In a recent note, Goldman Sachs summed up the changing nature of the industry in the context of copper thus:
“…fundamentals were once so tied to global growth that copper was considered to have a ‘PhD’ in macroeconomics.
“Yet today, ‘Dr. Copper no longer exists – with ESG, geopolitics and chronic underinvestment all driving copper fundamentals far more than overall global growth.
“In our view, Copper’s doctorate is about public policy, not economics, rallying around concerns about Chilean mining royalties, accelerating European demand for renewables and supply risks from sanctions. rather than falling global growth expectations.”
Possible is the new probable
Resources can be measured or indicated, reserves can still be labeled proven and probable, but deposits under development have become more uncertain.
In a presentation at the copper mining industry’s largest annual gathering in Santiago, CRU’s head of base metals supply, Erik Heimlich, stressed that while the scale of the supply shortfall long term of just over 6 million tonnes is in line with historical trends, closing that gap is a much more daunting prospect today.
Most important is the fact that now, remarkably, half of the project pipeline for the supply needed in 2032 consists of entirely new projects in the possible category; Another 19% are speculative brownfield projects.
Comparing the 2022 project pipeline to that of 2012 is sobering. Of the 8 million tonnes per year capacity identified as potential new projects, 7 million tonnes remain untapped.
Heimlich says the preponderance of projects only classified as possible in the pipeline indicates the extent to which “factors beyond project economics play an increasingly important role” in determining whether projects become mines.
How brown was your valley?
Only about a third of 2012’s uncommitted brownfield projects, which are expected to be faster, easier and cheaper to build, are currently in production or under construction.
Notable projects from 2012 that stayed that way include Anglo American and Glencore’s $6.5 billion expansion at Collahuasi, which was supposed to boost production at the Chilean mine above 1 million tons and BHP’s Olympic dam project which began as “the mother of all digs” and ended as an exercise in debottlenecking.
If new projects are more missed than hit, it is up to life of mine extensions, operational efficiency projects and mine restart to make up the difference, but Heimlich warns that if “the intensity in capital from the debottlenecking project can be attractive, the additional tonnage is usually small”. and lack of scale can render such projects useless.
The success of mine restarts is also uneven, with few mines resuming production and those generally doing so on a small scale.
Given the difficulty of bringing more projects online, life of mine extensions “in this cycle seem more necessary than ever,” says Heimlich, but even those projects can fall foul of environmental, regulatory and , community and political.
Anglo American had to cut its Los Bronces project by $3 billion for environmental reasons and will use the sub-level blasting method so as to have no surface impact in an area with many glaciers, but that means extraction of ore significantly lower than with block caving or open pit operations.
And that may not be enough for a green light just yet – just this week Chile’s environmental regulator denied the project an extension permit.
Can technology fill the void? Heimlich says the new leaching processes “are attracting significant interest and investment” and that the total addressable market for low-grade sulphide leaching is equivalent to about 10 years of current production.
“New technologies offer the most significant benefits for long-term production, but could exceed the time required.”
A bit like all those green, brown, possible, probable, committed and uncommitted projects that go beyond the required deadlines.