Mining Profits...Investing In Industrial Metals

Higher-than-normal copper prices characterized the third quarter and are expected to boost copper miner earnings when producers report quarterly results over the next two weeks or so, analysts say.

Copper miners have been blessed with a run-up in copper prices unseen since the contract started trading on the New York Mercantile Exchange in 1988. The metal settled at an all-time high of $4.0755 a pound on May 23, as demand from fast-growing economies such as India and China helped keep supply tight. Although copper prices retreated somewhat in the third quarter, copper prices still averaged about $3.50, according to an estimate by Morgan Stanley analyst Mark Liinamaa.

The analyst resumed coverage of Phelps Dodge Corp. earlier this month, saying he remains "firmly in the bullish camp for copper's long-term fundamentals" and forecasting strong earnings and cash flow over the next two to four years. Liinamaa offered a similar outlook for Freeport McMoran Copper and Gold Inc. when he raised his third-quarter profit estimates earlier this month, largely based on an increased copper price forecast.

In a recent report, Friedman Billings Ramsey analyst Amir Arif said he expects "copper names will beat current expectations" in the third quarter.

Phoenix-based Phelps Dodge is scheduled to report third-quarter earnings on Tuesday, Oct. 24. Freeport McMoran, headquartered in New Orleans, is expected to report quarterly results on Tuesday, Oct. 17.

Copper prices during the quarter were also supported in part by work stoppages, as several companies faced prolonged strikes by miners.

Workers at Chile's Escondida mine _ which generates about 8 percent of the world's copper output _ ended a 25-day strike on Aug. 31 after securing a 5 percent wage raise and bonuses totaling about $16,600 for each worker. The mine is majority-owned by Australia's BHP Billiton Ltd., which earned $10.45 billion for the year through June, an Australian corporate profit record. The company reports financial results only at the mid-year and year-end periods.

Grupo Mexico SA subsidiary Southern Copper Corp. endured a more than monthlong strike at Mexico's largest copper mine, Cananea, and a roughly three-month strike at another copper mine, La Caridad. Both ended in late July. Citigroup analyst Rafael Pablo Urquia has said he expects the effects of the stoppages to show up in Southern Copper's third-quarter report.

Southern Copper, with headquarters in Peru and a U.S. base in Phoenix, is slated to report third-quarter results at the end of the month.

Stock prices for major copper producers retreated sharply early in the quarter following May's peak copper prices. Phelps Dodge shares recovered and rose 3 percent over the third quarter. Freeport McMoran shares ended the quarter down 4 percent over the three-month period. Southern Copper shares advanced 4 percent at the same time.