Bullish outlook for base metals from Australian analyst

J. B. Were & Son, in a recent publication, foresees supply rising to meet demand by the end of 1990, but only just. With the general world economy expected to slow to the end of 1990, the fundamental increase in the supply of base metals to meet this growth is expected to be tight. The company’s mine production projections for 1989 and 1990 are 3% and 2.3%, respectively.

“In support of this, there must be some concern on the supply side when 15% of metals produced have their origins in countries with a reputation for political, social or technical disruption,” write the company’s researchers.

“Further, we have a fundamental belief that growth in world infrastructure construction — stimulated by overloading, age and international competition — will provide a substantial cushion for base metals demand in this otherwise slowing economic environment.

“There is evidence of a growing desire by China and the U.S.S.R. to embark on a long term construction program to lift the overall efficiency of their economies.”

The company also comments on exploration for base metals. Canada and Australia, it says, have shown a 20-25% decrease in base metal reserves during the past nine years. Furthermore, the major exploration companies during that time appear to have given the short end of the budget stick to base metals exploration. Also, much of the reserves are said to be of low quality and difficult to treat, and of low grade.

“Such a low emphasis on the search for high quality new deposits cannot be reversed quickly and we can expect reserves to continue to decline for some years,” Were says.

“At best we see a finely balanced supply-demand situation for several years, which could easily be tipped into a supply shortfall.”

Regarding the construction industry, Were points out much of the non-communist world’s infrastructure is wearing out, having been built during the first half of the century. New facilities are obviously needed to serve a growing (and more demanding) population.

“This situation is emphasized in the newly-developing countries where expectations of higher quality and more efficient infrastructure should ensure there is a continued increase in construction activity,” says the company.

Automobiles are another example. Today’s motor vehicles require more copper to service on-board electronics. Larger, or second, batteries are needed to provide the needed extra power.

Elsewhere in the transportation area, airline fleets will have to be replaced. And, the use of aluminum in the construction of engines and bodies for automobiles, to provide better fuel consumption and durability, may become commonplace.

“In our opinion, the 1990s will be characterized by major rebuilding — and new building — programs complemented by technological change,” Were says, “more evidence metal demand and prices will be well supported for many years.”

New copper mining operations coming on stream in the United States include Noranda’s underground project in Montana, near the Cabinet Mountains. The daily production rate is expected to be 20,000 tons ore, yielding 70,000 tons copper and 15 million oz silver per year. The mine will cost an estimated $184 million(US) over a 3-year construction period.

Elsewhere in the U.S. west, Arizona Copper says it will develop the Sanchez deposit in Arizona. Geological reserves are reported to exceed 350 million tons; grade of the oxide ore averages 0.28% copper at a cutoff grade of 0.1%. An open-pit, heap-leach operation is envisaged.

The Copper Cliffs underground mine in Idaho was re-opened earlier this year by Silver King Mines, the mine and milling facilities having been shut down since 1981. Phelps Dodge has extended the life, by two years, of its open-pit operation at Tyrone, N.M. And Asarco will boost production by increasing capacity at two of its Arizona operations, the Mission mine in Pima Cty. and the Ray mine in Pinal Cty.

Sales of rough (uncut) diamonds by the Central Selling Organization (CSO), which markets the output of De Beers of South Africa, reached record levels in 1988: sales rose by 36% to $4172 million. For 1989, investment firm Shearson Lehman Hutton says sales should be even higher, although demand will likely experience a slower growth.

Accounting for 27% of retail diamond sales is Japan, the second most important market after the U.S. The remainder of the Far East accounts for 8% of sales.

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