COMMENTARY — Managing the uncertainties

The copper industry cannot be called the master of its fate. To a great extent we’re at the mercy of forces over which we have little control, such as the world economy and political situations in individual countries.

If the world economy is down, we’re down. If the U.S., Europe and Japan are in good economic shape and everyone in China decides to buy a copper bracelet, times will be lush. Right now, things seem pretty good in copper. But I would remind you of some very good market advice I once received — never confuse intelligence with a bull market.

The economic uncertainty of oversupply hovers over us. Copper has done better this cycle because there hasn’t been an influx of new players; nor has there been a flow of soft money. The lessons learned in the 1980s have kept people from rushing in. I don’t necessarily expect this to hold.

You could ask me, “If you’re so worried about oversupply, why are you increasing your production by 50% over the next five years?” And the reason is that all our new production will be in the lowest quartile of worldwide operating costs; we have a cost advantage when it comes to uncertainty. Yet the fact remains that oversupply contributes greatly to the general unpredictability of our future.

Future uncertainties include how environmental issues will affect our market. There is growing agitation by radical environmentalists about minuscule levels of copper in drinking water. Previously having concentrated on lead, these radicals are now trying to make copper appear toxic.

So the question is, How do we manage all these different uncertainties in the years ahead? There is not much we can do about individual political situations, which sometimes explode from age-old tribal rivalries. Nor is there much we can do about the world economy, except to advocate and work for free trade. But there are actions we can take to help stay ahead. For one thing, thinking about copper must go beyond just getting it out of the ground. We must lift our eyes from the ground to see a wider horizon. Our industry must develop new uses of the metal and promote them worldwide. — These remarks by Douglas Yearley, chairman of Phelps Dodge, were made at a conference earlier this year. They appeared in a recent issue of the American Mining Congress’s “Washington Concentrates.”