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Copper Miner Asset Sales

Written By Brian Hicks

Posted April 30, 2013

The copper market continues to take a hit, with many companies in the industry looking for ways to reduce debt and bring the metal back into a state of stability. Now, a major player has gone as far as agreeing to sell off one of its biggest mines, in a way effectively liquidating its assets.

copperringsAccording to Bloomberg, BHP Billiton Ltd. (NYSE:BHP) has agreed to sell off its Pinto Valley site to Capstone Mining Corp. (TSX:CS). Capstone’s purchase will include a U.S. railroad, and it will be for $650 million cash, making it the company’s largest asset acquisition yet.

The deal should be completed by the second half of 2013, according to Capstone.

The Pinto Valley site has proved to be highly productive, and it is expected to produce between 130 and 150 pounds of copper per year, which doesn’t include usable by-products. The cash cost of copper produced at the site will hover around $1.80 per pound.

A Floundering Industry

Metals of all kinds have proven to be in flux in recent months, and copper is no different. While some remain optimistic (Goldman Sachs has actually remained bullish on copper), many larger companies such as BHP Billiton Ltd. and London-based Rio Tinto (NYSE:RIO) are looking to sell off their assets.

According to Fox Business, the Pinto Valley sale will bring the asset sales of BHP to $5 billion, more proof that the company is doing whatever it can to get rid of the excessive debt it has been facing as of late.

Debt is a huge issue for larger players in the copper industry recently. With a slump in the market and no signs of dramatic improvement in the near future, companies in the copper industry are doing everything they can in order to stay afloat.

The BHP sell-off should come as no surprise to anyone who has been paying attention to metals lately—especially copper.

Since much of copper’s success in the market is based upon industrial use, a strong global economy is required for the metal’s pricing to stay on the rise. While there are a variety of factors that point to the slump in copper, one of the most important to take into consideration is the fact that China’s economy has been showing signs of slowdown.

China happens to be the world’s leading consumer of copper, and this has had a direct effect on the industry as a whole. With China’s great deal of plans for urban growth in the future, however, it’s difficult to say how long the economic downturn in China will affect the metal.

Another reason copper hasn’t been performing very well recently comes down to the fact that economies throughout the world—not just China—have been performing in a lackluster manner. The American economy has shown signs of promise for the future, although growth is not quite where it needs to be in order for things to truly stabilize.

This, however, also comes at a time when the housing market is in the middle of an upturn. The economy in the Eurozone is even more in flux, especially considering the recent economic crisis in Cyprus.

Looking Towards the Future

It’s not all doom and gloom for copper, even though it might seem so given the fact that companies such as BHP are embracing sell-offs. Smaller companies are actually looking towards the lower pricing on copper at the moment as somewhat lucrative in the grand scheme of things. It allows them to enter into the industry and enjoy growth without having to worry about excessive competition.

It’s unclear as to how strong of an effect this will have on copper, but it will no doubt serve to change things.

Investors aren’t exactly thrilled about where copper is at the moment, but the fact that Goldman Sachs remains bullish on the metal means that all hope is far from lost. If things move in a positive direction, copper prices could begin to see an uptick once again in the near future; it’s not necessarily going to be years before things are back to normal.

As with all metals, copper is in a state of limbo. How long this lasts is difficult to tell, but it will no doubt shift at some point.


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