Above: At the Spence open-cut copper mine in northern Chile, BHP Billiton in August began a $2.46 billion capital project designed to extend the mine life by more than 50 years.

As LME contract prices rise alongside end-use demand, producers obtain the confidence to get more out of the ground

March 2018 - A series of events, planned and unplanned, curtailed copper output during 2017 but ongoing expansion projects from the Congo to Mongolia, and Arizona to Chile, are receiving great attention and financing to match predicted consumption increases.

Copper market commentary is “positive right now,” Richard Adkerson, vice chairman, president and CEO of mining giant Freeport-McMoRan, told shareholders in late January.

“Demand is growing throughout the world. For many years, China was the sole source of growth globally. But [now there is] growth in Europe, in the United States, in Japan—and all that reflects into stronger copper demand,” he said.

However, the industry sustained “a very long period of underinvestment. Even as we speak today with higher prices, we don’t see a wave of new investments being started immediately.”

CEO Ivan Glasenberg forecast production of copper from Glencore assets would rise nearly 2.3 percent to 1.34 million tons by 2020, versus 2017.

Freeport-McMoRan produces about 4 billion pounds a year and has proved reserves of 87 billion pounds, half of which can be found in North America. Adkerson said that North America—with its low-cost fossil fuels, generous tax incentives and low-risk political climate—remains the best place to invest.

The company is not compelled to conduct greenfield exploration, not with “a resource base like the one we have—five operations in the United States that have very large sulfide resources. Over time, I’m convinced the world’s going to need the copper out of those,” he said.

Rio Tinto

The company extracted 3 percent less copper at its Kennecott mine in 2017, compared with 2016. But predicted higher grade material will be accessed this year.

Refined copper production fell 20 percent due to the shutdown of the smelter at Kennecott, following a fatality in October. The smelter resumed production in November, and is expected to draw down the increase in concentrate inventory during the first half. The pushback of the South wall continues through 2020, which will extend the life of the mine.

Production at the company’s Minera Escondida mine in the Atacama Desert of Chile fell 11 percent from 2016 to 2017 due to a labor strike during the first half.  Its Oyu Tolgoi mine, in the southern Gobi desert of Mongolia, also experienced a decline in production, 22 percent, because higher grade ores in phases two and three of the project were fully depleted by the end of 2016. The company is spending $5.3 billion to expand underground development at You Tolgoi. The first new ore should come out of the ground in 2020, with an expected annual output of 560,000 metric tons between 2025 and 2030.

Grupo Mexico

Based in Mexico City, this company is diverse, with activity in railroads, mining and infrastructure building. Copper accounted for 65 percent of its 2017 revenues, and it has budgeted $2.58 billion in capital projects this year. Some of the spending ($1.25 billion) will fund expansion of its Toquepala mine in Peru, increasing output by 69 percent to 245,000 tons per year in 2019. Production from the expanded ore bed will launch this June, the company reports. In Pilares, Sonora, Mexico, Grupo Mexico is developing an open pit mine with an annual production capacity of 35,000 tons of copper concentrates. The high-grade ore will be located to the La Caridad concentrator, improving the average grade (0.78 percent expected at Pilares versus 0.34 percent at La Caridad). The $159 million project should start up next year.

In the United States, the Asarco mine in Hayden, Arizona, is being upgraded to meet more stringent environmental regulations. A $229 million investment to modernize the smelter will be completed in April. Atop new converter furnaces and improved collection and management of gases and dust, the company expects the smelter to produce an additional 15,000 tons of copper per year.

BHP Billiton

The Australian mining giant on Feb. 8 completed an Aus$350 million maintenance and upgrade project at its Olympic Dam mine. The company made improvements to the smelter, refinery, concentrator and other key infrastructure and site technology.

Smelting operations resumed in late 2017 with the first anode cast from the flash furnace just before Christmas. Operations will continue to ramp up to full capacity through June, according to Olympic Dam Asset President Jacqui McGill.

At BHP Billiton’s Spence mine, ore is crushed, agglomerated and transferred to leach pads at a rate of 50,000 tons per day.

At BHP’s Escondida mine in Chile, “The successful Los Colorados Extension Project ramp-up contributed to a 17 percent increase in copper output” during the second half of 2017, compared to the same 2016 period, CEO Andrew Mackenzie reported in mid-January. The extension, started up in September, enables the company to employ three concentrators. That mine’s labor situation is stable due to a new contract approved in October with one of two unions.

At the Spence open-cut copper mine in northern Chile, BHP in August began a $2.46 billion capital project designed to extend the mine life by more than 50 years. The Spencer Growth Option will incrementally produce 185,000 tons per year of payable copper concentrate in the first 10 years. The current copper cathode stream will continue through 2025.

BHP projects that its copper production this year, from all mines, will range from 1,655,000 and 1,790,000 metric tons.

Glencore

Like the other resource extraction firms, this Swiss company is also optimistic about demand through the end of the decade and beyond. CEO Ivan Glasenberg, providing guidance to shareholders in mid-December, said the company expects to spend an average of $1.2 billion per year through 2020 to expand mineral volumes, including copper. He forecast production of copper from Glencore assets would rise nearly 2.3 percent to 1.34 million tons by 2020, compared with 2017.

Although the company saw an 8 percent reduction in copper output last year, compared with 2016, it recorded a 10 percent improvement at its Katanga mine in the Democratic Republic of Congo, and it just began to realize gains in its Collohuasi joint venture in Chile last year.

EV transformation

According to Glasenberg, Glencore expects an exponential demand for electric vehicles over the next dozen years “will be a disruptive force,” but quite positive for the metals industry after supply and demand achieve balance.

“How much metal is required to realize the Electric Vehicles Initiative target of 30 million electric vehicle sales by 2030?” he asked during the investor presentation. “We commissioned CRU to model the metal requirements across the supply chain, from generation and grid infrastructure through to storage, charging and vehicles.”

The CRU Consulting study determined that in 2030, forecast metal requirements are 4.1 million metric tons of copper (18 percent of 2016 supply), 1.1 millions metric tons of nickel (56 percent of 2016 supply) and 314,000 metric tons of cobalt (314 percent of 2016 supply).

“As early as 2020, forecast EV-related metal demand is becoming material,” said Glasenberg, requiring an additional 390,000 metric tons of copper alone.

“Transportation/mobility will be transformed—driven by environmental pressures, political mandates, consumer experience and technological progress,” the CEO suggested.

Freeport-McMoRan’s Adkerson agrees there is substantial potential. “Electric vehicles could be a big deal; alternative energy development could be a big deal. All these things make the supply side of copper extraordinary well supported.” MM