Wing: Stillwater’s Purchase Of Peregrine Metals: A Move Into Copper, Gold

September 05, 2011


HAI: What is your answer to the critics who say that the second-highest premium paid for a mining acquisition was too high?

Wing: One of the answers is that, looking at the net asset value, it makes sense. The other answer is to look at comparable sales. If you examine properties in a similar, early stage like this and what they have traded for over the last two or three years, the price we paid is in the low end of that range.

HAI: Why have mining stocks been lagging behind the metals?

Wing: Historically, there’s been a fair amount of linkage between metal prices and the share prices of mining companies, based on the precious metals. What we’ve seen over the last two or three or four weeks is that the stocks are correlating more with the market and less with the metals. And that probably has more to do with people and programs, if you will, exiting asset classes as a whole, rather than looking at specific companies as to what to sell and what to hold.

HAI: How would you characterize the exploration development at these prices?

Wing: When I was at the gold show in Denver last year, there were a lot of junior exploration companies there that we hadn’t seen before. There were a lot of properties that were coming on. Higher prices clearly were bringing properties out that hadn’t been as attractive in the past.

HAI: Why has copper held its price so well while other industrial metals seem to have taken a hit?

Wing: Well, if you were talking to my boss [CEO] Frank McAllister, he would say that copper is the fifth precious metal. But let me set that aside and say that I think my understanding of it links to the dynamics of the world economy.

If you went back to around 1900 and you looked at the intensity of copper use in the United States, you would see that it was rising very steeply at that point. And that intensity of use, say, per unit of GDP or something like that, was indicative of the fact that the United States was industrializing at that point. Copper demand had grown and was growing very significantly. And, by the way, if you looked at the price of copper in 1910 compared to today in real dollars, it was up around $8 a pound, up substantially from where it is now [about $4 a pound].

In the 1930s, you not only saw the Great Depression, but you also saw the completion of that major industrialization phase in the U.S. The intensity of copper use dropped off in the U.S. It came back, to some extent, during World War II. Following the war, you saw similar spikes in intensity of copper use in Japan and in Germany. That was the rebuilding of those economies.

And then prices fell off somewhere around 1970 and languished from the early 1970s until the early 2000s, about 2003. And all of a sudden, you see another major economy starting to emerge at that point. And that obviously is China, and, to a lesser extent, some other countries. Underlying the strength in the copper price is the fact that China is still very actively industrializing. There is a lot of demand for copper coming out of there.

The demand for copper is exceeding the supply and is probably on trend to do that for a while, or at least is tight against supply. Copper is looking good for the next decade or 15 years, maybe.

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