Editor’s Note: Parts of today’s Wealth Daily originally appeared in our sister publication, Gold World, over the weekend. We didn’t want you to miss out on this buying opportunity, and are again sharing it with you.
In September 2007 Citigroup analysts Alan Heap and Alex Tonks called for the spikes in coal and iron ore prices "because of demand from China and congestion at ports in Australia and South Africa."
And they were spot on.
So when the same analysts upgraded outlooks for coal and copper, why argue?
They just increased their price forecast for copper from $3.50 to $5 a pound for 2008, from $3 to $5.50 a pound by 2010, and raised their long term price forecast from $1.45 to $1.60 a pound, asserting that the copper market will "remain very tight until 2011" and on a "looming global power crunch."
And they noted that "lower than expected supply growth will continue as a key factor contributing to tight markets and high prices. Disappointing supply growth has been mainly at existing operations (rather than new projects etc). With negative surprise likely to continue, mine production is forecast to be 900kt less than capability in 2009."
Copper: Expect 15% per Year Demand from China
They also forecast 15% annual copper demand from China, as the country continues building out infrastructure, such as:
- The rail network, which is expected to double over the next five years;
- Expressways, which are expected to increase 75%;
- Rural roads, which are expected to increase 66% by 2010;
- Airports, which are expected to grow by 70% by 2010;
- And seaports, which are expected to grow another 280%, according to MineWeb.com.
And that’s on top of copper supply issues in Chile and Central America, water issues in China and Latin America, and costlier fuel and freight cost.
Mining Companies: Why Southern Copper (PCU) is a Buy
Southern Copper (PCU), post-split, trades at only $33. With more than 49 million tons of copper, PCU has more copper in its reserves than any other publicly traded company, including Freeport-McMoRan (FCX).
Even nicer, Southern Copper offers a dividend yield of about 6%, a hefty dividend as compared to peers like FCX, which pays about 3.6%, and Rio Tinto, which pays about 2.3%.
In our current economic meltdown, it’s best to diversify with stocks that can bring in consistent money to help offset hyper-priced food and energy bills. With the expectation of higher copper cost, plus dividend payouts, we expect further upside in stocks like PCU.
The eventual goal of every investor is to go from supporting a portfolio to having a portfolio that supports the investor. That’s part of the reason we love these dividend-paying copper stocks. They produce a steady stream of income despite the direction of the broader market.
Ian L. Cooper