With many of the world's copper producers reeling from a recent plunge in the metal's price and continued uncertainty due to the international financial crisis, those who saved their coppers during the boom years may be poised to snap up their less prudent associates, according to the executive director of the copper and mining studies center, or Cesco.

There's a lot of potential for mergers and acquisitions as the winners and losers of the crisis emerge, Juan Carlos Guajardo said in an interview Wednesday. "Those that made big buys and took on a lot of debt have a problem, while those that have cash can take advantage," Guajardo said.

Many copper producers had a rough fourth quarter due to the brutal price drop, high costs and sales contracts they had signed earlier in the year. "There were lots of big losses," he said.

But now prices have partially rebounded and costs have fallen, providing a sufficient margin for most companies.

Still, opportunities for takeovers abound, and the potential purchases could mark a significant shift in control of international mining from the wealthier countries to the developing world.

Brazil's Companhia Vale do Rio Doce (RIO), or Vale, is flush and has been on a buying spree for a while.

In addition, China has emerged as a cash-loaded investor looking to secure strategic supplies, Guajardo said.

State-run China Minmetals Corp. is attempting to purchase the assets of Australia's OZ Minerals Ltd. (OZL.AU) for $1.7 billion, but has met resistance from Australian authorities.

The bid for OZ Minerals' mines is one of several acquisitions China is seeking to make in Australia's vast natural resources sector.

Chinalco, or Aluminum Corp. of China Ltd. (ACH), as it is officially known, in February proposed investing $19.5 billion in Anglo-Australian miner Rio Tinto PLC (RTP). The deal, which is being evaluated by the Australian Foreign Investment Review Board, would be the biggest overseas investment to date by a Chinese company. It would raise Chinalco's stake in Rio to 18% and increase its leverage in pricing negotiations for iron ore from Rio's mines.

The transactions reveal China's interest in taking advantage of low valuations to secure its hold over natural resources. They also reflect the financial firepower of a nation that is still growing, albeit more slowly than before, and that boasts huge foreign exchange reserves. Analysts expect Chinese companies to make more acquisitions in coming months across a range of sectors, but especially in natural resources.

In addition, China has emerged as the pillar holding up international copper prices, Guajardo said.

 
   Continued Volatility Expected

The global slowdown has seen copper prices plunge from near $4 a pound in October to around $1.80 this week. But prices dipped to about $1.40 a pound a couple of months ago and only rebounded after China stepped in to take advantage of the bargain to build its strategic reserves.

Cesco is maintaining its forecast for average copper prices this year at $1.50 to $1.80 per pound, but with volatility.

International copper sales will fall slightly compared with last year, but not as far as others are predicting, Guajardo said.

Jon Barnes, principal consultant at consultancy CRU, said Wednesday that world copper consumption is expected to fall by between 2 million and 3 million metric tons in 2009, a decline of 15% to 20% on the year.

Most of the drop will come from decreased purchases by the developed world, but buying by developing countries, particularly China, should partially compensate, Guajardo said.

"Chinese buying depends on the price," he said. "If it's low, they will buy; if prices go up, then not."

It looks like prices will continue to depend on China, with not much hope for a recovery in Europe and the U.S. anytime soon.

Despite the price drop, worldwide copper output is expected to rise this year, as a number of planned projects and expansions come online. Production should rise 1% to 2.5% this year, Guajardo said.

There's likely to be a 200,000-ton copper surplus this year, but "that depends on the Chinese," he said.

If the price of copper rises to $2 a pound, then companies may be tempted to restart shuttered projects, but the key issue is stability. With so much uncertainty regarding future prices, companies are unlikely to make long-term commitments until things are a bit clearer. "There's no assurance that we've already seen the worst of the crisis," Guajardo said.

-By Shane Romig, Dow Jones Newswires; 54-11-4590-2438; shane.romig@dowjones.com