  Metal              Last       Change   Pct Move YTD pct chg
  LME Cu            9437.00     97.00     +1.04     -1.70
  SHFE CU FUT JUN1    71060      1340     +1.92     -1.10
  LME Alum          2738.00     24.00     +0.88     10.85
  SHFE AL FUT JUN1    16770       145     +0.87     -0.42
  HG COPPER MAY1     427.85      4.10     +1.16     -3.63
  LME Zinc          2352.00     23.00     +0.99     -4.16
  SHFE ZN FUT JUN1    17825       265     +1.51     -8.47
  LME Nickel       25725.00    425.00     +1.68      3.94
  LME Lead          2589.75     32.75     +1.28      1.56
  SHFE PB FUT SEP1    18165       185     +1.03     -1.01
  LME Tin          32734.00    334.00     +1.03     21.69
  LME/Shanghai arb    1148

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China's absence from the copper market has dampened confidence in the bullish on the annual conference of the world's largest copper in Chile, before staging a rebound.

Even if copper prices plunge soon, as industry players gathered here expect with China sitting on the bench, the top copper consumer is seen returning to the market and driving prices to new highs by year end.

China's absence from the copper market has dampened bullish conviction at the world's biggest annual copper conference in Chile, with copper CMCU3 prices seen sinking around 20 percent in coming months from life highs of $10,190 tonnes in February, before staging a rebound.

Speculation has been rife as to whether China will return to the spot market this quarter, with many industry insiders expecting purchases to be delayed and pointing to rising warehouse stocks MCU-STOCKS.

"You will get volatility, and I think that is what we are seeing right at this moment in time. But its going to be a short-term volatility period," said Andrew Harding, CEO of Rio Tinto's (RIO.L) copper unit chief executive.

"But the longer-term story actually says there's good demand and that supply is actually struggling to keep up," he added.

Harding believes the world copper supply deficit could hit half a million tonnes this year and that the shortage could extend beyond 2013. His view for the year is wider than the market consensus of around 400,000 tonnes.

Credit Suisse expects Chinese demand to remain robust, citing a divergence between apparent consumption data and underlying demand.

"While the weakness in the physical market is unambiguous, indicators for underlying demand have remained strong," the bank said in a research report.

"We believe this gap will be closed primarily through a rebound in imports and refined production. Recent draws of non-bonded Shanghai Futures Exchange stocks may be the first sign that this transition is already underway," it added.

China's interest rate hikes are fanning fears of a deeper slowdown. The Chinese central bank raised rates on Tuesday for the fourth time since October as it seeks to counter price pressures in the world's top base metals consumer.

A source at a small Chinese copper merchant, which buys just 2,000 tonnes of refined copper and 300,000 tonnes of concentrate a year, said the company had no plans to buy from the spot market because of rising capital costs and negative arbitrage of Shanghai-LME.

"An interest rate rise is not good news for the copper price," he said.

Fears of more cut backs in China mixed with strong market fundamentals has left some at the conference feeling deflated.

"Usually I leave this conference feeling bullish copper, but this year it's different. It's not bearish, it's flat," said a banking source.

But there are some bright spots. Some see signs of a tightening in China's scrap market, the first stop to source metal before moving to the open market.

"China is out of the market and has been for six months.

That's not sustainable, even with interest rate rises. After working through quite a few cycles, the fact they're not buying now doesn't spook me at all," said a trader at a large Swiss merchant.

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Gold and silver futures made ​​history on Wednesday, with the highest value due to the position of the investors collectively take a safe position on precious metals, in addition to the weakening U.S. dollar will worsen the condition.

Gold notched a settlement and an intraday record high and set its sights on $1,500 an ounce. Silver stopped just pennies short of the psychologically important $40-an-ounce level, hitting a 31-year high on its way.

Gold for June delivery (GCM11 1,457, -1.40, -0.10%) rose $6, or 0.4%, to settle at $1,458.50 an ounce on the Comex division of the New York Mercantile Exchange.

The contract climbed as high as $1,463.70 an ounce earlier, according to a preliminary tally available at the CME Group’s website. CME owns and operates Comex.

The settlement and the intraday nominal records supplanted the previous milestones reached just the previous day.

“The geopolitical situation is going from bad to worse,” said Afshin Nabavi, head of trading at MKS Finance in Geneva. “Everybody is talking about gold at $1,500 [an ounce].

As soon as gold breached through the $1,450-$1,450 mark, fresh money came in as some investors scrambled to be part of the rally, Nabavi added.

Gold at $1,500 is certainly possible in the short term, although a more orderly, slower rise over the next month or two would be more desirable, he said.

The metal hit a record of $875 an ounce in January 1980 — the equivalent of $2,350 an ounce in today’s dollars.

In addition to ongoing fighting in Libya, where rebel forces and government forces continue to vie for the upper hand in a NATO-led military intervention, Europe’s debt crisis came back to the fore this week as Portugal appeared to get closer to asking for a bailout.

“Prices are likely to remain buoyant as risk aversion increased on the back of Moody’s downgrade of Portugal’s credit rating,” analysts at ICICI Bank wrote to clients. Moody’s Investors Service cut Portugal’s rating by one notch to Baa1 from A3 on Tuesday, saying a bailout for Portugal seemed very likely.

The focus on Portugal intensified as the country had to pay hefty yields to sell short-term bonds on Wednesday. Investors are concerned that a rescue for Portugal will also rock Spain, an economy bigger than Portugal, Ireland and Greece combined.

Portugal’s finance minister said his country will need a bailout from the European Union, according to media reports Wednesday. Finance Minister Fernando Teixeira dos Santos reportedly told the Jornal de Negocios that Portugal will need to “resort to the financing mechanisms available within the European framework.”

A finance-ministry spokeswoman confirmed the comments, according to Reuters. European Union officials, however, have yet to receive a formal bailout request from Portugal, according to The Wall Street Journal’s online edition.

Meanwhile, silver for May delivery (SIK11 3,940, +0.80, +0.02%) rose 20 cents, or 0.5%, to $39.39 an ounce — the latest in a string of 31-year highs for the metal.

Investors kept their sights on silver at $40, and some believe it would be only a short time from that to the nominal record above $50 an ounce that spot silver hit in January 1980.

The broader suite of metals were mostly stronger, with copper for May delivery (HGK11 435.70, -1.30, -0.30%) rallying 11 cents, or 2.5%, to $4.37 a pound as miner bellwether Rio Tinto PLC (RIO 72.80, -0.17, -0.23%) predicted an even tighter market for copper than most analysts expected.

Palladium and platinum diverged, however. June palladium (PAM11 787.05, +2.45, +0.31%) declined $8.50, or 1.1%, to settle at $784.60 an ounce. July platinum (PLN11 1,797, -1.30, -0.07%) added $1, or 0.1%, to $1,797.80 an ounce.

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Sharp setback this month copper prices have weighed on exchange-traded products in the metal industry, as well as tracking stock fund material and Chile.

The iPath Dow Jones-UBS Copper Subindex Total Return ETN (JJC 56.12, +0.50, +0.90%) lost about 6% last week and traded below $55 a share, down from its recent high of $61.69. The exchange-traded note has a market capitalization of about $264 million and is designed to reflect the performance of copper-futures prices.

The red metal’s slump is a worrying sign for stock bulls and the global recovery because copper is seen as a leading economic indicator.

“There is an old saying that every stock bull market has a copper top,” Stock Trader’s Almanac said in a note last week.

“While not entirely true, as a key industrial material and benchmark of economic growth, copper tops have coincided with stock bull market tops on enough occasions to warrant concern,” the report added.

PowerShares DB Base Metals Fund (DBB 23.92, +0.07, +0.29%) has also been under pressure this month although copper is the biggest loser among the base metals.

Copper is set to absorb its biggest decline since June 2010 “on high energy prices and concerns of a slowdown in China,” Dahlman Rose & Co. said in a March 11 market update.

A separate report last week showed copper imports by China plunged 35% in February to the lowest level in more than two years.

Not surprisingly, ETFs that invest in copper miners such as First Trust ISE Global Copper Index Fund (CU 40.15, +0.74, +1.88%) and Global X Copper Miners ETF (COPX 18.02, +0.34, +1.92%) have lost ground.

The weakness in copper prices has also spilled over into exchange-traded funds that target materials stocks.

The largest sector ETF for the group by assets is Materials Select Sector SPDR Fund (XLB 37.91, +0.56, +1.49%) with $2.5 billion in assets. The fund lost roughly 3% last week and is the only ETF among the 10 Select Sector SPDRs that is in negative territory for 2011.

The materials ETF’s tracking index is comprised of companies from subsectors including chemicals, construction materials, containers and packaging, metals and mining, and paper and forest products.

Falling copper prices have hurt some of the fund’s top positions. For example, copper-mining giant Freeport-McMoRan Copper & Gold Inc. (FCX 49.48, +1.69, +3.54%) is the second-largest holding at 10.8% of assets, while Newmont Mining Corp. (NEM 52.12, +0.78, +1.52%) accounts for 6.1% of the portfolio. Both stocks are off more than 10% so far this year.

Other materials ETFs include iShares Dow Jones U.S. Basic Materials Sector Index Fund (IYM 76.50, +1.10, +1.46%) , Vanguard Materials ETF (VAW 82.09, +1.04, +1.29%) and First Trust Materials AlphaDEX Fund (FXZ 24.01, +0.34, +1.44%) .

Sagging copper prices have also pulled down iShares MSCI Chile Investable Market Index Fund (ECH 67.31, +0.08, +0.12%) , which has been a top performer among emerging-markets ETFs the past two years. Chile is the world’s largest copper exporter.

The Chilean ETF has dropped about 16% so far this year to fall below its 200-day moving average, a closely watched technical indictor.

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Carapateena spectacular discovery by a Canadian company Teck Resources are seen as the big foreign players to the global financial crisis, now its ownership changed hands to OZ Minerals Ltd (ASX: OZL).

OZ Minerals said today it had paid $US240 million for the project, making an immediate deposit of $US10 M.

Ownership was given as 58% held by engineer Rudy Gomez, 34% by Teck Australia with the balance of 8% held by various minorities.

Teck had made Carrapateena its major new foreign project after Gomez in 2005 had mortgaged assets to utilise a South Australian drilling grant to produce a spectacular long copper intersection. This saw a Teck official camped on Gomez's doorstep.

Stepped up exploration by Teck produced some enormous copper gold hits, including one of 905 metres grading 2.17% copper and significant gold within which there was a section of 84m @ 4.78% Cu and 1.1 grams/tonne gold.

However, along came the global financial crisis that hit Teck hard and stalled its exploration expenditure and saw overtures begin last year for the sale of the project.

Acquisition of Carrapateena is a good fit for OZ Minerals, as it is cashed up and earning a big cash flow from the Prominent Hill copper-gold project. It is 250 kilometres south east of Prominent Hill.

Despite its perfomance and recent profit announcement, OZ Minerals has been criticised by some Australian analysts for not taking available acquisitions, and also for not getting strong exploration results from holdings and joint ventures near Prominent Hill - an amazing complaint, given the fact most regional search issues are less than two years old with targets being under deep soil cover.

OZ Minerals chief executive Terry Burgess said Carrapateena is one of the largest undeveloped copper projects in Australia and has the potential to produce between 50,000 and 150,000 tonnes per annum of copper "for a significant mine life."

Carrapateena is a new monster project in the far north of South Australia which has produced Prominent Hill and the world-class Olympic Dam which is one of the world's biggest copper deposits and dominates world uranium resources.

The project is 130 km north of the Spencer Gulf port of Port Augusta and is 100 km south east of BHP Billiton's Olympic Dam. It is also only about 75 km from Stuart Highway and is also near the main northern railway.

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A fresh move by China to curb inflation undermined copper and oil prices on Friday while a battle over control of banks in Ivory Coast sent cocoa to a one-year peak and Mideast unrest boosted gold and silver.

The news that China's central bank raised lenders' required reserves by 50 basis points sent a chill through some markets as investors worried that more monetary tightening would cut demand in the world's biggest consumer of commodities.

Markets sought to balance Chinese moves to cool the economy -- including a rate hike earlier this month -- with strong underlying fundamentals in copper, including an expected shortage of metal to meet global demand this year.

"The Chinese move this morning to raise the reserve ratio is a continuation of policy tightening that we expect will persist for some time yet," said Nic Brown, analyst at Natixis in London.

"There is potential for base metal prices to correct lower soon. Tin, copper, nickel are more susceptible to this correction compared with other metals. We don't see a collapse but a correction... fundamentals are still positive."

In the wake of the news from China, benchmark copper on the London Metal Exchange dipped 0.5 percent to $9,763 a tonne by 1130 GMT. The metal used in power and construction hit a record peak of $10,190 earlier this week.

The Chinese move also dampened sentiment on oil markets, although continued tensions in the Middle East and North Africa were a counter-balance, having helped lift Brent crude above $100 a barrel about two weeks ago.

Brent crude futures were up 10 cents at $102.69 a barrel, down from earlier gains to $103.50 a barrel. The U.S. March light crude contract shed 28 cents to $86.08.

GOLD, SILVER STRONG

The persistent unrest in the Middle East boosted safe-haven gold to a five-week peak and sister metal silver skipped to the highest levels in 31 years.

"(There has been) a remarkable move in silver, which has helped gold back towards $1,400," said Saxo Bank senior manager Ole Hansen.

"Middle East/North African unrest was undoubtedly the trigger, but it looks like investors have been waiting for the opportunity to buy at lower levels, and once that opportunity disappeared they returned for fear of missing the move."

Gold fell more than 6 percent in January, but many investors had been waiting for further losses to re-enter the market.

Spot gold gained to $1,385.70 against $1,383.30 late in New York on Wednesday, while silver climbed to $31.84 against $31.74, having hit a high of $31.95, a 31-year peak in earlier trade.

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Copper was edging US$10,000 a tonne on Friday, with three-month copper rising $25 to $9,995 a tonne on the London Metals Exchange ahead of US non-farm payroll numbers, Reuters reported.

Metals trading has been quiet in recent days due to the Lunar New Year in Asia, while traders in North America and Europe await release of US non-farm payroll data, which is considered an important economic indicator.

Reuters said a number of metals producers in Queensland were restarting operations after Cyclone Yasi hit the Australian province earlier this week. Xstrata’s Townsville copper refinery and port survived the storm relatively unscathed:

“A preliminary investigation of our port facilities has not identified any major structural damage, however a comprehensive site audit of our Townsville port and refinery operations is yet to be completed as part of the recovery planning process,” Xstrata’s local operations chief, Steve de Kruijff, said in a statement emailed to Reuters.

Meanwhile, as copper reached a record $4.54 a pound Thursday, Scotiabank commodities analyst Patricia Mohr said thin inventories of copper and the introduction last month of a copper ETF are lifting the red metal to new heights.

“I’ve been bullish on copper for quite a long time now. I think it could hit $5, ” Mohr told The Vancouver Sun.

“Fundamentally, copper is in a deficit position. World demand exceeds supply, which was a situation that emerged last year. The market didn’t realize that until late in the year and then copper prices started to move up.”

“We think the deficit will be even bigger. Even if China’s demand grows more slowly…you are still going to be in a bigger supply deficit because world mine production is only going to increase something like 1.6 percent.”

Of course, the high price of copper will serve as an inducement for more copper exploration and recommissioning of mines that closed a decade ago when copper prices were less than 70 cents. Strong demand for the commodity in emerging markets, namely China and India, is likely to keep copper prices buoyant in the coming months, analysts say.

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(Reuters) - U.S. copper futures briefly dipped into negative territory midday Friday as mounting unrest in Egypt spurred more investment flows into safer-haven assets like the U.S. dollar and gold.

COMEX copper for March delivery HGH1 dipped below Thursday's settlement at $4.3385 per lb, as the U.S. dollar index .DXY jumped above 78 and U.S. gold futures extended gains. [USD/] [GOL/] (Reporting by Chris Kelly)
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Crude oil prices fell on Friday as traders speculated about whether China may impose more restrictions to control the growth of its economy, and looked for more signs that the US economy is headed for better days.

Benchmark oil for March delivery fell 48 cents to settle at $US89.11 a barrel on the New York Mercantile Exchange.

Oil and other commodities have taken a hit from news that China's economy defied expectations to speed up in the fourth quarter while inflation remained elevated.

Traders speculated that means China's government will take further measures to control cost of living increases. China has had a robust appetite for commodities from oil to soybeans as its economy has boomed in the past year.

Oil prices were restrained by the Energy Department's weekly report that showed growing US stockpiles of oil, gasoline and distillates, which include heating oil and diesel fuel. All are higher than the five-year average, an indication that energy demand remains tepid.

In other Nymex trading, heating oil rose 2.76 cents to settle at $US2.6508 a gallon, and gasoline added 3.64 cents to settle at $US2.4589 a gallon. Natural gas for March delivery gained 5.1 cents to settle at $US4.743 per 1,000 cubic feet.

In London, Brent crude rose $1.02 to settle at $US97.60 a barrel on the ICE futures exchange.

PRECIOUS METALS

Gold prices fell for a second day on Friday as a stronger appetite for riskier assets such as equities and an improving economic outlook diminished safe-haven buying, more than offsetting a weaker dollar.

Bullion notched a third consecutive weekly loss, its longest since July, and that called into question the metal's lengthy bull run due to signs that the economic recovery is taking hold and as fears about an European debt crisis have subsided for now.

Spot gold fell 0.2 per cent to $1,343 an ounce by 2 pm EST (1900 GMT). US gold futures for February delivery settled down $5.50 at $1,341 an ounce.

Bullion hit a low of $1,337.50, their weakest price since Nov 18, as financial markets opened in New York. US traders cited an increase in margin requirements for precious metals futures as a reason for the decline.

Silver inched up 0.2 per cent to $27.53 an ounce.

The gold-to-silver ratio - the number of ounces of silver needed to buy an ounce of gold - rose back towards 50, its highest level since late November, as some traders believed gold is becoming increasingly expensive relative to silver.

Friday's turnover was modest as COMEX gold and silver futures volumes on the New York Mercantile Exchange were largely in line with their 30-day averages.

Gold's slide was limited on Friday by a retreat in the dollar to two-month lows versus the euro, with the European single currency reaching its highest level since late November, helped by improving confidence in region.

Silver prices had earlier hit a seven-week low at $27.10 an ounce, pressured by a further outflows from the world's largest silver-backed exchange-traded fund, the iShares Silver Trust.

Holdings of the trust fell by just over 10 tonnes on Thursday, after recording their biggest one-day drop since late November in the previous session. It has seen outflows of more than 346 tonnes so far this year.

Investment demand was a major driver in silver's price gains of more than 80 per cent last year.

Platinum rose 0.8 per cent to $1,822.24 an ounce, while palladium climbed 1.4 per cent to $819.50.

INDUSTRIAL METALS

Copper bounced nearly one per cent on Friday, snapping a two-day slide that dragged prices to their lowest level in a month, as the dollar weakened and on worries about more monetary tightening in top-consumer China abated.

Copper prices - down as much as five per cent from all-time record peaks at $9,781 per tonne in London this week and $4.4980 per lb in New York earlier this month - found their footing on Friday, as investors reassessed global demand prospects for the industrial metal.

London Metals Exchange (LME) copper for three-month delivery rose $86, or 0.92 per cent, to end at $9,441 a tonne.

COMEX March copper firmed 3.70 cents to settle at $4.3090 per lb.

Copper also benefited from a weaker US dollar, which fell to a two-month low against the euro amid improving confidence in the euro zone.

A weaker US currency makes dollar-priced commodities more affordable for holders of other currencies.

One area where substitution could increase is air conditioning, with aluminium piping replacing copper.

Aluminium stocks jumped by 64,000 tonnes to 4,550,325 tonnes, up by more than six per cent so far this year alone.

Lead stocks last fell 175 tonnes to 264,175 tonnes, after touching their highest level since May 1995 on Wednesday.

The backwardation on lead - a premium for cash material over the three-month contract - rocketed to $80 a tonne, its highest since October 2007. This compared with a backwardation of $31 earlier this week.

Data on Friday continued to show a dominant position controlling 80 to 90 per cent of the stock warrants and cash contracts on LME lead.

Lead closed down $12 at $2,425 a tonne.

Tin rose to touch a record of $27,750 as investors focused on supply deficit expectations and the weaker dollar. The metal climbed $845 to end at $27,745.

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TSX- and LSE-listed First Quantum Minerals on Thursday reported a decrease in full-year output, with copper production amounting to 322 700 t and gold output to 191 400 oz.

In 2009, the company produced 373 940 t of copper and 193 288 oz of gold and initially anticipated producing 385 000 t of copper and 240 000 oz of gold in 2010.

But First Quantum slashed its 2010 production guidance in November to 322 000 t of copper and 195 000 oz of gold.

The lower output was the result of the closure of the Democratic Republic of Congo (DRC) Frontier copper mine, a four-day shutdown of the sulphide circuit at the Kansanshi copper mine, in Zambia, and abnormally wet weather at Guelb Moghrein copper mine, in Mauritania.

However, the company said that copper production was in line with its latest guidance and reflected new monthly and quarterly records at the Kansanshi operation.

First Quantum produced 75 600 t of copper and 48 600 oz of gold in the fourth quarter.

The finished copper inventory as at December 31, decreased to about 36 700 t of copper, with Kansanshi producing 27 200 t, the Frontier operation producing 1 200 t and Guelb Moghrein producing 8 300 t, from the September 30 level of 37 000 t.

First Quantum’s operating report and financial results for 2010 would be released in March.

The company had reported a net loss of $136,7-million in the third quarter of 2010, mainly as a result of the forced closure of its Frontier mine.

The loss was compared with net earnings of $123,8-million recorded in the third quarter of 2009.

In August, the base-metals miner announced that the DRC mining registry had withdrawn the Frontier deposit's exploitation permit and that the DRC government-owned company Sodimico had been granted the titles at the Frontier deposit.

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Bank of America-Merrill Lynch sees copper as the top performing commodity of 2011, stretching to yet more record highs as demand from emerging market powerhouses places further strain on a projected supply deficit.

Gold prices are expected to peak at $1,500 an ounce next year, while crude oil, currently around $90 a barrel, should temporarily break above $100, the bank projected.

Sabine Schels, BofA-ML global commodities strategist, said at a presentation on Wednesday that commodity prices are expected to rise next year, driven by very robust economic growth in the emerging world and in spite of a weak growth outlook in developed economies.

Emerging economies such as China or Brazil will implement tighter monetary policy to contain inflation and allow for growth, which could act as a temporary headwind to the raw materials complex, she said.

But increased government spending on improvements to infrastructure and social housing, for example, should feed demand for copper, among other commodities, Schels said.

"Of course, the European debt crisis and also the inflation risks in China have recently tempered some of the hype around QE2 by the Fed, but we still believe that supply constrained commodities will do well in 2011," she said.

"Our favourite call across the spectrum is copper. We think copper will continue to go to new record highs and will average $11,250/t next year," she added.

Benchmark copper prices for three months delivery on the London Metal Exchange have risen by nearly 25 percent so far this year to record highs above $9,200 a tonne.

Copper, which is widely used in electronics, cabling and construction, has risen to all-time highs this year, fuelled by demand from top consumer China as well as by broad-based investment in commodities by funds.

GOLD, GAS, OIL AND OPEC

The 14-percent decline in the value of the U.S. dollar against a basket of currencies in the five months to November this year also acted as a key driver of gains in copper.

Now investor concern over the euro zone sovereign debt crisis has resurfaced with the financial bailout of Ireland, punishing the euro, the dollar has pared some of these losses.

However, the Federal Reserve's $600-billion bond buying programme and a government plan to maintain tax cuts to boost economic growth could further strain a yawning budget deficit, thereby undermining the dollar and boosting commodity prices.

With the dollar expected to decline and inflation pressures set to pick up in both the developed and emerging world, BofA-ML expects the gold price to extend this year's gains to reach a peak at $1,500 an ounce next year, Schels said.

For crude oil, the bank is predicting prices breaking above $100 a barrel, with the benchmark Brent crude futures contract averaging $88 a barrel next year.

"We do think OPEC in 2011 can no longer ignore the tightening in physical fundamentals," Schels said.

"There are really too many signals right now that suggest OPEC will have to increase production in 2011. Number one, inventories have come down across the board to five-year averages and two, we've seen a number of oil benchmarks moving into backwardation."

U.S. natural gas is the bank's favoured short position.

"The outlook will get worse before it gets better on the back of low demand and record production growth in the U.S. and record inventories," Schels said.

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Copper should rise above $10,000 a tonne in 2011 as growth in the United States and other developed economies heats up, while supplies remain tight, said Barclays Capital on Thursday.

Kevin Norrish, managing director of Barclays' commodities research, team told a press briefing that he sees copper prices averaging $9,950 a tonne through third quarter of 2011, giving it potential to trade up to $10,000 per tonne.

"We're forecasting $9,950 a tonne as an average into the third quarter next year. If it's going to average that, then it's going to have to trade, at least for certain periods of time, above that," said Norrish.

He added that Barclays expects copper inventories to fall to their lowest levels on record next year, at a time when the pace of economic growth is forecast to increase.

"We see a pretty healthy and robust recovery developing in the United States and other parts of the OECD, in parts of Europe, like Germany in particular. China is slowing down, but we think growth is going to continue to be healthy next year."

Improved confidence in financial markets and reasonably strong economic growth, along with supportive monetary policy in industrialized economies should boost commodity prices.

For copper specifically, he noted that supply has been extraordinarily tight. The problem, he said, was a lack of large copper projects under development.

"It's been very difficult to grow supply," Norrish said.

At $10,000 a tonne, some copper mine projects would become profitable that would lay dormant with copper at $7,000 or $8,000 a tonne. Once underway, new projects take time to get up and running, Norrish said.

The supply crunch is occurring at a time when countries like China and India require increased amounts of copper for an accelerated pace of infrastructure building, greater consumer demand for cars and appliances and increased home building.

"I think we're in an environment that, for quite awhile, we're going to have quite high prices. There will be quite volatile prices. And prices will need to be the thing that balances the market," he said.

He added that China has gone through a months-long destocking period that has lowered their copper imports, a trend that will have to end at some point.

"Destocking can't go on forever and we think there will be positive impact there," said Norrish, adding that he sees China continue to grow at a fast clip at least until 2025.

As the process of moving roughly 15 million people into urban areas per year in China, "Copper will be one of the big beneficiaries. With living standards rising, you have to build cities and build the infrastructure that links them together. And copper gets used very intensively," he said.

That urbanization process should keep copper high for the foreseeable future. Further out, forecasting reliable supply and demand balances becomes more problematic.

"Certainly next year, it looks very tight. And probably the year after that as well. We don't have a lot of large new copper projects coming into the market and there is a lot of demand. So, prices will need to go higher to order to slow down that demand growth," he said.

Easy substitutions took place when prices surged to records 2006 and 2007, and copper lost market share to other materials in applications like plumbing and some wire and cable.

"But the easy substitution has been done. I think we're in a slightly uncertain situation where we don't know what the upper limit is, because we don't know where prices have to go to encourage the more difficult substitutions," he said.

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Base metals were trading mixed early Friday as China's export-import data came in better than expected.

The metals complex could firm during the day taking cues from China's imports, the launch of new commodities exchange-traded funds, and the Michigan consumer confidence survey.

ETF Securities launched physically backed copper, nickel, and tin exchange-traded products on the London Stock Exchange on Friday, and plans to roll out other funds backed by aluminum, zinc, and lead in 2011. Launch of ETPs will likely boost investment demand for base metals.

Among the U.S. economic data scheduled for release Friday, the Michigan survey is expected to come in modestly higher at 72.5, up from a prior reading of 71.6.

Copper

Copper for three-month delivery rose 0.7% to $9,015 per metric tonne on the London Metal Exchange. China's trade data showed a rise in copper and copper products imports in November to 351,597 tonnes from 273,511 tonnes in October, up 29%.

Copper inventories narrowed 800 tonnes to close at 349,450 tonnes, slumping to new 52-week lows. The metal faces support at $8,849 and resistance at $9,041.

Copper prices could rise 22% over the next 24 months as supply dwindles amid increasing demand from China and North America, according to U.S. Global Investors, Bloomberg reports.

Southern Copper(SCCO_) closed at $45.72 Thursday, finding support at $45.20 and resistance at $46.39. Freeport-McMoRan (FCX_) closed at $110.66, with support and resistance at $109.53 and $111.89, respectively. Teck Resources (TCK_) closed at $55.11, with support at $54.59 and resistance at $55.82.

Aluminum

Aluminum for three-month delivery was unchanged at $2,338 per tone. Inventories declined 3,125 tonnes to close at 4.278 million tonnes. The metal faces support and resistance at $2,295 and $2,380, respectively.

Vedanta Resources, a wanna-be mini-BHP(BHP_) , has sought approval from the government of India for restarting an $8.5 billion alumina expansion project, halted two months ago for violating forestry regulations.

Alcoa(AA_) closed at $14.15 Thursday, finding support and resistance at $14.03 and $14.36, respectively. Century Aluminum(CENX_) closed at $15.32, with support at $15.05 and resistance at $15.47. Kaiser Aluminum(KALU_) closed at $51.69, finding support at $50.35 and resistance at $51.69.

Nickel for three-month delivery gained 0.6% to close at $23,750 per tonne. Inventories declined 396 tonnes to 131,196 tonnes. Nickel has support at $23,268 and resistance at $24,118.

European Nickel suspended work at the Caldag Mine in Turkey, awaiting a forestry permit. Caldag is one of the two important projects with a production target of 20,400 tonnes of nickel and 1,200 tonnes of cobalt per annum. The company's Acojec deposit in the Philippines has a production target of 24, 500 tonnes of nickel and 900 tonnes of cobalt per annum.

Zinc

Zinc for three-month delivery lost 1.0% to $2,277 per tonne. Inventories declined 750 tonnes to 631,425 tonnes. The metal faces support and resistance at $2,251 and $2,309, respectively.

Lead

Lead for three-month delivery was unchanged at $2,405 per tonne during early hours trading. Inventories added 1,800 tonnes to close at 205,250 tonnes. Support and resistance levels for lead are at $2,368 and $2,440, respectively.

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"Our experience and success in PNG has been noted on the international stage, and PNG is rapidly being seen as a significant and welcoming gold region". Speaking in September at the official opening of the Morobe Mining joint venture's Hidden Valley gold mine, Graham Briggs, chief executive of Harmony Gold Mining Co. was full of praise for the support given to the project by the PNG government and the country's Mineral Resources Authority (MRA).

"The experience that we have gained here will stand us in good stead as we continue to seek growth, both within the Morobe Mining joint venture and elsewhere in PNG on Harmony's exploration portfolio," he added.

Briggs also acknowledged the backing given to the project by people within the Hidden Valley district. "While the development of the project has not been without its challenges," he said, "the government and communities of PNG and Morobe Province have provided enormous support, and have worked closely with the company to ensure that the development of Hidden Valley has long-term positive and sustainable consequences in the region".

GOLD AND COPPER LEAD THE WAY

Brought on stream in June of last year, Hidden Valley brings to seven the number of mines operating in PNG, with several major projects likely to add to that total in the foreseeable future. After some delays earlier this year, the Ramu nickel-cobalt project now seems set to start production in the first quarter of 2011, with plant commissioning already well under way.

Having cost some US$1.4 billion to develop, Ramu represents a significant diversification for PNG in terms of the country's historical focus on copper and gold, with production scheduled to ramp up to the design rate of 31,150 t/y of nickel and 3,300 t/y of cobalt throughout next year.

Nonetheless, copper and gold remain the major targets for most of the nearly 80 companies that have active exploration licences in PNG, with projects ranging in size from grassroots prospecting to the late-stage evaluation of bulk-tonnage porphyry- and epithermal-hosted resources.

As well as its interest in Ramu with China Metallurgical Group Corp. (MCC), Highlands Pacific is in partnership with Xstrata and OMRD at Frieda River, where last year's exploration resulted in a significant increase in resources. These now stand at over 1,000 Mt grading 0.53% copper, 0.29 g/t gold and 0.8g/t silver in the Horse-Ivaal-Trukai porphyry, with a prefeasibility study on what Xstrata has described as "potentially a very significant copper-gold producer in the Asia-Pacific region" due for completion shortly.

Nor is it just newcomers that are evaluating known resources. With open-pit mining currently scheduled to end in 2013, Ok Tedi Mining is now assessing the feasibility of extending the life of the operation in the Western Highlands to 2020. If this proves viable, a combination of open-pit and underground mining will produce around 90 Mt of additional ore, adding 700,000 t of copper and 2.3 Moz of gold to the operation's life-time output. An additional benefit, the company says, would be the production of substantial tonnages of limestone that can be used as dump-capping material during mine-site remediation after closure.

Ok Tedi Mining is also beginning exploration elsewhere in PNG, having signed two farm-in agreements with Frontier Resources. The first covers Frontier's Bulago gold prospect in the Western Highlands, while under the second, Ok Tedi can earn up to 80% in Frontier's three copper prospects on New Britain Island. Overall, Ok Tedi has a US$2.5 million initial exploration commitment in the first year of the agreement.

NEWCREST ARRIVES AT LIHIR

On the corporate front, this year's most significant event was undoubtedly the merger between PNG-based Lihir Gold and Australia's largest gold producer, Newcrest Mining. Already part of the Morobe Mining partnership with Harmony, since September Newcrest has assumed day-to-day management of Lihir's namesake operation, where the company expects to produce between 800,000 and 870,000 oz this year. The plant expansion to over 1 Moz/y is on schedule for completion next year, while a US$10 million exploration programme, in progress throughout 2010, is expected to result in an increase in the operation's resources, the company says.

With its increased presence in PNG, Newcrest listed its shares on the Port Moresby stock exchange in August, becoming the largest company listed on the exchange, and shortly after began a farm-in arrangement to earn a near-61% stake in the Manus Island joint venture from Triple Plate Junction and its partners. Newcrest is committing $A6 million over five years to evaluate epithermal gold and porphyry copper prospects there.

GOLD, GOLD, AND MORE GOLD ...

With its Kainantu mine currently on care-and-maintenance, Barrick Gold Corp. has been focusing its exploration effort on Porgera, with drilling last year on the Project X and AHD areas underground. The company has continued drilling this year with the aim of defining resources at these and several other targets, as well as continuing with its Porgera Deeps programme, seeking high-grade gold mineralisation beneath the existing underground mine workings.

In the Tabar Islands, Allied Gold has been carrying out a prefeasibility study on sulphide-hosted gold resources beneath its Simberi open-pit mine, where a processing-capacity expansion to 3.5 Mt/y of ore is scheduled for the end of 2011. The company aims to take its sulphide resource to full feasibility study the following year, based on a 4.6 Moz resource estimate. It is also continuing exploration for both copper and gold on the Tabar and Tatau Islands, where it is drilling on six epithermal gold prospects.

On Woodlark Island, Woodlark Mining has begun a feasibility study on its gold project there, having completed a scoping study. The resource is now estimated at over 1.6 Moz of gold, with an IPO for Woodlark's parent company, Kula Gold, reportedly in the offing to raise additional development funding.

... AND THAT'S NOT ALL

Beneath the Bismarck Sea, Nautilus Minerals began its 2010 exploration campaign in October, targeting better knowledge of the resource and geotechnical aspects of its Solwara 1 mine-development site, as well as scout drilling at its other deep-sea prospects. Following last year's programme, the company has now identified 18 seabed massive sulphide systems within the Bismarck Sea area, having discovered five new zones during its 2009 work.

Nautilus has been re-engineering its proposed mining system for this unique resource while its application for a mining licence remains under consideration.

At Amazon Bay, MIL Resources has now received an engineering and metallurgical study on its vanadium-rich beach-sands resource, based on a prospective output of 2.5 Mt/y of titano-magnetite concentrate. In August, MIL increased its ownership of Titan Metals, the licence-holder at Amazon Bay, from 50% to 100%, thereby gaining access to the other prospects within Titan's exploration portfolio. These include the Poi copper-gold prospect, where recent rock and soil geochemistry has indicated what the company describes as "a major exploration target".

On the Morobe coast, OM Materials Holdings is targeting chromite resources in beach sands at Sachsen and Hessen Bays. Resource Mining Corp. recently expanded the drilling programme at its Wowo Gap nickel laterite project, while the current focus of Papuan Precious Metals' work is its Doriri Creek platinum-group metals prospect. This, the company believes, is an unusual occurrence of hydrothermal mineralisation within mafic and ultramafic host rocks.

EXPLORATION TOOLS IN DEMAND

There has been keen interest in new data sets covering radiometrics, aeromagnetics and geochemistry produced within the Geomap project since their publication by the MRA earlier this year. A number of international majors have since bought these data, which have attracted the attention of several junior explorers as well.

Companies across the board are continuing to make progress on their projects, ranging in size from Morobe Mining's Wafi-Golpu (copper-gold) and Marengo Mining's Yandera (copper-gold-molybdenum) to a host of smaller opportunities. The MRA continues to receive a stream of applications for new exploration licences, with new licences being granted as the number of tenements being evaluated increases year-on-year.

PNG has a history of mining that goes back to the late 1800s, often centred on goldfields that are being re-evaluated today. One thing is clear, however: much of PNG's mineral wealth remains to be discovered and with the present improvements in the regulatory climate they are more attractive than ever.

Magnus Ericsson is Senior Partner and Co-Founder of Swedish-based Raw Materials Group, pioneers in mining data compilation and analysis and experienced mineral economists and policy analysts - www.rmg.se .

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Current consensus wisdom is that copper prices are likely to perform strongly in 2011 as the market faces structural undersupply issues and continuing demand growth mainly from China.

As the VM group writes in its November Metals Monthly publication for ABN AMRO, "Assuming demand from emerging economies continues to grow, and that of the developed world recovers at present rates, then supply-side fundamentals will ultimately determine price performance.

It adds, "For copper, supply is beset with problems, ranging from declining ore grades at many of the world's major copper mines to the slowing discovery of new replacement mines."

However, it is the assumption about emerging economies that has some commentators a little concerned.

In a note French bank Natixis writes, "More important, for us, was the ongoing rise in developing country inflation data, with November's release from Brazil taking the yoy rate up toward 5.5% yoy. This escalating concern over inflation in developing countries will likely remain a concern for all commodity markets as we move into 2011, with the hope that inflation can be contained without compromising growth set against the fear that countries may need to restrain growth more significantly to bring prices back under control."

Such fears raised their head earlier this month after China raised its interest rates in a bid to cool inflation in the country.

However, Natixis does note, "After the weakness in September, Chinese steel production rebounded slightly in October, rising from 47.9mn to 50.3mn tonnes. This does suggest that Chinese energy rationing has begun to move away from the heavy industries it was initially intended to target, hence the rise in demand for diesel from those smaller energy users that may find themselves subject to electricity shortages.

And ,adds, "The Middle East will remain an important source of demand for raw materials in 2011. Helped by supportive oil prices, many countries are continuing to invest heavily in infrastructure. This week, Trade Arabia reported that construction contracts worth $86bn would be awarded in Saudi Arabia in 2011. In Iraq, four new oil refineries are planned, as international oil companies help to rebuild the country's oil infrastructure."

But, while this all may be the case, it is important to note that Chinese apparent consumption of copper dropped significantly in October, falling from more than 700,000 tonnes in previous months to less than 600,000 tonnes, Natixis says. With Chinese stockpiles of copper high, imports of both unwrought copper and copper products fell sharply, falling by 72,400 and 22,500 tonnes month-on-month respectively.

According to Natixis, "With SHFE stocks continuing to rise, and the SHFE/LME import arbitrage still offside, it is unlikely that conditions in November will have improved. "

Speaking to Mineweb.com's Metals Weekly Podcast two weeks ago, Simon Hunt of Simon Hunt Strategic Services said that in his opinion, there will not be a supply squeeze in the copper market.

He explains that one needs to be careful of how one defines demand. Since 2005 he says, the financial sector has got highly involved in the copper market and, while this demand is real, it differs very much from the industrial demand side of things.

"You have major cable makers saying to the industry that between 2006 and the end of 2010 one million tonnes of copper will be lost to aluminium and fibre optics. How does that square with the tight market? Also across many products, manufacturers through improved design and tighter specifications arte allowing something like 20% to 40% to be used per product. Air conditioning and refrigeration tubes are a fine example, but there are many across the board.

"The second development, which manufacturers have been pursuing with increasing intensity, has been to find new technologies that actually replace copper and the one that is the most prominent is high temperature super conductors, which are either in 2011 or 2012 will start to be put into commercial use."

He adds, "If we're talking real fundamentals there has not been and there won't be any real tightness in the market. Tightness is created by the financial sector, believing that copper is going to be a safer asset than holding dollar assets."

To some extent this view is supported by comments from the VM Group, which writes, "The three copper ETFs now planned (ETF Securities, JP Morgan and Blackrock) can only deepen the deficit, even assuming they receive a lukewarm reception. For a physical copper consumer, the medium-term outlook of a copper market deficit, competing ETF demand, and record high prices can only result in one thing - substitution. Although there is little available to replace copper's superior conducting properties in electrical applications, its uses in piping will certainly be under threat.

"When copper last rallied to record highs in 2007 and 2008, there was a marked and, in some cases, permanent shift to plastic tubing. Should the copper price break and sustain new ground in 2011 and 2012 then we expect a further shift to alternate materials."

The question then becomes, what happens if the continued growth in demand from emerging economies, be it as a result of stubborn inflation or substitution, doesn't emerge?

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Chilean copper producer Antofagasta said nine-month core earnings surged 74 percent due to a rebound in metals prices and higher output as it launched the plant at its new Esperanza mine.

The London-listed group said on Thursday earnings before interest, tax, depreciation and amortisation (EBITDA) increased to $1.96 billion on revenues of $3.17 billion that were up 57 percent.

The company has commissioned the plant at its new Esperanza mine and the first copper concentrate shipment was due by the end of the year, a statement said.

On Nov. 3, the firm posted higher-than-expected third quarter costs, overshadowing an expected rise in copper output.

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LME Copper climbed as much as 0.3 percent to $8,316.50 a metric ton Tuesday. today.

The contract for delivery in three months traded at $8,307 a ton by 1.00 a.m London time a.m. Zinc gained 1 percent to $2,160.

The March-delivery contract on the Shanghai Futures Exchange dropped 0.9 percent to 62,870 yuan a ton.

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Gold futures were hammered again today, with the December contract down more than 2%, or $30.10, to close at $1,338.40. As a result, gold miners are getting punished as well, drumming up a steady wave of speculation in the options pits. Along those lines, Freeport McMoRan Copper & Gold Inc. (FCX) has seen put volume swell to nearly 32,000 contracts today, nearly tripling the stock's average daily put volume. The most active contract has been the November 95 put, where roughly 8,700 contracts have changed hands.

Despite the overall pessimism, a closer look at today's activity reveals that some of FCX's put traders may have more bullish designs. For instance, a block of 1,186 FCX November 95 puts traded at the bid price of $1.09, or $109 per contract, on the Chicago Board Options Exchange (CBOE) at about 10:31 a.m. At the same time, a block of 1,186 FCX November 85 puts crossed on the CBOE for the ask price of $0.19, or $19 per contract. Given this data, it would appear that we are looking at a short vertical put spread, more commonly known as a credit spread, on Freeport McMoRan Copper & Gold Inc. This options strategy is also known as a short put spread, or a bull put spread.

The Anatomy of a Freeport McMoRan Copper & Gold Inc. Short Vertical Put Spread

Getting down to business, the trade breaks down like this: The trader pays $22,534 for 1,186 November 85 puts -- ($0.19 * 100) * 1,186 = $22,534. Meanwhile, the trader receives a credit of $129,274 for selling 1,186 November 95 puts -- ($1.09 * 100) * 1,186 = $129,274. As a result, the trader has pocketed a net credit of $106,740 -- $129,274 - $22,534 = $106,740. The breakdown for this credit spread is listed below:

Breakeven for this trade is equal to the sold strike minus the credit received, or $94.10 -- $95 - $0.90 = $94.10. The maximum gain is equal to the total premium received -- $106,740 -- while the maximum loss is limited to the difference between the November 95 put and November 85 put, minus the net credit received, and is reached if FCX trades at or below the purchased November 85 strike. In this case, the maximum loss is $9.10, or $910 per pair of contracts -- (95 - 85) - $0.90 = $9.10. Below is a chart for a visual representation:

Implied Volatility

After the short vertical put spread has been established, increasing implied volatility is pretty much neutral to the overall position, as it lifts the value of both the sold option and the purchased option. At the time of the trade, implieds for the November 95 put arrived at 83.84%, while the implied volatility for the November 85 put rested at 53.91%. FCX's one-month historical volatility was 42.25%, as of the close of trading on Monday.

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