Oil and Copper: The New Alchemists
Volk, Steve
Over the past two years, U.S.based oil firms have been picking up copper companies at a dizzying rate. And while these purchases may seem questionable in the short-run-with copper prices...
...In the U.S...
...Louisiana Land Exp, Penzoil Co...
...See chart) In 1977, for example, Atlantic Richfield paid $700 million to acquire Anaconda, the largest U.S...
...As a result, earnings at Kennecott Copper, for example, were down to $7.3 million in 1977 from a high of $211 million in 1974...
...Duval Corporation, the fifth largest copper firm, is owned by Penzoil (which was unsuccessful in its previous attempts to purchase yet another copper company, ASARCO...
...The oil-copper merger trend has affected most of the major U.S...
...copper producer...
...42 The oil companies' move into copper is based on a number of factors...
...Exxon has invested $107 million in the "Disputada" copper mine in Chile and plans to pour more than $1 billion into it over the next few years...
...consumers are treated to higher prices...
...Copper, above all, has received the full attention of the petrogiants in the last two years...
...PRICES: THE SKY'S THE LIMIT What is more, the investments seem sound even though copper is in a slump...
...The industry as a whole is mired in one of its worst slumps in years...
...July/August 1978 THE OIL/COPPER NEXUS Oil Company Atlantic Richfield Cities Services Continental Oil Co...
...The oil corporations have also turned to copper because they are familiar with many of the industry's problems...
...Still, copper producers are confident that the U.S.'s closest friends, including Chile and Zaire, will soon begin to trim their production...
...Finally, prices on copper could increase if, as is expected, the General Services Administration (GSA) purchases 225,000 tons of copper for the U.S...
...al.," NACLA Report on the Americas, May/June 1978, pgs...
...And while these purchases may seem questionable in the short-run-with copper prices so low-the oil giants can afford to be patient, waiting for the market turnaround which will make their copper investments golden...
...In the meantime, copper producers are jumping at any opportunity to boost their prices...
...Exxon Houston Oil and Min...
...Copper Company Anaconda Inspiration Consolidated Copper Tennessee Copper Co...
...fell through June 1978 Cyprus Mines Corp...
...World stocks of copper currently stand at 2 million metric tons even though, worldwide, mines are only operating at an average 82% of capacity...
...Primary is the fact that the copper firms are particularly cheap at the present time...
...See "Chile: Exxon et...
...In the last two years alone, U.S.based oil companies have purchased, among other things, a British newspaper, the corporation which owns Montgomery Ward department stores, a retail grocery chain and a computer software firm...
...mines, however, producers have opted for unemployment...
...Copper, like oil, requries extensive multinational activities and the experience which can be gained from integrated operations, from mineral extraction to processing to marketing...
...A Wall Street metals analyst added, "in five to eight years you will make a ton of money...
...In fact, much of the money is not going into exploration, but into widespread diversification ventures...
...Given Exxon's satisfaction with the "politically stable investment climate" provided in Chile by the military dictatorship, the firm fully expects to be around to reap the rewards of its patience...
...Stock prices for the firms have also tumbled, making them good targets for the cash-rich oil companies...
...Copper holdings in Arizona Compania Minera Disputada (Chile) Holdings in Southwest and Alaska Copper Range Co...
...Standard Oil-Ind...
...DeConcini votes for the teraty...
...And many governments prefer to increase production when copper prices drop rather than cutting output and thereby adding to their unemployment...
...The copper companies are also putting pressure on copper producing nations to hold down their output so as to push prices upward...
...The oil industry currently owns 40% of minable coal under private leases and 20.6% of domestic coal production, 44% of the nation's uranium reserves and approximately 40% of domestic copper holdings...
...copper mines at 72% of capacity, 20% of miners and refiners (some 12,000 workers) are currently laid off their jobs...
...Duval Corporation amax Holdings in U.S...
...Standard Oil-Calif...
...So great are their funds that, according to Senator Edward Kennedy (D-Mass...
...For companies "looking for places to park their money," as one senior executive of a large oil company put it, "copper is one of the best after oil...
...In the meantime, for companies such as Exxon, with $5.2 billion in available cash, the new alchemists stand to make more money by turning oil into copper than the old alchemists made by turning lead into gold...
...41-42...
...strategic stockpile...
...One oil company NACLA Reportupdate * update * update update executive cheerfully remarked, "When you look at some of those [copper] companies and the potential for sound investments, your mouth starts to water...
...THE TURN TOWARD COPPER In particular, the oil companies have been snapping up mining firms...
...Kennecott Copper, which has not received any offers from oil companies, is currently fighting a takeover bid by Curtis Wright, a nuclear and aerospace company...
...Superior Oil Co...
...the GSA adds to its already large stockpile of copper...
...The company's "La Disputada" mine won't come onstream before 1984, by which time prices should again be on the rise...
...Penney, Du Pont, Goodyear, and AnheuserBusch using only its accumulated cash artd liquid assets...
...This excessive supply of copper has pushed prices to around 64-67 cents a pound, down from a high of $1.40 a pound four years ago...
...and Zaire Merger with Hecla Mining Co...
...For many years now the petroleum companies have defended their large profits on the basis of their need to pour billions of dollars of risk capital into oil exploration and research...
...At the present time over 50% of the world's copper supplies are state owned...
...Kennecott responded to the crisis imrriediately by raising prices approximately 3 cents a pound...
...producers...
...The oil companies face a problem that few of us ever have to confront: what to do with all their cash on hand...
...With production in U.S...
...In most cases, the oil companies already have investments in the countries where the copper firms are located...
...In fact, many securities analysts have noted a similarity between the current weakness of the copper market and that of the international oil market before prices shot skyward in 1973...
...Such a move is much more complex now than in the early 1960's when copper production was dominated by a handful of private corporations...
...We're definitely in an improved situation, and most of the signs are bullish," beamed an executive vice president of Kennecott after the flooding of Kolwezi's mines...
...Union Oil Co...
...According to numerous business publications, the Carter Administration agreed to the GSA purchase of copper as one way of getting the Panama Canal treaty through Congress...
...The deal was fashioned to win the vote of Senator Dennis DeConcini Comments 20% ownership 20% ownership 25% ownership whose home state of Arizona produces 63% of newly mined copper in the United States and who would like to get copper prices moving up again...
...Those most delighted by the recent fighting in Zaire's copperrich Kolwezi province were the copper companies with no investments in Zaire who saw in the consequent disruption of production a chance to get prices moving again...
...And finally, the two industries are able to use similar tax dodges, such as depreciation allowances...
...This is one of the principal reasons for Exxon's huge investment in Chilean copper in the midst of a tremendous copper glut...
...Exxon, for example, could tomorrow buy J.C...
Vol. 12 • July 1978 • No. 4
