Good Copper Investments and Frogs

So in this post, a dude named oscarbullfrog left a good comment.....well, more of a question than a comment, really. Here's the meat of froggy's question:

".....i guess my question would be about your top three choices for copper mining companies and/or stocks (they can be different); would you choose the highest tonnage producer(s) or the company with the greatest percentage of production (company-wide) in copper with other minerals as a 'hedge'/'diversification'?....."

Now this is a big ol' subject, froggy, but let's see if we can sort out a bit of wood from the trees. The question identifies two types of base metals/copper mining investments, but there are other categories. Here's my little rundown of things, and on the way through I've plugged in some 1 year charts that you can click to enlarge if you feel so inclined.

1. Pure copper producers.
These really are few and far between, as all the major copper producers also come with by-products. I'd be interested in getting ideas from people out there about good names for this category.

2. Copper producers with by-products
This is a large group that includes some seriously big players, including the world's biggest copper miner, Chile's state run Codelco. Companies like Southern Copper (PCU) also get thrown into this category, cos although the main chunk of money comes from copper byproducts such as moly, zinc, silver, gold, even cobalt are common.


Away from my favourite PCU for a second, another example here is Antofagasta (ANTO.L, on the London Stock exchange),
which pulled in about 20% of gross revenues from moly last year. Its new "Esperanza" copper project will have gold as its by-product.

Those are big boys, but there are smaller plays that fit this category, too. There are many to choose from in this sector, but just one topical example is Capstone (CS.to), that released its 1q08 results just yesterday.
It's mining copper at $0.98/lb net of its zinc, lead and silver by-products and made $0.19 per share in the quarter....which points to a forward PE of just 4X for FY08 cos the stock is a dead giveaway $3.30 right now. Here's the PR that came out yesterday...have a look for yourself. Very cheap.

3. Truly mixed metals producers
There are plenty of good examples in this category. Freeport McMoRan, (FCX, and ugh I hate the way they capitalize their name like that) has been very heavily copper since taking over Phelps Dodge, but its main mega Grasberg pit is big gold as well as copper.
It's also making sure it is more diversified in the future, with one example being the new moly circuit at its majority owned Cerro Verde mine in Peru and another being the restart of its Climax moly mine in the USA (very high grade moly ore over there).

BHP Billiton (BHP) is quite simply the biggest miner in the world,

and although it has its fingers in all the pies, it's also the third biggest copper producer in the world (running the world's biggest pit at La Escondida in Chile goes a long way to help that). Brazil's Vale (RIO), known mainly for its iron ore production, also has its own 130KT copper mine now producing in its own country.

Those are big boys, but there are smaller polymetallic plays, too. Here's one that right at the other end of the scale, but is also very interesting at today's prices. Although it's not extracting its copper on the recovery circuit yet, Gold Hawk Resources (CGK.v) is a good small miner operating in Peru and is very cheap right now.

Its main products are gold, silver zinc and lead from the rich "Coricancha" mine East of Lima, and it plans to recover the copper grades in the future. After ramping up just last year it is now turning cash flow positive, and the teething problems look like they're just about ironed out now. It's sitting there at $0.345, which is ridiculously cheap. That stock with be over a buck by year's end...Otto's honour.

4. Junior/Exploration companies
These come in all shapes and sizes. Here are a few examples of copper juniors in LatAm right now that i personally like (some have been mentioned here before, some not)

a) Los Andes Copper (LA.v) with its copper/moly project at Las Vizcachitas. Here's my previous post on LA.v.


b) Candente Resourcs (DNT.to), which holds a lot of greenfield sites but its flagship is the pure copper Cañariaco project in North Peru. Here's my previous post on DNT.to.



c) Inca Pacific Resources (IPR.v), which has a great looking copper/moly project in Northern Peru called Magistral.
This project already has a 43-101 compliant final feasibility study published, and is a clear buyout play. Interestingly, the Sprott Moly Fund (MLY.to) owns just under 50% of the company, so when the final sale comes you can be sure Eric Sprott will get a good deal for shareholders before handing over his wodge.

d) Mansfield Minerals (MDR.v), which has good copper and gold/copper projects proving up in Argentina, and is also a minority holder in some good looking projects in Peru.

MDR is an example of what i call a "serious junior", that's to say a junior that doesn't pepper the market with press releases and flimflam, and just gets on with the task of drilling, proving up resources and doing all the good groundwork in a responsible manner. At the current share price of $2.40 or so, it's at a big discount to last year's valuations and also further down the development road. This is the kind of copper junior that could easily go it alone on one or more of its projects and turn into a very profitable mid-sized producer in the medium term future.

Again, there are many more to choose from.

So to wrap this up and answer froggy's question, I like all the above stocks. But looking back at what I've written here my favourites right now would be:

PCU in the producer sector.
CS.to in the small producer sector
FCX in the fully diversified sector
CGK.v in the small diversified sector (although it doesn't have copper production as yet)
IPR.v in the junior sector (but really all those four are good deals and it's tough to choose just one)

All comments, suggestions for other stocks and queries very welcome.