It's said to have a PhD in economics, but copper has been acting more like a glamorous precious metal lately than a studious indicator of industrial demand.
Copper's strong performance is no longer just a bet on a pickup in industrial activity. Some investors are treating it more like silver, platinum or even gold, buying it as a hedge against currency fluctuations, potential inflation or even as a store of long-term value.
The price of the orange metal staged a stunning turnaround earlier this year, long before signs of economic recovery began to appear. From a low of about $1.25 (U.S.) per pound last fall, the price of the metal used to make wires and pipe has recently traded at close to $3 a pound. "It's behaving to some extent like a precious metal, like one would expect platinum to behave," Bart Melek, global commodity strategist at BMO Nesbitt Burns, said in a recent interview.
Copper is increasingly being looked upon by some as a key part of a diversified portfolio that will hold its value as a hard asset rather than plunging as the economy contracts.
"There are elements in the market of people that want to hold copper as a hedge very much like they would gold, except this commodity has actual uses that are industrial," Mr. Melek said.
Precious metals producers may be starting to take notice. This week, Barrick Gold Corp., the Toronto-based company that is the world's largest bullion producer, struck a $465-million deal to acquire a 70-per-cent stake in the El Morro mining project in Chile from base metals producer Xstrata PLC.
While El Morro boasts a measured and indicated gold resource of 8.3 million ounces, it also contains a massive 6.3 billion pounds of copper. The project was previously owned by Canadian base metals miner Falconbridge, before it was acquired by Xstrata in 2007.
"As you look at a lot of the different projects that are out there, you are going to have a significant non-gold component, whether it is copper or silver or things like that. It's the nature of what these deposits are all about. It's not unique in that respect. We don't mind copper, but our focus is on the gold side and that's what attracted us to this deposit," Aaron Regent, Barrick's chief executive officer, said in an interview.
Barrick is already a major copper producer, deriving approximately 15 per cent of its revenue from non-gold sources, including copper, silver and other metals. But it has always been wary of talking up its copper production, mindful of losing the valuation multiple that investors typically assign to gold miners when compared to base metals miners.
Mr. Regent, the former president of Falconbridge, insists that gold remains the key focus at Barrick. The company just issued $4-billion (Canadian) in stock, the largest equity sale in Canadian history, and is using the proceeds to help unwind its much maligned gold hedge book. With the bulk of the gold hedges (which locked in prices far below current levels) now gone, Barrick has greatly improved its exposure to the gold price.
With annual production of approximately eight million ounces of gold per year, production growth continues to be a monumental challenge for Barrick. Some analysts believe that copper could play an increasingly significant role in helping Barrick boost its production.
In the past, Mr. Regent has said that Barrick would consider projects that have a 50/50 revenue split between gold and other metals. Barrick, for example, holds a 38-per-cent stake in the Reko Diq development project in Pakistan, which contains measured and indicated resources totalling 8.5 million ounces of gold and 11.5 billion pounds of copper.
While he doesn't believe that copper will behave like a precious metal in the long term, Mr. Regent conceded that some investors are currently buying it as a currency hedge.
"The longer-term trading of copper will be based more on fundamentals of supply and demand. But there is a currency component to the point that people having a negative view on the value of currencies believe one way to hedge yourself, somewhat, is to buy commodities. So copper is benefiting from that," he said.
Several other gold miners, including Vancouver rival Goldcorp Inc., currently derive a greater percentage of their revenue from copper or base metals than Barrick does and Mr. Regent said that indicates his company could add more copper to its production.
"Shareholders are comfortable with [gold]revenue percentages that are lower than where we are today. … I think investors understand that a lot of the deposits that are being developed are polymetalic. Yes, you're going to have a lot of gold but there are these other metal streams that come with it, whether they be silver or molybdenum or copper. I think there is a certain level of acceptance of it," he said.