When Barrick Gold Corp. bought Equinox Minerals for $7.3-billion, investors were rattled. Here was a gold company buying a copper producer at the height of what seemed like a commodity bubble.
But Barrick stuck to its guns. Both chief executive officer Aaron Regent and chairman Peter Munk espoused a very bullish tone for copper (and gold ). Even if both metals were at all-time highs at that point.
Now that the market has gone through a correction, Mr. Regent hasn’t changed his tone. Speaking at an investor day in Toronto, he continued to stand behind his belief.
“We do think metal prices are well supported with strong fundamentals” he told the audience. “The question is whether prices will stay at these levels. We think that there is a strong case to suggest that they will.”
Surely Mr. Regent could just be saying that because he isn’t ready to accept anything different after buying a company for billions of dollars. But he pulled out some slides to back up his claim. “There’s a very strong structural change in demand for gold and copper,” he said.
Some of the support has been heard before. Emerging economies continue to grow (though at slower paces than before), and central banks around the world continue to buy gold to diversify their foreign currency holdings. Barrick pointed out that gold purchases by central banks in the first half of 2011 were more than double the total for all of 2010.
For that reason, Mr. Regent referred to gold as the “default global currency.”
Then there are the supply issues, and Mr. Regent had an interesting point here. Since 2001, gold mine supply is up only about 2 per cent, whereas demand for gold has skyrocketed. And, “even if you discover a deposit,” he said, “it takes longer to put it into production.”
The same applies to copper. Supply is constrained, plus mines are aging and lower grades are being produced.