Lawrence Roulston at the Vancouver Resource Investment Conference

Companies have grown their production capacity by buying other companies.

Those corporate takeovers don’t create even a single new pound of production capacity. Investment in new mines has barely offset depletion – that is, older mines are running out of ore and are being shut down.

Let’s look at copper as an example. In 2000, the mining industry produced 15 million tonnes of copper metal. Last year, the industry produced 16 million tonnes of copper. While world economic activity was growing at 4-5% a year, production capacity grew by barely 1% a year. It is not surprising that the price of copper increased more than five-fold.

Part of the reason that the mining industry chose to buy existing mines rather than developing new ones is that they had little choice. During the down part of the metal cycle, there was little effort devoted to exploration and development. When prices began to move up, there was little in the development pipeline. In order to grow production, mining companies had to buy other mining companies.

 Full article at:

http://www.kitco.com/ind/Resopp/roulston_jan122008.html