Australian Resources Update

The copper market has strengthened following Chinese New Year with copper price up 24%. Market analyst UBS have observed that the LME copper price (currently at US$3.09/lb) has increased 24% since Chinese New Year in mid-February. In addition, LME copper stocks have fallen 13%. The analyst remains positive on copper and note that market estimates of c. US$2.70/lb in 07 suggest some earnings upside to companies with copper exposure. Armed with facts from the BHP South American tour they have commented that BHP remains positive on copper underpinned by : 1) a strong view that China will need to re-stock in 07 (commercial stocks if not SRB stocks); 2) that Chinese copper in concentrate production which grew c. 200kt in 06 cannot do this sort of growth again in 07; 3) rising copper premiums in China and a turn around in European premiums, and 4) the potential for supply side disruptions. Brett Clayton, Head of Copper at Rio Tinto, also talked up the outlook for copper this week, indicating that: they see only small surpluses in the 2H, and that 2007 could be a repeat of 2006. While there has been some copper substitiution in China, this is not unusual and they are not concerned about it for now. The analyst continues to highlight that ABY has the most leverage to copper. The commissioning of the crusher/conveyor is now complete, and valuations of 2.9x FY08 EPS remain compelling.