Once a center of North America’s copper operations in the 19th century, Michigan’s Upper Peninsula region has caught the attention of the mining giant Rio Tinto (NYSE:RIO).  The company has been trying to get copper and nickel mining rights in the region from the past few years. Rio Tinto is currently developing the Eagle Mine, which will be North America’s first primary nickel mine. The massive under-supply and robust demand outlook for base metals has grabbed the attention of mining majors, including Vale (NYSE:VALE), Freeport McMoran (NYSE:FCX), Barrick Gold (NYSE:ABX) and Rio Tinto, that are looking to expand existing capacity and adding new mines.
In a previous note, we discussed about how Rio Tinto is stepping up its copper exploration efforts in China through a joint venture with Chinalco.
Our price estimate of $82 for Rio Tinto implies about 70% upside to its current market price.
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Rio Tinto expects its Eagle Mine production to start by 2014, producing 16,000 tons of nickel and 10,000 tons of copper. The life of the mine is estimated to be more than 12 years. The estimated production number may be small, but it’s a good head start to mining in the Upper Peninsula region. Rio Tinto will invest around $80-$100 million into the development of the mine via its wholly-owned subsidiary Kennecott Eagle Minerals.
Among the other two mines under development in the region, one is the Copperwood mine being developed by Toronto-based Oravana Minerals and, other is the Back Forty mine being developed by HudBay Minerals and Aquila Resources.
Copper faces a shortfall of more than 300,000 tons this year, and the strikes at Freeport’s Grasberg mine in Indonesia and Newmont’s mines in Peru have added to the woes. However, the shortage continues to help miners by keeping the metal prices higher. As noted above, the recent development in the Upper Peninsula is a good head start, bringing the region into focus. As labor and regulatory issues continue to plague countries such as Peru, Pakistan and Indonesia, mining in stable, developed countries becomes more lucrative for miners. We expect to see higher exploration activity in this region, going forward.Notes: