In the mining business, it’s called “close-ology”: gold is found on a property. There is a rush to stake property around it. Stock is issued to explore moose pasture on the thesis that close is good.
And so we have Triumph of gold, the anti-investment, a world where Barrick GOLD beats out a Chinese company for COPPER deposits:
Analysis: Barrick bid suggests copper will be the new gold
(Reuters) – Soaring global demand for copper makes the metal a better bet than gold and explains a surprise bid by Barrick Gold Corp, the world’s No. 1 bullion producer, for copper miner Equinox Minerals.
Barrick’s (ABX.TO) (ABX.N) $7.68 billion offer for Equinox (EQN.TO) (EQN.AX) trumped one by Minmetals Resources (1208.HK), a unit of China’s largest metals trader.
Minmetals on Tuesday bowed out of the battle for the copper miner, which has been involved in takeover tussles of its own with smaller miners, saying Barrick’s bid was too rich.
The move signals a shift by Barrick away from a near-pure gold play into a more diversified mining company, highlighting the positive demand outlook for industrial metals in an improving global economy.
“Perhaps copper is the new gold. The long-term prospects for base metals look good,” Pinaki Rath, managing director of Gold Matrix Resources, said.
He noted that the risk of rising interest rates as world economies shift from the highly accommodating monetary policy adopted during the global financial crisis to more normal conditions could cap the upside for gold, while industrial appetite for copper would support prices.
Both copper and gold prices have hit record highs this year — copper on the London Metal Exchange touched an unprecedented $10,190 a ton in February, while spot gold rallied to a record $1,518.10 an ounce as recently as Monday.
And demand growth from emerging economies like China, which currently consumes 40 percent of world copper output or around 8 million tons, will keep prices firm, while miners struggle keep up.
Estimates vary, but analysts see demand for copper, where its ductility and conductivity make it an essential input in electrical products, wiring and in tubing, outstripping supply by between 300,000 tons to almost 1 million tons this year.
“For at least the next three years we are still very bullish on copper as the market will remain in deficit over that period, even under the most conservative global demand forecasts,” said Judy Zhu, analyst at Standard Chartered Bank in Shanghai.
“And there is a possibility that this deficit could be more prolonged if demand grows faster than expectations. Copper is highly exposed to Asia, and urbanization in China and India will provide upside momentum for at least the next 10 years and perhaps as long as 20 years.”
Upside for the next 20 would be great for my career, but I’ve been around long enough to know that this sort of extrapolation is a sign of extreme optimism (considering the analyst is probably 30 years old). There’s a reason they call it The Winner’s Curse.
P.S. On April 21, Rob McEwen, founder of Goldcorp. made a prediction of $5,000/ounce gold. Shades of John Chambers being bullish on CSCO at the last top.
MORE: Silver down 5 percent