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November 23, 2005

More about copper stocks (and beer?), Wed., Nov. 23, 2005, 9:07 AM

There is another large cap ($9 B) copper stock I could have included in last night's article on copper. Frequent visitor" Joe B., points out that Southern Peru Copper (NYSE: PCU) has a good dividend. You can research PCU at Yahoo Finance, where you'll see that PCU has a dividend yield of 10.4 pct..

The PCU financials were filed last Friday. You might also want to check them out at ADVFN via the Financial tab there.

You will see that for the first 3Q of 2005, PCU earned a net of $980 million, which is considerably higher than 2004 or the years leading up to it.

I'll let you make the call on PCU. It could be a good buy, at the right time. I suspect a large pullback in copper prices will make it even more attractive.

Another good one might be Grupo Mexico, which has taken in the old Asarco.

If, as and when the global economy has a return to good health, these copper stocks ought to be doing real well. The aluminum stocks as well. The trick is to buy them during periods of market weakness, at times when the Treasury yield curve is fairly flat, like it is today. That's because when the yield curve slopes significantly higher at the long end, then capital expenditures are flying, and copper stocks are then flying as well.

Another thought just came to mind. Copper is often found in what is called porphyry deposits along with gold and molybdenum.

A company like Goldcorp produces so much copper from mining these porphyry deposits that if they sold all the copper and other non-gold elements, and applied it to cost of production of gold, their net cash cost of mining gold would be $9 per troy ounce. And, you know that gold is now trading at about $490/oz. How's that for a mark-up?

Reminds me of my CA days, so many years ago in Toronto when a glass of beer at the local pub cost 75 cents. One of my friends at the time, Tom Kristenbrun, who graduated as a CA with like the third highest marks in Canada, decided to go into the pub business with some money friends. They later called themselves the Ports group. Their first pub was The Jarvis House in downtown Toronto. It was a rundown shanty, which they put a few thousand dollars into repainting. Tom told me he was hired as operator and partner because the money guys knew he knew money and costs and how to keep cash inside the cash register, if you get my drift. So while most of the others were off seeking jobs from Mr. Big, Tom was standing behind a cash register in a run-down pub " making a fortune. He told me that there were two secrets to his success (true story): Hire attractive servers to get the consumers in the door, and sell them a commodity for a lot more than you pay for it. In Tom's case, he told me he was paying between 7 and 9 cents a glass of beer he was selling for 75 cents, and his guests were lined up and down Jarvis Street trying to get in the front door.

The value-add of course was the camaraderie. And the profit of course was in the operating margins, and the minimal capital investment involved.

Later that group decided to go into real estate development " where the Big Money was. I think Tom stayed in hospitality.

Boy, I don't know where that thought came from. Maybe copper beer vats, and the importance of profit margins as taught to me by an old friend in the beer business (or who used to be anyway).

Memories from the past. Good ones.

And just for a lark, I decided to google Kristenbrun, and this is what I found. I haven't seen Tom in at least 20 years. Took me less than 20 seconds to find him. Amazing.

Posted by Posted by Bill Cara on November 23, 2005 09:07:52 AM | Category: 15 Materials