Decarbonization is one of the greatest challenges of the 21st century. In , governments around the world committed to binding targets, with the goal of limiting global warming to 2°C. Achieving this goal is heavily dependent on rapidly rolling out widespread electrification, which would help to replace hydrocarbons with renewable power sources. And innovation across commodities will play a critical role in helping mining companies respond to these challenges.
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About the authors
This article is a collaborative effort by Scott Crooks, Jonathan Lindley, Dawid Lipus, Richard Sellschop, Eugéne Smit, and Stephan van Zyl, representing views from McKinsey&#;s Metals & Mining Practice.
One such commodity is copper, which is an essential ingredient for this process. In fact, electrification is projected to increase annual copper demand to 36.6 million metric tons by . Although current supply projections based on restarts, certain or probable projects, and recycled production offer a pathway to 30.1 million metric tons, another 6.5 million metric tons of capacity (an additional 20 percent) remain to be found.
However, the adoption of new emergent technologies&#;including coarse particle recovery, sulfide leaching, and process optimization with machine learning&#;has the potential to close a significant portion of that gap (Exhibit 1). The obstacles to commercialization and widespread adoption are not trivial, and the numbers presented in this article are an estimate of full potential, not a forecast. But technological levers should be recognized alongside new mine development as part of the solution.
1
The trend of declining copper head grades is well established and unlikely to be reversed. Similarly, oxide ore bodies, which do not require concentrators and can be processed through less capital-intensive routes, are being exhausted. The mining industry has responded to these challenges by processing ever-increasing volumes of sulfide ores. In fact, over the past ten years, the volume of ore sent to concentrators has increased by 1.1 billion metric tons, representing 44 percent growth.
About the research
The analysis in this article was enabled by MineSpans, which is a proprietary McKinsey solution that provides mining operators and investors with robust cost curves, commodity supply and demand models, and detailed bottom-up models of individual mines.
For copper, MineSpans offers mine-level data on 390 primary copper mines and 170 secondary mines and tracks more than 300 active development projects.
Nevertheless, to supply via traditional methods the copper needed for the energy transition, miners will have to repeat this feat again, increasing the volume of ore processed by another 44 percent by (see sidebar, &#;About the research&#;). Of the 1.6 billion additional metric tons of ore required, 0.6 billion metric tons can be provided by recently announced mines or expansions. However, a gap of one billion tons per annum remains. There is an imperative to extract more metal from the ore being mined.
Three technological developments are gaining acceptance and scaling across the industry and can contribute meaningfully to bridging the supply gap: coarse particle recovery, sulfide leaching, and process optimization with machine learning.
Conventional sulfide flotation circuits are most effective at recovering metal-bearing particles from slurry when those particles are sized between 50 and 150 microns. Above or below this range, recoveries fall away significantly, with the steepest rate of decline for coarse particle recovery (Exhibit 2).
2
There are technologies aimed at expanding the acceptable particle size range for both fine and coarse particles. The most interesting recent developments have targeted the coarse fraction.
Recovering the metals in the coarse fraction has been an objective for flotation metallurgists since the first commercial application of flotation separation in the early 20th century. Most developments focused on improving control of the grinding process to ensure that more of the recoverable metal falls within the critical range. However, this approach is reaching its natural limits and frequently comes at the cost of reduced throughput or higher capital expenditures to build increasingly complex regrind systems.
Two lines of development offer the possibility of taking us beyond this dynamic: grind-circuit roughing and coarse particle scavenging.
Grind-circuit roughing, such as the CiDRA P29 system, addresses the challenge by recovering particles directly from the grind circuit. The system is based on the development of an innovative new material that acts as a so-called copper sponge, attracting and holding mineralized particles based on the same hydrophobic properties that cause them to float during flotation. Unlike systems that take effect further downstream, grind-circuit roughing offers the possibility of directly reducing the recirculating load in ball mills, increasing ball mill throughput by as much as 20 percent at a constant grind size.
Operators will need to decide how to take the dividend of increased ball mill efficiency, which could be seen as an opportunity either to drive throughput or to reduce grind size and increase recoveries at a constant throughput. The optimal choice will depend on the properties of the ore body and the existing configuration of the processing plant. However, even with allowances for further cleaning of the concentrate pulled by P29 and consideration of other common system bottlenecks, grind-circuit roughing could add 1.2 million to 4.6 million metric tons of annual copper production by . In addition to these production gains, proportionately reducing energy consumption per metric ton of metal will likely have significant environmental benefits.
The additional copper production would also likely have a limited incremental environmental footprint and could represent significant economic value creation. If the potential production uplift is extended across all metals produced from sulfide ores using a similar production process, while valued at forecast market prices (minus additional processing costs), an annual value pool of $20 billion to $85 billion emerges.
Coarse particle scavenging focuses on extending the range of particle sizes during flotation by adding equipment to the end of the circuit. One example is Eriez&#;s HydroFloat system, which combines the principles behind two conventional separation technologies: density separation and flotation. During conventional flotation, air bubbles are introduced into the ore slurry, at which point the bubbles attach to the mineral-bearing particles, lift them to the top of the tank, and create a metal-rich froth that can be skimmed off. However, the coarser the ore particles, the greater the chance they will shake off the air bubbles and sink back into the slurry before they can be skimmed off. HydroFloat addresses this problem by introducing layers within the cells that prevent the coarser particles from sinking, thereby improving their chances of recovery.
Regarding the impact of this technology, it was employed as a scavenger at the end of a processing plant, where it was possible to improve recovery by 2 to 6 percent, assuming a constant grind size and depending on site-specific factors. Applied across the industry, improved coarse particle flotation can result in an additional 0.5 million to 1.5 million metric tons of annual copper production by . If applied across all metals found in sulfide deposits, the technology represents potential value creation of $9 billion to $26 billion per year.
The benefits of grind-circuit roughing and coarse particle flotation extend beyond their primary roles in augmenting operating concentrators to improve recoveries and throughput. First, the increased-tolerance coarse particles that those technologies create imply an opportunity to reduce water and energy consumption while still achieving the same production targets. Second, grind-circuit roughing and coarse particle flotation also open the possibility of reprocessing old tailings facilities and making other brownfield expansions for near-end-of-life mining operations economical, extending production at low capital and environmental cost and with reduced regulatory uncertainty. Finally, these technologies grant an opportunity to rethink greenfield mine design, reducing the grind-circuit requirements for same production and thereby offering savings across capital requirements and water and energy usage.
Leaching-based technologies have traditionally been applied to oxide or secondary sulfide ore bodies. However, recent developments can help extend this processing pathway to primary-sulfide ore bodies.
Primary sulfides are typically processed at plants using flotation-based systems. Flotation is generally economical for ores with levels of copper that are greater than 0.25 percent, from which flotation can recover 85 to 90 percent. Ores lower than this grade are normally discarded as waste. Yet primary-sulfide leaching offers a pathway to recover copper from material that is currently below mill head grade and considered waste.
Several distinct technologies are opening up the primary-sulfide leaching space. Some have focused on chloride-based solutions, while others, such as Rio Tinto&#;s Nuton system, have focused on bioleaching. Technical results in trials at Kennecott and other sites are reportedly encouraging, but Nuton is also notable for innovation in the business model it has adopted. Taking advantage of the environmental benefits and the lower capital requirement for mine development compared with conventional sulfide flotation, Rio Tinto entered into agreements with juniors such as McEwen Mining and Arizona Sonoran to use Nuton technology for greenfield mine development.
Beyond the developments within major mining houses, Jetti Resources, an independent service provider, is working with mine owners to use a catalyst-based system to leach primary sulfides at their sites. In December , Jetti reported 23 active projects, working with a range of major mining houses. A $100 million series D financing round in October valued the company at $2.5 billion and attracted participation from major miners and manufacturing companies.
Practical limitations related to the construction and operation of heap leach pads may limit the application of this technology in the first instance to run-of-mine mineralized waste instead of tailings or existing mineralized waste stockpiles. There is still ground to cover to reach commercialization. However, if current barriers are overcome by the end of the decade, there could be an additional 2.4 million metric tons of refined-copper production per annum by , with a lower water usage and tailings risk profile than is associated with current flotation-based production pathways. This could represent a $45 billion per annum opportunity across all sulfide-borne metals.
One of the key challenges of mineral processing is that, to some extent, every ore body is variable. Day by day&#;and sometimes hour by hour&#;the characteristics of ores being fed into the processing plant will vary, responding to the process setup in different ways. Thus, maintaining the optimal plant configuration to recover the most metal while ensuring the required purity of concentrate produced remains a perpetual challenge.
Traditionally, adjusting the plant configuration was the province of plant metallurgists, who drew on a combination of academic study, professional experience, and knowledge of the specific ore body. As with any human-controlled process, human factors exert significant influence on outcomes, which sometimes resulted in not only excellence but also lost production due to suboptimal decision making.
The development of machine learning and its application to mineral-processing control over the past five years has added a level of rigor and consistency. Best-in-class applications tend to retain the central role of an experienced plant operator, but they also provide prompts and data for the operator to act upon. Keeping a human in the loop ensures that decisions remain focused on the bigger picture and do not become purely algorithmic, while capturing the speed and consistency that machine learning and AI can provide.
By ensuring that processing plants are consistently working in the upper range of their capabilities, machine learning can add 2 to 4 percent to metal recoveries and 5 to 15 percent to throughput. Such improvements offer an increase in global production from existing and planned mines of half a million to one million metric tons of refined copper by , creating $9 billion to $18 billion in value per annum across all sulfide concentrators.
There are a number of actions stakeholders can take to capture the full potential of these opportunities.
For major mining companies, the new technologies mentioned, such as coarse particle recovery, sulfide leaching, and process optimization with machine learning, highlight the importance and potential contribution of internal innovation groups. Such roles can go far beyond incremental improvements&#;at their best, they stand alongside exploration and capital projects as drivers of future growth&#;and will likely be the key to taking these technologies from promising pilots to standard industry practice. Major miners can also continue to look for flexible, agile ways to work with juniors or service providers to ensure that they are drawing on the best ideas from across the industry.
In addition, these technologies reaffirm the importance of brownfield developments. The potential to maximize the benefits in this space&#;with a lower environmental footprint and continued livelihoods for local communities&#;remains attractive. As commodity prices increase and technology makes more possible, even sites that have fully ceased production can once more generate economic value.
To juniors, service providers, and research institutions, major mining companies are open for business, looking for partners, and creating opportunities. In this way, major companies can provide access to scale projects and support the growth of mining-tech unicorns.
These technologies also offer new options for greenfield projects. The &#;mine of the future&#; could require much lower ball mill capacity for the same output based on grind-circuit roughing technology, reducing capital requirements, water usage, and CO2 emissions. Likewise, sulfide leaching offers the possibility of an incremental, low-capital-expenditure approach to the development of low-grade copper deposits that previously required the construction of capital-intensive concentrators. This approach can enable an incremental development model similar to that often used for gold deposits&#;particularly in high-risk areas, where the capital at risk and the payback period are critical investment criteria. Similarly, for local communities that would accept some mining but are not sure they want to commit to a megaproject, the option for an incremental mine development pathway could be attractive.
For buyers of metals, the supply constraints facing the metals necessary for the energy transition can appear daunting, but new mineral-processing technologies are an indication that human ingenuity and the market economy tend to find a way to provide. However, this is not an invitation for passive optimism: buyers have a role in working with the supply chain by funding and promoting technological breakthroughs where they can. This requires careful analysis and staying abreast of industry trends.
As the world electrifies, the demand for copper will be difficult to meet. However, with innovative new mining and processing technologies, there is hope. Players from across the industry, from mine operators to developers to metal buyers, can make moves today to support the implementation of these new technologies and to innovate further. If they do, they could provide humanity with the key resources it needs for the future.
In , copper mine output increased by 4% to 21.9 mln t and refined copper production by 1% to 24.6 mln t. Global refined copper consumption totalled 24.8 mln t.
When the International Copper Study Group (ICSG) met last October, it was expecting a market surplus of 155,000 tonnes in . In May, the group changed that to a 114,000-tonne deficit.
The first thing we notice from this statistic is its relative small size. In a total copper market of 22 million tonnes, we had an immaterial deficit of 114,000 tonnes, considerably less than 1% of the overall market. Can anyone really claim to be so accurate as to predict the amount of surplus or deficit to within the equivalent of less than a 1 tonne in a hundred? What is basically a rounding error? It seems highly unlikely.
But for the sake of argument, let&#;s say the ICSG&#;s deficit forecast for is correct. What accounts for the missed target?
Reuters&#; metals columnist Andy Home points to two strands in the current copper narrative. One is that China&#;s copper usage is growing faster than previously forecast. Second is that mine supply has once again failed to live up to expectations.
The ICSG reports China&#;s apparent usage of refined copper is expected to increase by 1.2% this year and 2.4% in . Usage growth in the rest of the world is anticipated to beat last year&#;s 0.4% pace @ 1.6% this year, surpassing pre-covid levels, according to the ICSG.
The group contends that despite challenging macroeconomic conditions, &#;manufacturing activity is expected to continue rising in most of the key copper end-use sectors&#;.
The more interesting numbers relate to mine supply. When the ICSG met last October, it expected global mine production to surge by 3.9% in and 5.3% this year. At the time of Home&#;s article, in May, the group thought mine output growth last year was 3%, and it cut its forecast to 3% this year.
Remember, new copper supply is concentrated in just five mines &#; Chile&#;s Escondida, Spence and Quebrada Blanca, Cobre Panama and the Kamoa-Kakula project in the DRC.
Home references four of them, all except the biggest copper mine in the world, Escondida @ 1 million tonnes per year, as supply additions that have been ramping up simultaneously.
However, the expected wave of new supply is being offset by multiple hits to existing operations.
The ICSG cites as reason for its lowered mine growth expectations &#;operational and geotechnical issues, equipment failure, adverse weather, landslides, revised company guidance in a few countries and community actions in Peru&#;.
The Group and every other copper analyst include a supply disruption offset in their mine supply forecasts but the past six months have been particularly problematic even by copper&#;s historical standards of mine under-performance.
The net effect is a smoothing of the supply wave over the forecast period with mine growth expected to slow to 2.5% in as current ramp-ups are completed and any new additions arrive late in the year, according to the ICSG.
Home&#;s analysis also points to a dispute in the current copper narrative between bulls and bears. The bulls represented by Goldman Sachs think there is &#;now no new supply wave this year&#; and warns of a &#;stock out episode&#; as inventory levels are drawn down to critical levels.
The bank therefore targeted a 25% increase in the copper price this year, with a 12-month forecast (from May) of $11,000 per tonne.
On the bear side is Citi, with the investment bank declaring &#;A copper stock out is extremely unlikely in in our view.&#; Citing weak global demand, high finished goods inventories and improving supply, Citi downgraded its price forecast from May to July from $8,500 to $8,000 per tonne.
Kitco&#;s 6-month chart shows spot copper trading between a low of just under $2.50 a pound ($5,511 per tonne) in early October to nearly $4/lb ($8,818/t) in late July.
Prices rose on Monday due to growing optimism for an end to the Federal Reserve&#;s rate hikes, with December copper futures hitting $3.81 per pound on the Comex in New York.
Source: London Metal ExchangeSmelter fees
While Citibank achieved a more accurate copper price forecast than Goldman Sachs, by one important metric its supply optimism for is wrongly placed.
Every November, global copper miners and Chinese refineries meet to negotiate their copper concentrate contracts and settle treatment and refining charges (TC/RCs) for the following year.
Miners pay smelters a fee to process copper concentrate into refined metal, to offset the cost of the ore. TC/RCs fall when tight concentrate supplies squeeze smelters&#; profit margins.
&#;Smelter charges for converting mined concentrate to refined metal offer a mirror on what is happening at the raw materials stage of the copper supply chain, rising during times of surplus and falling during times of deficit.&#; Reuters
If we are heading into a surplus in , as Citibank sees it, why are smelter fees falling?
Last week Bloomberg reported that Antofagasta, a Chilean miner, and Jinchuan Group, a Chinese smelter, agreed to set treatment and refining charges 9% lower than this year, &#;as the supply of mined ore tightens and refining capacity expands.&#;
The charges, of $80 per ton and 8 cents per pound, compare to a six-year high of $88/t and 8.8 cents/lb in , and are the first decline in fees in three years.
Readers of last week&#;s AOTH article will recall that to ensure self-sufficiency, China is/ has expanded its network of copper smelters, meaning it will start to import much more copper ore for processing domestically.
&#;Like all countries, China sees a strategic need for copper &#; particularly now with the growth in green energy applications &#; and China like other countries wants to ensure self sufficiency,&#; said Craig Lang, principal analyst at researcher CRU Group.
&#;China will account for about 45% of global refined copper output this year, according to CRU.&#; Bloomberg
China&#;s new copper smelting capacity is expected to turn China into a net copper exporter by or &#;26. With so many smelters requiring copper concentrate, the market for concentrate is tightening.
Deficit looms
As is the entire copper market. In February CNBC reported that &#;a copper deficit is set to inundate global markets throughout , fueled by increasingly challenged South American supply streams and higher demand pressures.&#;
Wood Mackenzie is forecasting major deficits in copper to , attributed largely to unrest in Peru and higher demand for copper in the energy transition industry.
The South American country, which accounts for 10% of world copper supply, has been racked by protests since its former president, Pedro Castillo, was ousted last December.
In January Glencore suspended operations at its Antapaccay copper mine, after protesters looted and set fire to its premises.
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A strike is currently underway at the Las Bambas mine owned by China&#;s MMG Ltd., with the union reportedly considering an indefinite strike from Nov. 28 if the company does not meet its demands.
Next door in Chile, the largest red-metal producer, accounting for 27% of global supply, recorded a y/y decline of 7% last November.
&#;Overall we believe Chile will likely produce less copper from to ,&#; Goldman Sachs wrote in a note dated Jan 16.
The Cobre Panama mine has been enduring a blockade of supplies and owner First Quantum Minerals warned on Monday it would have to suspend operations if the ongoing port blockade continues.
In a background to the controversy, Mining.com noted the Vancouver-based firm and the government of Panama last month reached a multi-billion-dollar agreement that ended months of negotiations between the two parties. The forthcoming legislation triggered a series of violent protests that almost paralyzed Panama City. Demonstrators claim the new contract was fast-tracked with little transparency and accused the government of corruption. Locals are also worried about the mine&#;s effects on drinking water and the Panama Canal.
As for the green energy transition, Wood Mackenzie analysts estimate a 6-million-ton shortfall by next decade, meaning 6 Escondida&#;s would need to come online within that period &#; this is 100% NOT going to happen, not even close.
The problem is there aren&#;t enough new mines, let alone large ones. Bloomberg NEF estimates refined copper demand will grow by 53% by but supply will increase only 16%.
A report by another consultancy, McKinsey, found that electrification is projected to increase annual copper demand to 36.6 million tonnes by , with supply projections offering a pathway to 30.1Mt, leaving 6.5Mt of capacity to be found.
Jerome Leroy, vice-president of the Canadian business unit of cable supplier Nexans, pointed to forecasts suggesting production capacity will grow to 27 million tonnes a year by the end of this decade, whereas demand could rise as high as 35 million tonnes. He warned a shortfall could materialize as early as next year.
Why can&#;t more copper be mined? The International Copper Study Group says that since , there have always been, on average, 38 years of reserves in the ground. In fact, despite increased demand for copper, reserves have grown (as copper prices rise uneconomic ore becomes economic), and there is more identified copper available than at any other time in history, the group asserts.
Moreover, the US Geological Survey estimates that, while the world has produced 700 million tonnes of copper, there are 2.1 billion tonnes worth of discovered copper deposits yet to be tapped.
Two reasons we aren&#;t extracting more copper are costs (incentive pricing in the copper industry is considered to be US$11,000t) and regulatory delays.
According to a recent blog post by copper wire manufacturer Kris-Tech, determining whether a site has enough copper ore to make the investment worthwhile can take two to eight years, and another four to 12 years before it can start operations. In North America, it can take up to 20 years for a mine to go from discovery to production.
&#;New primary copper mines starting up between and had an average lead time of 23 years from discovery to commercial production.&#;
&#;New copper projects expected to enter commercial production in include Quebrada Blanca Phase 2 in Chile, Kisanfu in DRC, Kalongwe in DRC, Tshukudu in Botswana, Anthill in Australia, Serrote in Brazil and Udokan in Russia, potentially adding around 550,000 metric tons of copper production in . The bulk of future copper supply growth will come from planned expansions at current mines, however, rather than the development of new operations.&#; S&P Global Commodity Insights
Current mines, meanwhile, are facing dwindling supplies of easy to access copper ore, meaning miners must dig deeper; the increased excavation obviously costs more.
I get that exploration isn&#;t easy, especially, imo, given that most of the world&#;s big, high-grade deposits have already been found. But why can&#;t the large copper miners simply tap into their existing reserves to meet growing demand?
The truth is, they have been. Instead of sending exploration teams around the world turning over rocks to find the next gigantic copper deposit, the main way copper companies have added reserves is by lowering their cut-off grades.
The way this is done is fairly simple. A mine plan is based on the &#;cut-off grade&#;, which is the minimum grade needed to make a unit of rock economic to extract at a given price. Any ore below this grade stays in the ground. When metal prices rise, the mining company makes more per tonne, so it is able to &#;lower the cut-off grade&#; and still make a profit. It&#;s essentially turning what was previously waste rock at old pricing into mineable ore at the new prices.
By , the industry&#;s head grade was already 30% lower than in , and the capital cost per tonne of annual production had surged four-fold during that time &#; both classic signs of depletion.
According to the Goehring & Rozencwajg the industry is &#;approaching the lower limits of cut-off grades and brownfield expansions are no longer a viable solution. If this is correct, then we are rapidly approaching the point where reserves cannot be grown at all.&#;
The importance of making new discoveries in establishing a sustainable copper supply chain is obvious.
Over the past 10 years, greenfield additions to copper reserves have slowed dramatically, with tonnage from new discoveries falling by 80% since .
Average grade of remaining copper reservesSeveral large copper mines have mined out all the ore in open pits and are heading underground for the higher-grade, but more expensive to extract material. One example is Oyu Tolgoi in Mongolia, which began underground operations in May.
An article in Japan Times states that, As demand for copper surges, supply is increasingly likely to come from mines like this one on the arid steppe: expensive, technically complex, outside traditional copper jurisdictions and operating under the eye of governments jealously guarding their natural resources.
&#;There&#;s a huge crisis,&#; says Doug Kirwin, one of the earliest geologists to work at the deposit that became Oyu Tolgoi, or Turquoise Hill, named after the area&#;s rocks, stained by oxidized copper.
&#;There&#;s no way we can supply the amount of copper in the next 10 years to drive the energy transition and carbon zero. It&#;s not going to happen,&#; adds Kirwin, now an independent consulting geologist. &#;There&#;s just not enough copper deposits being found or developed.&#;
The article notes the looming copper shortfall has encouraged copper mergers and acquisitions (M&A), such as Glencore&#;s attempted hostile takeover of Teck Resources, Newmont&#;s bid for Australia&#;s Newcrest, and BHP&#;s acquisition of copper producer Oz Minerals.
The most recent copper deal saw China&#;s MMG agreeing to pay $1.9 billion for Cuprous Capital, a private company that owns the Khoemacau operation in Botswana.
Mining M&A in
However, Japan Times concludes that none of these deals, which simply transfer copper reserves from one company to another, will alter the global copper balance, given that &#;building new mines, as opposed to buying them, is still too much of a headache,&#; and that exploration spending remains far short of what is required.
According to Goldman Sachs regulatory approval for new copper mines has fallen to the lowest in a decade, an ominous sign of things to come as regulatory approval to build a mine can take up to 20 years..
&#;Mines are getting older, mines are getting deeper, and mines are getting lower grade,&#; the news site quotes David Radclyffe, managing director at Global Mining Research. &#;Then you&#;ve had the added complications of the need to conform with the shift in terms of environmental requirements. And political risk on top of that.&#;
&#;Capital spending by mining companies is set to decrease 11% in , with exploration spending likely to fall by 10%-20%.&#; S&P Global Commodity Insights&#; principal metals and mining analyst Kevin Murphy.
Asian offtakes
Another obstacle to addressing the copper deficit is the fact that four of the five new large mines have offtake agreements already in place.
At Cobre Panana, nearly half of the 300,000 tonnes per year (tpy) production goes to Korea. Under a 15-year offtake agreement, Canadian miner First Quantum Minerals will ship 122,000 tpy of copper concentrates from Cobre Panama to South Korean copper smelter LS Nikko.
The largest, by far, of the 5 mines expected to deliver 80% of new copper production is Robert Friedlands Kamoa-Kakula copper project in the Democratic Republic of Congo (DRC). The project is a joint venture between Ivanhoe Mines (39.6%), Zijin Mining Group (39.6%), Crystal River Global Limited (0.8%) and the DRC government. Kakula reached commercial production on May 25, , and while output is set for 200,000 tpy in Phase 1, a second phase would add 200,000 tpy and peak production would exceed 800,000 tpy.
(Remember, the prediction is we need a million tonnes of new copper production PER YEAR for 6 years. Kamoa-Kakuls&#;s future production of 800,000tpy almost fills one year of the 6. Where are the other 5 years of new 1m tpy coming from?)
Ivanhoe signed two offtake deals, one with a subsidiary of its partner firm, China&#;s Zijin Mining; the other with Chinese commodities trader CITIC Metal, to sell each 50% of the copper production from Kakula &#; the first of two mines involved in the joint venture. In other words, 100% of Kamoa-Kakula&#;s Phase 1 production goes to China.
That leaves three mines in Chile &#; Escondida, Spence and Quebrada Blanca&#;s &#;QB2&#; expansion. In BHP, the majority owner of Chile&#;s Escondida, the largest copper mine in the world, committed to spend just under $200 million to expand its Los Colorados concentrator. The expansion would help offset declining ore grades and add incremental copper production to reach an average 1.2 million tonnes a year over the next decade. BHP owns a 57.5% share in Escondida, Rio Tinto owns 30%, and the remaining 12.5% is owned by JECO Corp and JECO2 Ltd.
JECO is a Japanese joint venture between Mitsubishi Nippon Mining & Metals and Mitsubishi Materials Corp. It is not immediately clear whether any of Escondida&#;s production is bought by JECO Corp.
BHP said once the Spence mine expansion hits full production, it would produce 300,000 tpy until at least . Spence ownership is split 50-50 between BHP and Santiago-based Minera Spence SA.
Teck Resources&#; Quebrada Blanca Phase 2 project is expected to produce 316,000 tpy of copper equivalent for the first five years of its 28-year mine life. In the Canadian company closed a $1.2 billion transaction whereby Tokyo-based Sumitomo Metal Mining and Sumitomo Corp will, through an $800 million and a $400 million contribution, acquire a 30% interest in project owner Compañia Minera Teck Quebrada Blanca S.A. (&#;QBSA&#;). Like Escondida, it is unclear whether the two Japanese companies will take a portion of QB2&#;s production, or whether they will simply share in the profits.
Summing up, our analysis shows that in four of the five mines where new copper supply is concentrated, there are offtake agreements either in place or implied, with non-Western buyers. In the case of Kamoa-Kaukula, 100% of initial production will be split between two Chinese companies, one of which owns 39.6% of the joint venture project. Nearly half of Cobre Panama&#;s annual production goes to a Korean smelter under a offtake agreement. Escondida and Quebrada Blanca are both partially owned by Japanese companies &#; one can assume that a corresponding percentage of production will be going there.
World Copper FactbookAnalysts do not concern themselves with &#;who&#; owns the copper, their only concern is with the amount of global supply. Unfortunately where its going &#; mostly China, S.Korea and Japan &#; means its hardly global supply. Fact is, the west, that&#;s us, has almost no off-take agreements in place for 80% of the worlds future copper supply.
Commodity analysts like to talk about the wave of global supply about to crash onto the copper market, but they don&#;t seem to realize that 80% of the foreseeable copper supply is coming from just five mines, but four out of five have offtake agreements with non-Western buyers.
That supply is locked up. It&#;s been previously stated that we need to find 6 million more tonnes of copper, 1 million per year of new copper production if we want to alleviate the deficit &#; the equivalent production of one Escondida mine each year &#; but only one of the five mines, Kamoa, has the capability of producing close to that much copper. But Kamoa&#;s production is going to China.
At AOTH we make a clear distinction between global copper supply and the global copper market. Mined copper that is locked up by offtake agreements should not rightly be lumped in with global supply, because it will never reach the United States, Canada or Europe. Instead, this copper will go straight to smelters in China for use in Chinese industry, to South Korean smelters for South Korean industry, and to Japanese smelters for Japanese industry.
We know that Chile, the world&#;s biggest copper producer, has problems with water and is having to desalinate seawater used for mining copper in the country&#;s arid north. Cochilco, the country&#;s copper commission, estimates the use of desalination by mining to increase 156% through , with 90% of the desalinated seawater used for copper processing.
Reuters said that severe droughts are drying up rivers and reservoirs vital for production of zero-emission hydropower in several countries.
As global warming makes already scarce water and mineral resources more difficult and expensive to access, the protection of existing mines and the hunt for new deposits will intensify, resulting in potentially lower production, higher operating costs and conflicts between both water and land users.
With much of the world currently experiencing droughts, and the effects of warming occurring more frequently and powerfully, it seems to me that there&#;s a very real risk to future metals output.
&#;Disruptions at copper mines caused by extreme weather and labour issues, for example, are predicted to worsen, likely affecting a record 1.6 million tonnes of production this year, Goldman Sachs analysts say, a headache for companies hunting for minerals to power the green energy boom as their deposits get depleted.&#; Reuters
It&#;s going to be hard enough to maintain the current 22Mt of mined copper production let alone doubling it. Remember, over 200 copper mines are expected to run out of ore before , 80% of new production is in just 5 mines, with the majority of that ore locked up in off-take agreements with Asian buyers.
Beyond electrification and decarbonization, we will still need enough copper for all its other uses, in construction wiring & plumbing, infrastructure build outs, transmission lines, etc. On top of this there is the surging need for copper in developing countries, whose populations want to &#;live like an American.&#;
&#;The average American will consume 53 times more goods and services than someone from China&#;.With less than 5 percent of world population, the U.S. uses one-third of the world&#;s paper, a quarter of the world&#;s oil, 23 percent of the coal, 27 percent of the aluminum, and 19 percent of the copper.&#; Sept , Sierra Club&#;s Dave Tilford
Conclusion
Asian countries are switching to ore imports as they expand refinery/ smelting capability. This does not bode well for Western copper supplies. Remember, for the foreseeable future, copper supply is 80% concentrated in just five mines, all of which have major off-take agreements with South Korea, Japan or China. For instance, 100% of the massive Kamoa mine&#;s off-take will go to China.
The CRU anticipates a 5% growth in copper demand in China this year, while Goldman Sachs Group Inc. has designated copper as one of its top commodity picks for the next year, citing a &#;robust green demand environment,&#; particularly in China.
According to natural resources investment firm Goehring & Rozencwajg;
&#;Driven by concerns of an impending global recession, copper sentiment remained bearish during the second quarter. On the other hand, copper&#;s short-term fundamentals became increasingly bullish. Mine supply disappointed again in the first four months of , according to the World Bureau of Metal Statistics (WBMS).
Chilean production continues to be particularly problematic. For the first four months of the year, Chilean mine supply fell by nearly 2% compared to last year. Codelco warned that production could hit the lowest level in twenty-five years. In June, André Sougarret abruptly resigned as Codelco&#;s Chief Executive Officer after only one year on the job. Mr. Sougarret cited the numerous &#;complexities&#; facing the Chilean copper mines.
Chile supplies almost one-quarter of all copper production and, in past letters, we have discussed the issues plaguing their copper industry; in particular, declining ore grades, water shortages, labor issues, and uncertain fiscal regimes all negatively impacted production. Unfortunately, we do not expect any of these issues to improve going forward. Global copper mine supply contracted by 0.2% in the first four months of compared to last year, driven by disappointments in Chile.
Meanwhile, global copper demand remained robust in both OECD and non-OECD countries. For the first four months of , OECD copper demand increased by a robust 3.7%. Despite countless bearish articles in the financial press, Chinese copper demand continues to surge, with refined demand rising by 8% year-on-year.&#; An excerpt from its Q2 commentary.
China is already gobbling up copper and copper ore at an incredible rate, and now they want even more. I have no doubt China is delibertaly tightening their grip on the global copper market like they have already accomplished in the lithium, cobalt, graphite, nickel, steel and rare earths supply chains.
&#;In its critical minerals strategy in December, Canada listed copper as one of the top six critical minerals, along with lithium, graphite, nickel, cobalt and rare earth elements, due to its importance in the clean technology sector.&#; Financial Post
It appears the West has been snookered again.
(By Richard Mills)
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