Copper is ubiquitous. More than 15 million metric tons of the red metal are used every year, in almost every home, in almost every vehicle, in parts and appliances as well as infrastructure projects and communications devices. It can be shaped and molded, rolled into thin sheets or drawn into wire. It conducts electricity and heat, and it doesn’t rust.

Malleability, strength and resistance to corrosion make it useful in a broad range of building, construction and electrical applications. Wiring and plumbing are the largest markets. In air conditioning and refrigeration, copper acts as a heat exchanger. It’s also an important material architecturally and used in such applications as roofing sheet.

Over the past century demand for copper has increased with the industrialization of developing economies. As the number of people living in cities continues to grow, there will be increased demand for copper used in housing, infrastructure and consumer goods. It is one of the key elements of the modern world.

But copper consumption in that most critical growth engine China will contract in 2012 for the first time since 2008. Demand is weakening, and inventories are climbing. Consumption will drop about 8.5 percent to 5.6 million metric tons in 2012.

The three-month rolling forward contract on the London Metal Exchange slid 21.9 percent from a peak of USD9840 in mid-July, weeks into what most Australian companies define as fiscal 2012, to close at USD7685 on Jun. 29, 2012. It traded as low as USD6735 in early October 2011.

During calendar 2012 copper’s been as high as USD8740, on Feb. 9, and as low as USD7295, on Jun. 8.

Copper rose 6.8 percent in the third quarter as central banks in the US, China, Japan and Europe expanded stimulus to try to revive economic growth. Producers’ share prices, however, have priced in lackluster fiscal 2012 results driven by the big slide before that.

But this avails agile investors the opportunity to find long-term value amid a tumultuous time for global markets and economies: The widely respected metals and mining research firm Simon Hunt Strategic Services, which compiles analysis for users and fabricators, also forecast usage by copper’s biggest consumer to grow by 5.6 percent to 5.9 million metric tons in 2013.

Stable Elements

AE Portfolio Aggressive Holding BHP Billiton Ltd (ASX: BHP, NYSE: BHP) has delayed decisions on its “mega projects,” including the USD12 billion Jansen potash mine in Canada, the USD20 million expansion of the outer harbor at its Port Hedland facility for iron ore export from the Pilbara, until after fiscal 2013.

The mining giant has also put off development of the Olympic Dam in South Australia, which at an estimated cost of USD30 billion would become the world’s biggest open-pit mine.

A recent BHP briefing paper describes the outlook for potash as “attractive” and says that work designing the Jansen project and obtaining government approvals was continuing apace. The company is “well placed to meet growing potash demand” and states that “final investment decision remains subject to board approval.”

BHP indicated a less bullish stance on Olympic Dam’s vast deposits of copper, gold, uranium and silver, with the company declaring that “an investment decision is far from imminent.” The company is studying less costly ways to develop the mine, and these studies will be “extensive.”

But the company is not sitting idly by. It continues to seek out opportunities to add to its already broadly diversified resource production base.

For example, The Wall Street Journal reported Oct. 3, 2012, that BHP is pursuing the acquisition of a multimillion dollar stake in Petroleo Brasileiro SA’s (Brazil: PETR4, NYSE: PBR) oil field assets in the US Gulf of Mexico. Petrobras, as it’s widely known, values its assets in the Gulf at USD8 billion. According to the Journal there are other parties interested in the assets, and there’s no deal to be struck yet.

And the company continues to find ways to expand its base metals production. Efforts of late are focused on copper, primarily in South America. BHP recently conducted an analyst tour of its copper mines in Chile, touting a forecast that has hit adding 350,000 metric tons of the red metal as of fiscal 2015.

BHP Billiton has been wining and dining analysts on a tour of its copper assets, telling them that it expects to be producing an additional 350,000 metric ton of the red metal from 2015. Olympic Dam, located as it is in South Australia, where labor costs make an already massive project even more expensive, won’t be part of BHP’s immediate plans to boost its copper output.

But BHP, the world’s third-biggest producer of the metal, is bullish on copper, which has largely withstood the global economic challenges that have taken other commodities, such as iron ore, well down over the last 12 months.

With copper trading around USD3.75 per pound but average cash costs of production about USD1.60 per pound the economics remain sound. BHP expects present global output of 15 million metric ton per annum will continue to decline because of depletion of resources and lower ore grades.

The latter dynamic, on top of rising resource nationalization and increasing environmental constraints, suggests that there will come again a cycle of new-mine investment and expansion of existing projects. Perhaps even Olympic Dam’s economics will ripen in coming years.

For now, however, BHP will focus on maximizing latent capacity at low-risk, high-return brownfield projects as it seeks to capitalize on what it sees as a “strong near-term outlook.”

An 11 percent increase in copper production during the fiscal 2012 fourth quarter established solid momentum in for BHP’s Base Metals business. The company expects total copper production to grow by more than 10 percent per year through the end of fiscal 2015. This is a large contribution in the context of projected global growth of copper production.

Production from its Escondida project in Chile, the biggest copper mine in the world, increased by 22 percent, as mining activities progressed towards higher-grade ore, consistent with the long-term plan for the mine.

BHP forecasts Escondida copper production will increase by approximately 20 percent during fiscal 2013.

Successful completion of both the Escondida Ore Access and Laguna Seca debottlenecking projects should push Escondida copper production to over 1.3 million metric tons in fiscal 2015.

BHP also reported strong performance for fiscal fourth quarter and full-year material mined, mill throughput and copper production records at its Antamina project in Peru following the completion of expansion efforts.

BHP hasn’t been immune to volatile copper pricing during the past couple years. As of Jun. 30, 2012, BHP had 278,547 metric tons of outstanding copper sales that were revalued at a weighted average price of USD3.49 per pound; the final price will be determined in during fiscal 2013.

In addition, 239,156 metric tons of copper sales from fiscal 2011 were subject to a finalization adjustment in fiscal 2012, which resulted in a USD265 million reduction in earnings before interest and tax (EBIT) for the recently completed reporting year. These volumes had previously accounted for a USD650 million gain for fiscal 2011.

Over the last five years Base Metals has contributed approximately USD25 billion of underlying EBIT, representing 20 percent of BHP’s overall underlying EBIT. It’s also accounted for USD20.6 billion of net operating flow, or 19 percent of BHP’s total for the period. And on a “copper equivalent” basis the red metal made up 16 percent of BHP’s total production.

As perhaps the most diversified resource producer on the planet BHP provides relatively defensive exposure to what could be a remarkable turnaround for copper in particular and commodities in general as Europe get its house in order, the US avoids its “fiscal cliff” and newly installed leaders in China accelerate efforts to get the Mainland economy jumping again.

The stock has moved well off the AUD30.18 12-month closing low on the Australian Securities Exchange (ASX) established Jul. 18, 2012, gaining 11.1 percent over the past three months. It remains well below its 12-month closing high on Oct. 28, 2011, of AUD38.69, and is yielding north of 3 percent with a reliably growing dividend rate.

BHP Billiton, which raised its fiscal 2012 dividend 10.9 percent from fiscal 2011, is a strong buy under USD40 on the ASX.

BHP also trades as an American Depositary Receipt (ADR) on the New York Stock Exchange. The ADR is worth two ASX-listed shares and confers all the same rights and benefits, including currency movements. BHP’s ADR is a buy under USD80 on the NYSE.

The Rio Tinto mine in Spain, recognized as one of the greatest copper deposits ever found, supplied copper to the Roman Empire. This mine gave its name to Aggressive Holding Rio Tinto Ltd (ASX: RIO, NYSE: RIO), which is now one of the world’s top copper producers.

The company reported a 22 percent decline in 2012 first-half earnings to USD5.9 billion from USD7.6 billion a year ago, as prices for iron ore, copper and aluminum fell and costs at its operations gained.

Rio still boosted its interim dividend by 34 percent to USD0.725 per share. The company also completed a USD7 billion share buy-back program at end of the first quarter.

Rio reported lower copper volumes for the first half of 2012 due to a temporary grade decline at its Kennecott Utah mine, though production is expected to increase in the second half of the year. Prices for the red metal decline 14 percent from the first half of 2011.

Rio is also devoting a significant amount of capital to development of brownfield assets, including USD700 million in 2012 to extend mine life at Kennecott Utah from 2018 to 2029. The project was approved in June 2012. The investment will enable production at an average of 180,000 metric tons of copper, 185,000 ounces of gold and 13,800 metric tons of molybdenum a year from 2019 through 2029.

Rio is spending another USD300 million on the Moly Autoclave Process (MAP) in Utah to enable lower-grade molybdenum concentrate to be processed more efficiently than conventional roasters and allow improved recoveries. The facility is due to come on stream by the second quarter of 2013, followed by a 12-month period to reach full capacity.

The company is contributing USD1.4 billion to the development of Organic Growth Project 1 (OGP1) and the Oxide Leach Area Project (OLAP) at Escondida, USD1.3 billion of which will be spent over the remainder of 2012.

Rio owns 30 percent of Escondida, while BHP, the operator of the mine, owns 57.5 percent. The remainder is owned by JECO, a Japanese consortium including Mitsubishi Corp (Japan: 8058, OTC: MSBHF, ADR: MSBHY), Nippon Mining & Metals Co Ltd and Mitsubishi Materials Corp (Japan: 5711, OTC: MIMTF).

Approved in February 2012, OGP1 involves replacing the Los Colorados concentrator with a new 152,000 metric ton per day plant, which will allow access to high-grade ore. Construction of the new plant is expected to be complete within three years. OLAP maintains oxide leaching capacity.

Rio will spend another USD300 million in the second half of the year in further development of the Eagle nickel mine in Michigan. Approved in June 2010, first production is expected in early 2014. The mine will produce an average of 16,000 metric tons of nickel per year and 13,000 metric tons per year copper metal over seven years.

The USD6.2 billion Oyu Tolgoi copper-gold project in Mongolia was 90 percent complete as of Jun. 30, 2012, with first commercial production expected in the first half of 2013. A new Mongolian government has ratified Rio’s position in the country and will not bow to pressure to nationalize a portion of the project.

Another USD800 million is allocated to continue the pre-production construction of the Grasberg mine in Papua New Guinea. Grasberg is the largest gold mine and the third-largest copper mine in the world.

The current spend involves the Grasberg Block Cave, the Deep Mill Level Zone underground mines and related common infrastructure. Rio Tinto’s final share of capital expenditure will in part be influenced by its share of production over the 2012 to 2016 period.

Grasberg is owned and operated by a subsidiary of Freeport-McMoRan Copper & Gold Inc (NYSE: FCX), PT Freeport Indonesia. Rio holds a joint venture interest in the 1995 expansion of the mine, which entitles it to a 40 percent share of production above specified levels until 2021 and 40 percent of all production after 2021.

Copper revenue declined sharply during the first half of 2012, from USD4.1 billion to USD3.2 billion, largely on lower grades at Kennecott. But Rio is prioritizing the red metal, devoting more than a quarter of its overall capital budget for 2012 to development projects. Much of this expense will go to remediating the problems that led to recent shortfalls.

Rio stock hit a 12-month closing low of AUD48.63 on the ASX on Aug. 30, 2012, following through on disappointment inspired by its first-half results. The stock has bounced from that low to a close of AUD56.40, which is still well below its 12-month high of AUD72.30 reached on Feb. 6, 2012. The stock is trading at more than 23 times earnings but less than two times book value.

Yielding 2.7 percent (a three-year high) after its recent 34 percent dividend increase, Rio Tinto is a buy under USD75 on the ASX.

In addition to broadly diversified BHP and Rio, Aggressive Holding Newcrest Mining Ltd’s (ASX: NCM, OTC: NCMGF, ADR: NCMGY) primary concentration is gold, of which it produced 2.29 million ounces in fiscal 2012. That was lower than initially planned but in line with revised guidance from April.

Gold sales were 6 percent lower at 2.3 million ounces, as production was off by 10 percent due to disruptions caused in some instances by weather and ongoing operational issues at other key facilities. But gold revenue was up by 10 percent to AUD3.7 billion, as the yellow metal fetched a higher price amid continuing and deepening concern about the condition of the global economy.

Newcrest complements its gold operations with significant output of copper, although revenue from the red metal declined by 4 percent to AUD613 million in fiscal 2012 on prices that were 9 percent lower than in fiscal 2011.

Copper volumes were higher, however, and Newcrest is targeting copper output growth of 20 percent to 30 percent over the next five years. Newcrest is targeting copper production of between 100,000 and 110,000 metric tons by 2017, from a target of between 75,000 metric tons and 85,000 metric for 2013 and actual output of 76,000 metric tons in 2012.

Newcrest declared a final dividend of AUD0.23 per share, payable Oct. 19, 2012, to shareholders of record as of Sept. 28, 2012. This is 15 percent higher than the final dividend for fiscal 2011. Full-year distributions totaled AUD0.35, up 16.7 percent from the regular full fiscal 2011 payout of AUD0.30.

Newcrest hit a 12-month closing low of AUD20.94 on the ASX on Jul. 23, 2012, as gold equities continue to lag gold bullion. It has since rebounded to a close of AUD27.84 on Oct. 12, 2012, but remains well off its 12-month high of AUD37.21, established Nov. 14, 2011.

Most of its slide from that level relates to persistent operational issues at its Lihir gold mine. These problems, which are largely the result of incompetent management before Newcrest assumed control of the asset, have smoothed out a bit but still provide reason for skepticism among investors. The stock is trading at 19.08 times earnings and just 1.42 times book value.

Newcrest offers a compelling combination of the protection of gold amid a murky, fear-ridden climate as well as the potential upside its copper operations enjoy should the global economy get back up to speed in the near term. Yielding 1.3 percent after recent increases to its ordinary dividends, Newcrest Mining is a buy under USD32 on the ASX and on the US over-the-counter (OTC) market using the symbol NCMGF.

Newcrest also trades as an ADR on the US OTC market, under the symbol NCMGY. Newcrest’s ADR, which represents one ASX-listed share, is a buy under USD32.

Unstable Elements

Like BHP, Rio and Newcrest, Melbourne-based Oz Minerals Ltd (ASX: OZL, OTC: OZMLF, ADR: OZMLY) is enjoying a solid uptrend after hitting a 12-month low in recent weeks. On Sept. 5, 2012, the stock closed at AUD6.20 on the ASX, well off its 12-month high of AUD11.96, which was established on Oct. 28, 2011.

The stock closed at AUD7.54 in Sydney on Oct. 12, 2012, but is still priced at just 8.77 times earnings and 0.84 times book value.

This is largely the result of the company revealing along with 2012 first-half results that cash costs for the full year will be USD1.10 to USD1.20 per pound, up from the USD1.00 to USD1.10 per pound provided as a previous guidance range and compared to USD0.704 per pound for 2011. Management is also reviewing its cost estimate for 2013. The stock shed 6.9 percent on Aug. 15, its biggest decline since Sept. 22, 2011.

Oz produces primarily copper but also gold from its Prominent Hill open-cut mine in South Australia. The company also owns development property in Cambodia. Oz forecasts 2012 copper production of 100,000 to 110,000 metric tons and gold production of 130,000 to 150,000 ounces. It produced 107,744 tons of the red metal and 160,007 ounces of gold in 2011.

Oz has no debt and a cash pile of AUD651.1 million as of Jun. 30, 2012, which together makes it a potential acquirer-to-grow as well as a potential target for a bigger resource outfit looking for a bargain. A share buyback and the timing of receipts dropped its cash balance from AUD886.1 million as of Dec. 31, 2011. The company has an undrawn USD200 million debt facility in place.

The dividend has not been consistent in the aftermath of the Great Financial Crisis/Great Recession. The company “omitted” its final dividend for 2008 as well as both its interim and final dividend for 2009. It declared an interim dividend of AUD0.30 per share in 2010, then a final dividend of AUD0.40. The interim dividend for 2011 was again AUD0.30, but the final dividend was 25 percent lower compared to the final dividend for 2010 at AUD0.30.

We cut our recommendation on the stock from buy under USD10.50 in the September issue after it slashed its interim dividend for 2012 by 66.7 percent compared to 2011. Oz paid AUD0.10 on Sept. 25, 2012. The next dividend declaration will come in mid-February 2013, along with the company’s announcement of full-year financial and operating results for 2012.

Much of the bad news reported in the company’s Aug. 15 half-year earnings announcement as now been priced in to the stock. On this basis and in consideration of its solid cash position, Oz Minerals is a speculative buy under USD8.50 on the ASX and using the symbol OZMLF on the US OTC market.

Oz also trades as an ADR on the US OTC market under the symbol OZMLY. The ADR is worth 0.5 ASX-listed shares. Oz Minerals’ ADR is a buy under USD4.25.

Among the contractors engaged at Oz Minerals’ key Prominent Hill project is mining services firm Ausdrill Ltd (ASX: ASL), which we’ve recommended in both the August and the September In Focus feature.

Ausdrill is currently in final negotiations with Oz Minerals for a six and a half year extension (with another an option to extend) to its blast hole drilling services contract at the mine, which is in the state of South Australia.

Gold and copper together accounted for 62 percent of Ausdrill’s mining services revenue during fiscal 2012. Other key clients include BHP Billiton, Fortescue Metals Group Ltd (ASX: FMG, OTC: FSUMF, ADR: FSUMY), Rio Tinto, Barrick Gold Corp (NYSE: ABX) and Newmont Mining Corp (NYSE: NEM). Large, long-standing clients account for more than two-thirds of Ausdrill’s revenue.

Sixty percent of Ausdrill’s comes from the gold industry. During uncertain times investors seek the yellow metal. And the bulk of the company’s work–approximately 80 percent, based on long-term contracts–is in the production as opposed to the exploration phase of the industry. Ausdrill is well positioned to cope with a serious downturn, as was the case during 2008-09, when the company’s revenues and profits increased.

The company recently received a letter of intent for a five-year, USD540 million contract award for work at Mali’s Syama gold mine, its largest single deal ever. In late August Ausdrill announced it had reached an agreement to buy Best Tractor Parts Group for AUD165 million through its subsidiary Ausdrill Mining Services. The deal is expected to close by Oct. 31, 2012.

The company will fund the deal with a recently negotiated AUD550 million line of credit, with will also replace an existing AUD150 million revolving line and AUD30 million of asset finance facilities. The new three-year arrangement means Ausdrill has no maturities before 2015.

Some analysts have expressed concerns about the company’s ability to manage a higher debt burden in the short term but at the same time have acknowledged the company’s to-date successful campaign to create a truly integrated and diversified mining services firm that is well-positioned for the medium and long terms.

Along with full-year results Ausdrill announced a 23.1 percent increase to its final dividend to AUD0.08 from AUD0.065 a year ago; its fiscal 2012 interim dividend, announced in late February, was AUD0.065, up from AUD0.055 a year ago. Management has never cut the payout, even during the Great Financial Crisis.

Mining services has work in hand based on signed contracts and letter of intent of AUD2.5 billion for fiscal 2013 onward, and all contracts are based on scheduled rates. There are no lump-sum contracts that can go bad if work takes longer than budgeted.

Ausdrill’s diversified exposure to a range of commodities insulates its operations from a downturn in any one resource, though mining sector activity remains positive for production-related services. Management expects that, based even on current demand, replacement and new contracts will be sufficient to underpin work in hand over the medium term.

The official forecast is for a 15 percent increase in fiscal 2013 revenue based on the company’s current level of work, excluding the impact of Best Tractor. And the outlook beyond fiscal 2013 “remains strong in key sectors.”

Analysts that cover Ausdrill are generally bullish, with 13 rating the stock a “buy,” one rating it a “hold” and two rating it a “sell.” The average target price for the 15 analysts that provide such a number is AUD4.30, implying upside of 50.3 percent from Ausdrill’s closing price of AUD2.86 on Oct. 12 in Sydney within the next 12 months.

The stock is trading at just 7.67 time earnings and 1.17 times book value. Ausdrill, currently yielding more than 5 percent, is a buy under USD3.80 on the ASX. Ausdrill doesn’t trade on a US exchange; this is the primary factor that prevents us from adding the stock to the Aggressive Holdings.

Bradken Ltd (ASX: BKN, OTC: BRKNF) is another mining services firm with substantial exposure to copper; sales from operators working the red metal accounted for 12.6 percent of overall revenue in fiscal 2012, behind iron ore (37.1 percent) and coal (18.4 percent).

Bradken manufactures and supplies equipment and materials to the mining as well as the rail and industrial sectors. Management noted during its fiscal 2012 conference call that it had made significant progress with a new ground engaging tool for the mining industry that it developed in-house and so promises higher margins once it’s rolled out on a wider geographic basis.

The company’s order book is at a record but also stressed that earnings visibility beyond the first half of fiscal 2013, which commenced Jul. 1, is “limited due to global economic uncertainty.” It has no debt maturities through 2013, and its overall debt burden is low relative to total assets and coming down.

Though concerns about the condition of the global economy abound, commodity demand remains strong. This demand is underpinned by the development and industrialization of the developing world and is driving prices and production higher. Bradken’s position on the production side of mining operations–as well as its global manufacturing platform, its product lines, its ability to research and develop its own products and solutions and its solid balance sheet position it to grow revenue, earnings and dividends.

The stock has come well off its 12-month high of AUD8.59, set Mar. 29, 2012. Since then the closing price has plumbed as low as AUD4.64 on Jul. 25 but has now scaled to AUD5.28 as of Oct. 12. A frank interpretation of current market conditions during its fiscal 2012 conference call and the specter of what management describes as a meritless lawsuit related to patents on its key Ground Engaging Tools line have dragged it from AUD6.35 in mid-August.

Recent dividend increases, however, are pretty solid indications of management’s long-term confidence. Trading for just 8.66 times earnings and 1.24 times book, Bradken has the look of a solid speculative bargain. It’s also yielding 7.8 percent.

Bradken is a buy under USD8 on the ASX and on the US OTC market using the symbol BRKNF.

Aditya Birla Minerals Ltd (ASX: ABY, OTC: ABWAF) is perhaps the most aggressive play on copper in our coverage universe. For that, however, you can have a double-digit yield at current levels.

Aditya Birla controls two high-quality copper mines, Mt. Gordon in Queensland, approximately 120 kilometers north of Mt Isa, and Nifty in the Great Sandy Desert Region of the East Pilbara in Western Australia. Mt. Gordon has capacity of 1.2 million metric tons per annum, Nifty 2.3 million.

Aditya Birla is part of the USD40 billion India-based conglomerate Aditya Birla Group and is backed by Hindalco Industries Ltd (India: HNDL, OTC: HINDG), one of the world’s largest aluminum manufacturing companies.

Revenue for fiscal 2012 was up 7 percent to AUD498.6 million, though net profit after tax (NPAT) was off 54 percent. Fourth-quarter copper production and sales, however, each rose 29 percent. Aditya Birla mined and processed 2.81 million metric tons of ore, up from 2.19 million in fiscal 2011. Production was 59,707 metric tons, up slightly from 59,661 in fiscal 2011. Cash costs for the period were AUD2.45 per pound; for the first quarter of fiscal 2013 management reported a figure of AUD2.60 per pound.

Production guidance for fiscal 2013 is 70,000 to 80,000 metric tons.

The board approved and management declared a AUD0.05 dividend on May 30.

It appears the company pays an annual dividend, but policy remains “to seek to maximize cash returns to Shareholders whilst having regard to ensuring a sound financial structure for the Company and providing for value accretive development and exploration activities and targeted growth opportunities.”

Based on the most recently declared dividend of AUD0.05 per share and a AUD0.44 per share closing price on Oct. 12 Aditya Birla is currently yielding 11.4 percent. That dividend was paid Jun. 26, 2012, to shareholders of record on Jun. 12. The company’s next dividend is likely to be declared next May.

Aditya Birla has no debt, more than AUD100 million in cash on its books and the backing of a big conglomerate. Because it operates exclusively in Australia cash costs are high and rising, however, and the dividend history is tough to pin down. This combination is what makes it a particularly aggressive play.

The stock is trading at just 5.19 times earnings and 0.26 times book value. At a closing price of AUD0.44 on Oct. 12 the stock is 10 percent above its 12-month low of AUD0.40, reached on Aug. 15. Aditya Birla is a speculative play for very aggressive investors under USD0.50.

We’re adding copper and gold producer PanAust Ltd (ASX: PNA, OTC: PNAJF) to How They Rate coverage this month. PanAust’s portfolio includes projects in Southeast Asia and South America.

Its key producing assets are the flagship Phu Kham Copper-Gold Operation and the Ban Houayxai Gold-Silver Operation, both located within the company’s highly prospective 2,636 square-kilometer contract area in Laos.

PanAust holds a majority interest in the Inca de Oro Copper-Gold Project in Chile through an alliance with Corporación Nacional del Cobre de Chile, or the National Copper Corporation of Chile, which is known widely as Codelco. Codelco, which is owned by the Chilean state, is the world’s largest copper company.

This alliance brings a little geographic diversity and provides PanAust a base for establishing a copper business in South America, the world’s most prolific copper-producing region.

PanAust’s growth activities in Southeast Asia include the Phu Kham Increased Recovery Project, the Phu Kham District, including the Nam San and Long Chieng Track Deposits, and the Phonsavan Copper-Gold Project.

PanAust reported net profit after tax for the first half of 2012 of USD73.6 million, down from USD77 million for the first half of 2011. Sales revenue increased by 1.5 percent, as higher gold sales and gold prices more than offset a 12 percent lower average price received for copper compared with the 2011 corresponding period.

Copper production was 29,681 metric tons, down from 30,213 a year ago, while copper sales were 28,716 metric tons, compared to 28,361 a year ago. Gold production was 41,587 ounces, up from 27,268 a year ago, while gold sales were 39,660 ounces, compared to 25,967 a year ago. Silver production was 246,161 ounces, down from 257,885 a year ago, while silver sales were 222,929 ounces, compared to 220,765 a year ago.

Average prices received, after realized hedging, for sales during the first half of 2012 were USD3.72 per pound of copper, USD1,611 per ounce of gold and USD32.20 per ounce of silver. During the first half of 2011 PanAust saw USD4.24 per pound of copper, USD1,332 per ounce of gold and USD37.40 per ounce of silver.

Cash costs at both operations were competitive versus the industry and came in below budget expectations, with Phu Kham copper cash costs of USD1.03 per pound copper after precious metal credits, up from USD0.99 per pound in 2011 and Ban Houayxai gold cash costs, for the first month of commercial production, at USD514 per ounce.

PanAust will benefit from a full six-month contribution from Ban Houayxai as well as the third-quarter commissioning of the Phu Kham Upgrade Project; both will provided production and earnings growth. Accordingly, management forecast earnings will rise by “at least 30 percent” in the second half of the year. This guidance assumes average copper prices through December in the range of USD3.25 and USD3.75 per pound.

The primary reason we’re adding PanAust to coverage, however, is that the board approved and management declared the company’s inaugural dividend payment, AUD0.03 per share payable Oct. 25 to shareholders of record on Sept. 28. We begin our coverage with PanAust as a hold.