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Copper's record-breaking run far from over: Desjardins

Copper may be off to a lacklustre start to the year after hitting a succession of record highs in late 2010, but it's still the darling of many commodity followers. With global economies growing again and a constrained supply outlook, some suggest another leg-up is looming - just give it a bit of time.

Desjardins Securities is definitely in that camp, today raising its long-term copper price to $3 (U.S.) a pound from $2.50. It is forecasting a particularly buoyant 2012, with prices averaging $5. The average price in 2010 was $3.42.

Analysts John Redstone and John Hughes have "buy" recommendations on most base metal stocks they cover and today hiked price targets on several of them.

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With no major new mines expected to come on stream through 2012 and ore head grades at large mines continuing to fall, there is only so much supply to meet world consumption, which Desjardins expects to grow by 4.6 per cent in 2011. It expects inventories will soon almost be depleted, falling from 3.1 weeks of consumption at the end of 2010 to 0.1 weeks by the end of next year. To put that in perspective, average levels historically are around six weeks.

The rising cost of inputs such as power and construction materials and the recent lack of new discoveries also promises to keep future supplies tight, the analysts argue.

Upside: Desjardins top pick in the base metals arena is Thompson Creek Metals Company Inc. , which also produces molybdenum. It hiked its target price on the stock to $21 from $20.55.

Desjardins also upgraded HudBay Minerals Inc. to "buy" from "hold" while increasing its target price to $20.35 from $16, citing the robust copper market and benefits to net asset value that may arise from the planned acquisition announced Monday of the Constancia project in Peru.

Nexen Inc. shares underperformed the company's peers in 2010, losing 9.6 per cent while the TSX energy index rose 10 per cent, noted TD Newcrest analyst Menno Hulshof. The producer is now trading at an attractive entry point even considering operational difficulties at its Long Lake oil sands project, and strong production growth is expected next year at its offshore Nigeria operations, he said.

Upside: Mr. Hulshof upgraded the stock to "buy" from "hold" and raised his 12-month target price by $3 to $27.

Related: Long Lake putting Nexen’s credibility at stake: RBC

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Ore grades at Equinox Minerals Ltd.'s Lumwana copper mine in Zambia were lower than expected in the fourth quarter and company guidance for this year suggests similar disappointing grades, said Canaccord Genuity analyst Gary Lampard. He lowered his 2011 production forecast to 141,000 tonnes at cash costs of $1.43 (U.S.) per pound, from 163,000 tonnes at $1.26.

Downside: Mr. Lampard maintained a "buy" rating but lowered his price target by $1 to $7.

Cogeco Cable Inc. is "too cheap to ignore," argued Canaccord Genuity analyst Dvai Ghose, who expects the company to report solid quarterly results on Thursday. The stock is only trading at an enterprise value of 5.4 times estimated fiscal 2011 earnings before interest, taxes, depreciation and amortization, and should see 6 per cent EBITDA growth this year, he said.

Upside: Mr. Ghose reiterated his "buy" rating and $48 target price.

Potash Corp. shares are approaching full valuation, warned CIBC World Markets Inc. analyst Jacob Bout, who lowered his 2011 potash price assumption to $416 (U.S.) per tonne from $433. He expects higher prices for the commodity next year but not to a level high enough that will spur a rash of new projects and heighten competition.

Upside: Mr. Bout downgraded the stock to "sector performer" from "sector outperformer," but raised his price target to $180 from $160.

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Related: Potash Corp. CEO right on the money

Related: Fertilizer stocks seen as a hot sector for 2011

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About the Author
Investment Editor

Darcy Keith is The Globe and Mail's Investment Editor. He has been a business journalist since 1992 and joined the Report on Business in 2010 from Yahoo! Canada, where he was the senior editor of finance. More

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