EDITORIAL PAGE — Base metals in spotlight

Base metals have been the wallflowers of the mining industry for much of the past decade, taking a back seat to gold, and even, for a time, attracting less investor interest than the pursuit of Canadian diamonds.

But this is starting to change now that the economies of most Western nations, including Canada, have started to recover. Base metals are back in the spotlight, back in demand and back in the favor of institutional mining analysts.

A year or so ago, it would have been difficult to find a major investment firm putting out a “buy” recommendation for the likes of Inco and Rio Algom. But that is happening now, based on an expected earnings recovery and a more bullish outlook for most base metals. A number of factors are contributing to the improved outlook, the most important being the arrival of the long-awaited economic recovery.

In Canada, for example, unemployment figures are down, car sales are up, manufacturing industries are once again showing signs of life, and the socialist provincial governments of Bob Rae and Michael Harcourt are nearing their respective ends in Ontario and British Columbia.

Analysts note that demand from developed nations is beginning to absorb excess inventories built up during past years. And in the long term, further increases in demand are expected to come from the emerging economies of newly industrialized countries.

Prices for base metals — particularly copper, lead, aluminum and nickel — have improved significantly during the past year. Copper is now above US$1.20 per lb., compared with about US75 cents a year ago. Most analysts believe copper has the best fundamentals, and one metals expert recently predicted that the red metal is poised to reach US$2. Even zinc, the laggard in the base metals market because of chronic oversupply, has edged upwards in recent weeks to a 2-year high of US51 cents per lb.

However, metals experts caution that recent price increases may reflect an element of speculative buying. This is a new phenomenon in the base metals markets, which are not typically driven by investment fund buying. This can have an obviously positive impact on prices, but there is also concern that these activities (related to futures, options and other derivative markets) may cause distortions in the physical markets.

Nevertheless, most analysts agree that 1995 will be a positive year for most base metal producers. And on that point, producers appear to be of like mind. Many are already planning to meet an expected rise in metal consumption by developing new mines or expanding current operations.

A case in point is Inco, which recently announced plans to spend $72 million to develop the high-grade Victor copper-nickel deposit near its Sudbury operations. Meanwhile, Falconbridge is eying new projects in Canada and elsewhere. And Cominco has also been busy, taking on new copper projects in Chile and securing the right to buy a zinc refinery in Peru. The global economic recovery has been slow in coming, and is still only in the fledgling stage. But one thing is certain: Canadian companies will be ready, willing and able to meet an increase in metals demand when the time comes.