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Asian Copper Buyers: Hurting Miners?

Several years ago, Asian mining companies were all the buzz.

The idea was that deep-pocketed miners from China, Japan and Korea were going to buy projects around the world. With the aim of securing metal supply for their own domestic use.

This of course, was good for junior development companies, who would receive joint venture deals or buyouts on the prospective projects they had identified around the globe.

It appears such plans have now come to fruition. Executives from major Japanese miner JX Nippon Mining & Metals told Reuters this week that the company is on track to produce 250,000 tonnes of copper from its own mines in 2015. Up significantly from 100,000 in 2012.

The majority of the lift will come from JX's 75%-owned Caserones copper mine in Chile. Slated to begin production late this year, after $3 billion in development spending.

The addition of Caserones production will mean that JX now sources 50% of its copper concentrate needs from its own mines.

Similar events are unfolding for Chinese companies. Major state miner Chinalco is ramping up to begin output from its Toromocho copper mine in Peru (previously purchased from junior developer Peru Copper). Chinese companies are also expected to bid heavily on Glencore Xstrata's Las Bambas copper project in Peru, now up for sale.

The involvement of these producers in the upstream mining business has obviously been good for the sellers of those projects. But for the industry as a whole, there may be some unexpected consequences.

I've mentioned before that treatment and refining charges at copper smelters in China particularly are holding at relatively high levels. In the past, smelters feared charging high processing rates--worried that the mined copper supply they needed would be diverted to more-affordable smelters elsewhere in the world.

But the analysis is that Chinese smelters now feel secure in their supply lines. Captive mines will send copper concentrate home, even at higher treatment charges. So raising rates is acceptable.

That of course is a setback for the rest of the business. Independent miners looking to sell their output now face higher smelting costs, and therefore lower profits.

We'll see if this trend continues. If so, it could be that the Asian appetite for copper is starting to hurt the people we thought it would help.

Here's to a captive audience,

By. Dave Forest

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