Pan Pacific Says Copper May Recover on Chinese Demand, Supply

By Yoshifumi Takemoto

Sept. 19 (Bloomberg) -- Pan Pacific Copper Co., the world's biggest buyer of the concentrate used to make the metal, said copper prices may recover on sustained demand from China and because no large mining project is starting soon.

``We still have concern on the supply side,'' Shigeru Oi, director and executive officer, raw materials department, said in an interview. ``China's demand will be strong'' as environmental concerns limit output and infrastructure spending bolsters consumption, especially in quake-hit Sichuan province.

Copper has tumbled 24 percent from its July 2 peak of $8,940 a ton because of the risk that the global credit crunch will slow economic growth, reducing demand for industrial raw materials. China is the biggest consumer of copper, making up 27 percent of global use last year, Deutsche Bank AG said.

A ``drastic supply increase'' won't occur before new mines start in the latter half of 2010 including Chile's Los Bronces and Esperanza, he said. Supply and demand will be balanced this year and show ``a bit of a surplus'' next year, he said in Tokyo.

Anglo American Plc said in November it approved a $1.7 billion plan to boost production at Los Bronces to 400,000 tons a year from 226,000 tons and the expansion would be complete in three years. Antofagasta Plc said June 20 the first output from Esperanza was expected by the end of 2010.

Freeport McMoRan Copper & Gold Inc. last week lowered the production forecast for this year from its Grasberg mine in Indonesia after a pit wall collapsed, while BHP Billiton Ltd. has said its Escondida copper mine will yield 15 percent less as ore quality declines.

Treatment Fees

Global smelters are ``suffering'' from ``historically low'' fees for treating and refining concentrate, Oi said Sept. 12. Talks for contracts next year start in October and mining companies need to understand that ``if they push TC/RCs any lower, it will kill smelters,'' he said.

Processors settled mid-year fees with mining companies at around $42 a ton and 4.2 cents a pound, according to industry executives involved in the negotiations.

Pan Pacific's survival strategy in the face of low fees is to increase to 50 percent from 20 percent the amount of raw material it gets from its own mines in the next five years with the focus on Latin America, Oi said.

The company will spend $1.7 billion on Caserones, a mine in Chile, up from $600 million proposed earlier, Pan Pacific's owners Nippon Mining & Metals Co. and Mitsui Mining & Smelting Co. said Sept. 17. A 9 billion yen ($85 million) feasibility study will start this month and end in December 2009, they said.

Peruvian Project

If the Caserones mine is developed, Pan Pacific will produce 3.6 million tons of copper over 26 years, about 150,000 tons a year, and 3,000 tons of molybdenum a year, they said.

Pan Pacific said in November it would spend $490 million on the Quechua mine project, south of Lima in Peru.

The company is owned 66 percent by Nippon Mining & Metals and 34 percent by Mitsui Mining & Smelting, according to its web site. Nippon Mining spokesman Masatoshi Kawada said yesterday the financial turmoil this week hadn't changed Oi's outlook, which was based on fundamentals.

To contact the reporter on this story: Yoshifumi Takemoto in Tokyo at ytakemoto@bloomberg.net