John Rubino is a former Wall Street financial analyst and author or co-author of five books, including The Money Bubble: What to Do Before It Pops and Clean Money: Picking Winners in the Green-Tech Boom. He founded the popular financial website DollarCollapse.com in 2004, sold it in 2022, and now publishes John Rubino’s Substack newsletter.
After a nice run in the first half of this year, copper suffered a serious correction, leading some to wonder if this story is broken:
Benchmark Mineral Intelligence (BMI) forecasts global copper consumption to grow 3.5% to 28 million tonnes in 2024, and for demand to increase from 27 million tonnes in 2023 to 38 million tonnes in 2032, averaging 3.9% yearly growth.
Yet the US Geological Survey reports supply from copper mines in 2023 amounted to only 22 million tonnes. If the copper supply doesn’t grow this year, we are possibly looking at a 6Mt deficit.
Mining companies are seeing their reserves dwindle as they run out of ore. Commodities investment firm Goehring & Rozencwajg says 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.”
Effectively, lower grades mean millions of tonnes more rock needs to be moved and processed to get the same amount of copper.
In July, the vice president of US investment bank Stifel Financial Cole McGill presented data that corroborates Goehring & Rozencwajg, stating “If you look at grades at the top 20 copper mines since 2000, they’ve trended down about 15-20%, and if you take out some of the higher-grade African projects, that’s even lower.”
Sprott agrees that, Chile and Peru, the top copper-producing countries, are grappling with labor strikes and protests, compounded by declining ore grades. Russia, ranked seventh in copper production, faces an expected decline due to the ongoing war in Ukraine. Despite efforts by miners to ramp up production, many analysts anticipate a widening supply imbalance.
Major copper miners aren’t doing much to alleviate the problem. High-quality projects are increasingly rare and major new discoveries are lacking. The global time from discovery to production averages 16.5 years.
To meet the increase in copper demand, copper majors are focused on extending the life spans and productivity of existing mines rather than carrying out more expensive, and risky, exploration and development of new (greenfield) projects.
E&MJ Engineering stated in its outlook for copper production to 2050, “The trend toward declining orebody grades and continued development of the pursuit of existing operations to exploit lower grade deposits is likely to continue, in the absence of high-grade project discovery.
“A decline in ore grade results in higher operating costs due primarily to the amount and depth of material required to be mined and processed to produce the same amount of copper product. It is no surprise that both GHG emission intensity and energy intensity increase as ore grade decreases. There is a point of inflection, where below an ore grade of around 0.5% copper, the intensity of both metrics rises sharply.”
Given that many mines are fast approaching, if not already tackling, similar grades, this is a pressing problem. In its fiscal year 2020 commodity outlook, BHP, the world’s third largest copper producer, estimated that grade decline could remove about 2 million metric tons per year (mt/y) of refined copper supply by 2030, with resource depletion potentially removing an additional 1.5 million to 2.25 million mt/y by this date.”
Grade decline, deteriorating ore quality and supply pressure from growing resource nationalism highlights the importance of funding exploration.
Unfortunately, according to Sprott, capital for the exploration and development of copper mines peaked at $26.13 billion in 2013. Since then, it has almost halved and remains low, with only $14.42 billion spent in 2022.
McGill told Bloomberg that between 2009 and 2016, copper supply grew at a CAGR of 3.5-4%. Since 2016, when copper priced bottomed at around $2-2.20/lb, the CAGR is around 1%.
Without new capital investments, Commodities Research Unit (CRU) predicts global copper mine production will drop to below 12Mt by 2034, leading to a supply shortfall of more than 15Mt. Over 200 copper mines are expected to run out of ore before 2035, with not enough new mines in the pipeline to take their place.
To sum up:
Copper demand is outstripping supply, which should lead to higher prices.
Labor strife, geopolitical turmoil, and declining ore grades are making life hard for today’s miners. So the established copper stocks will benefit, but only partially, as operating costs rise along with the metal’s price.
The main beneficiaries of the above trends will be the junior miners and explorers who have notable copper deposits for the resource-strapped majors to buy.
Perhaps the safest bet in this space might be physical ETFs — if only there were some. Sprott’s Physical Copper Trust just started trading on Canadian exchanges and should be available in the US soon. I’ll publish an alert when that happens.
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