Copper Exploration Required

A research report concludes that investment is required in new copper mines as rising consumption of the red metal coincides with a dearth of development projects after years of underspending on exploration.

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Investors in copper will be encouraged by a recent research report from S&P Global Market Intelligence (SPGMI), which concludes that "mined copper is becoming more valuable as the increasingly copper-intensive global economy coincides with a scarcity of available mining projects in the pipeline".

The Metals & Mining team at SPGMI has forecast that global refined copper demand will grow 2.8% this year to 24.4 Mt. This projection is driven primarily by expected demand from China, where consumption of the red metal is predicted to grow 4.2% year over year to total 11.6 Mt (48% of global consumption).

The report's editor, Keval Dhokia, notes that the prevailing tight market conditions are opening up opportunities for miners to gain funding for project development. SPGMI expects the total amount spent in 2018 on exploration to have grown 19% year over year to US$10.1 billion, and the information provider has forecast a further 5% to 10% increase in exploration budgets this year.

Expenditure on copper exploration was second only to that for gold in 2018, and attracted US$2.1 billion, or nearly 22% of the global budget. The allocation was almost triple the combined budget for lead and zinc exploration, and was double the US$1.1 billion copper allocation in 2017. Mr Dhokia writes that while mine-site and late-stage exploration both had 36% shares of the global exploration budget in 2017, last year the mine-site allocation slipped to 35% and the late-stage share improved to 39% at the expense of grassroots budgets.

Miners are currently more able to invest in development-stage exploration for copper but SPGMI argues that there needs to be a shift in investment towards more upstream projects. The company calculates that a typical timeline from feasibility to commercial production ranges from five to seven years. Projects now entering the feasibility stage of investment, such as Ivanhoe Mines Ltd's Kamoa-Kakula mine (shown in photo) in the Democratic Republic of the Congo, will be unlikely to ease the global concentrate deficit through 2021.

SPGMI notes that much of the near-term project pipeline consists of replacement tonnage. Key projects within this sustaining category are Codelco's Chuquicamata underground phase, BHP Group's Spence project and Teck Resources Ltd's Quebrada Blanca 2 investments. The only greenfield projects where concentrate production is likely to begin this year are First Quantum Minerals Ltd's Cobre Panama, China Railways Corp.'s Mirador and Tibet Julong Copper Industry Co.'s Qulong. These projects will collectively contribute 196,120 t of additional output in 2019.

Thereafter, according to SPGMI, the only projects under construction are Hudbay Minerals Inc.'s Rosemont open pit in Arizona and Anglo American Plc's Quellaveco operation in Peru. These two projects are each expected to produce more than 100,000 t/y of copper in concentrate. Both are expected to start production in 2022, although Hudbay still requires final mine plan approval from the US Forest Service to begin development.

Mr Dhokia writes that the industry requires further investment in copper projects. SPGMI's research shows that the average base-case copper cash price assumption for the 23 mine projects now in construction or commissioning was US$6,526/t, which is below the company's copper price forecast for 2019 of US$6,577/t.

Across a further 57 primary copper projects at the feasibility stage, the average study price assumption rises to US$6,712/t. Fortunately, SPGMI expects the widening shortfall in refined copper to boost the price to US$6,824/t in 2020 and US$6,927/t in 2021. Rising prices will provide support for further investment in projects over the short term, and indicates the scale of demand increases moving through the pipeline.

This will be music to the ears of copper-mine developers speaking at next week's Mines and Money conference in Hong Kong. They included Dr Keith Barron of Aurania Resources on Tuesday, April 2; David Fowler of Merdeka Copper Gold the following day; and Gianni Kovacevic of Copper Bank on Thursday, April 4.

Chris Hinde

Chief Commentator, Mining Beacon

Previously editorial director of Mining Journal, and more recently head of S&P Global Market Intelligence's metals and mining team, Chris is now Mining Beacon's editor-in-chief and lead commentator. He posts two blogs every week, one on Monday reviewing market conditions over the prior week, and a second on Thursday looking at issues on the global mining scene. There is also a quarterly blog on business opportunities in the sector.