Copper 101

Our Industry
We believe the supply /demand fundamentals that influence the copper price also impact other base metals, including molybdenum. We believe the following factors will continue to positively influence base metal prices:

Low Inventory
The reduction in global inventories that occurred during 2005 was a result of strong demand and the inability of the supply-side market to respond. Copper inventories, which reached an all-time low in July 2005, remain significantly below historic averages. Limited exploration and development over the last ten years have limited future projects. In addition, the declining ore grade and reserve base at existing mines are expected to keep inventories low.

Supply Disruptions
Disruptions at operating copper mines in 2005 and 2006 significantly reduced available supply. New mine supply is constrained by a number of structural factors in the industry, including the lack of projects currently in the development phase, the lack of qualified labor (particularly technical, engineering and maintenance personnel), delays in obtaining necessary permits and long delivery times for equipment.

Growing Global Demand
Growth in demand for copper has been accelerated by the rapid industrialization of emerging economies in Asia, particularly China, and is spurred by expansion of domestic and foreign demand for manufactured products, growth in the construction markets and expansion of power and communication infrastructures. Growth in copper demand is expected to continue, driven by continued growth in Asia and steady demand (elsewhere) around the world.

Weakening of the U.S. Dollar
There has been a strong inverse correlation over time between copper prices and U.S. dollar exchange rates. Approximately 92% of copper production occurs in regions where the local currency is not the U.S. dollar. Production economics for producers and the impact of raw materials costs on consumers in these regions change with movements in the exchange rate of the U.S. dollar against these regions' currencies. The current weakness of the U.S. dollar has a correlation to a significant increase in the price of copper in U.S. dollars.