Opening summary from TD Securities Action Notes for 14 Jan 2015…

Screening Canadian Producers at US$2.50/lb Copper in 2015
Copper price corrects sharply following in oil’s footsteps. Copper has corrected sharply lower over the first two weeks of 2015 following the drop in oil price and in the face of a stronger U.S. dollar. Yesterday, the copper price fell ~12 cents, or 3.5%, to US$2.61/lb, its lowest point in five years. We believe that concerns about Chinese copper demand are also contributing to the sell-off. Unlike oil (and iron ore), however, we do not believe that the copper market is in structural oversupply. In fact, fears about a substantial copper market surplus in 2015 and 2016 have been eroded as companies have downgraded copper production guidance for this year and a number of projects (primarily Las Bambas) are experiencing delays. We believe that the copper market should be broadly balanced in 2015 — contingent, of course, on Chinese demand.

Chinese demand will determine the direction of copper price.
Wood Mackenzie is projecting that Chinese copper demand will increase ~4% in 2015 after climbing 8% in 2014. This excludes copper purchases by the State Reserve Bureau (SRB) that may have totalled more than 300,000 tonnes in 2014 — it is widely expected that the SRB will again be a heavy buyer of copper in 2015, particularly given the sharply lower price year-to-date. But fundamental demand for copper in China is likely to be the determinant of whether or not a surplus will develop this year. We estimate that a one percentage point change in Chinese consumption is the equivalent of 100,000 tonnes of demand. For 2015, Chinese copper consumption is estimated at ~10 million tonnes, or 45% of the global demand of ~22 million tonnes.

Our favourite names are Lundin Mining, HudBay Minerals, and Nevsun Resources.
We believe that all three of our top picks have defensive characteristics in a lower copper price environment, with limited capex requirements in 2015 plus strong and/or improving balance sheets. In light of the sharply lower copper price, we have run a number of screens on our coverage list of Canadian copper producers, assuming an average copper price of US$2.50/lb in 2015. In Exhibit 2, we show our 2015 EPS and EBITDA estimates, assuming a US$2.50/lb copper price and the percentage change relative to our current estimates that assume an average price of US$3.10/lb in 2015. Among the large-cap producers, First Quantum is the most exposed to a lower copper price owing to the imposition of a flat 20% royalty tax in Zambia, which is now fully incorporated into our model. As we have discussed in previous reports, the 20% royalty becomes more onerous at lower copper prices given that it is based on revenue. Teck Resources (my bolding) is relatively less affected by a lower copper price given its more diversified production base.