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  Has copper vein been tapped out?

BENJ GALLANDER and BEN STADELMANN

Friday, January 23, 2004

Copper, and more specifically, Aur Resources, were first featured in our column in 2001, while the stock was sitting at $3.25, a couple of years after our purchase at $1.91. In those distant days, commodities had skulls and cross-bones stamped all over them and investors relegated this sector to the deep dank shafts of mining history. Our view was different -- what a surprise, eh?

Last August, we returned to this territory. Copper prices were improving and naturally, valuations for stocks in this vein were bounding. Aur was sitting at $4.47, and Corriente Resources had jumped from our buy-in price of 86 cents to the $1.20 range. However, our targets of $6.45 and $1.60, respectively, were distant.

Well, lo and behold, both companies careened handily past their targets with 70 percent of Corriente being sold prematurely at $1.69. Currently it sits at about $3.50 and we're wondering when it will be wise to sell the rest. Aur was dumped at $7.25, a distance above our stated objective.

Our normal practice, although not carved in stone, is to sell 50 percent of a position on achieving our price goal, but sometimes 100 percent is offed. In the case of Aur, given the relative bull market in copper and the manner that investor psychology had changed since our purchase, the election was to sell it all.

Nevertheless, we do not believe that investors today are the same flock as 1999. Having been sheared in those woeful days of tech, many are skeptical of popping fresh money on the table to acquire hot territories. In addition, the buy-and-hold mantra is not as omnipresent. Learning from history --and personal error- appears to have transpired.

With the harvest of Aur in hand, Corriente rests in the stable, However the speculative nature of this investment, and the huge gains already garnered indicate that this junior might soon be tapped out. Sprott Securities has a target price of $4.65 on the stock. Though they have touched gold during the commodity run, we're wondering if they are not a tad optimistic, and if our leave should be taken sooner. Decision, decisions.

How long the copper run will continue is difficult to predict. Ongoing decreases in the U.S. dollar indicate price increases in minerals, and while it is likely the dollar will fall further, the bottom is much closer than two years ago.

One can argue that the recent copper price gains are merely a recovery from another turbulent pendulum overswing, with far more upside potential to return to form. We can be sophists about this one, arguing yes, it appears that there will more upside through 2006 according to cyclical theory, yet, a swift economic recovery in the global engine of the U.S. remains highly suspect.

Today, minerals are hot and as investors recognize sectoral returns in these funds, many could become magnetized to this field chasing past returns. When would be a good time to hop off this bandwagon altogether? Not yet it appears. However, further trimming is being considered.


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