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Stunted copper supply growth<br />How soaring copper demand is straining the supply chain and supporting the medium to lon...
The BIG Questions<br />How is soaring copper demand straining the supply chain and supporting the medium to long term pric...
The BIG Questions<br />Where is all this copper demand growth coming from? <br />What has all this copper demand meant for...
Where is all this demand coming from?<br />Copper – the industry bellwether<br />Feeding the bulls<br />Government stimulu...
The industry bellwether<br />Major Uses of Copper: Usage by End‐Use Sector, 2009<br />Construction<br />7,264Kt (33%)<br /...
The industry bellwether<br />Major Uses of Copper: Usage by End‐Use Sector, 2009<br />Construction<br />7,264Kt (33%)<br /...
5,273Kt (24%)
Plumbing
1,336Kt (6%)
Architecture
327Kt (1.5%)
Communications
193Kt (<1%)
Building Plant
133Kt (<1%)</li></ul>Manufacturing<br />11,569Kt (52%)<br />Infrastructure<br />3,266Kt (15%)<br />ICSG The World Copper F...
The industry bellwether<br />Major Uses of Copper: Usage by End‐Use Sector, 2009<br />Construction<br />7,264Kt (33%)<br /...
5,273Kt (24%)
Plumbing
1,336Kt (6%)
Architecture
327Kt (1.5%)
Communications
193Kt (<1%)
Building Plant
133Kt (<1%)</li></ul>Manufacturing<br />11,569Kt (52%)<br />Infrastructure<br />3,266Kt (15%)<br /><ul><li>Power Utility
2,541Kt (11.5%)
Telecoms
725Kt (3.5%)</li></ul>ICSG The World Copper Factbook 2010 Presentation<br />(Based on International Copper Association dat...
The industry bellwether<br />Major Uses of Copper: Usage by End‐Use Sector, 2009<br />Construction<br />7,264Kt (33%)<br /...
5,273Kt (24%)
Plumbing
1,336Kt (6%)
Architecture
327Kt (1.5%)
Communications
193Kt (<1%)
Building Plant
133Kt (<1%)</li></ul>Manufacturing<br />11,569Kt (52%)<br /><ul><li>Industrial
2,742Kt (12.5%)
Diverse
2,359Kt (10.5%)
Consumer
1,814Kt (8%)
Automotive
1,590Kt (7%)
Cooling
1,330Kt (6%)
Transport
967Kt (4.5%)
Electronics
768Kt (3.5%)</li></ul>Infrastructure<br />3,266Kt (15%)<br /><ul><li>Power Utility
2,541Kt (11.5%)
Telecoms
725Kt (3.5%)</li></ul>ICSG The World Copper Factbook 2010 Presentation<br />(Based on International Copper Association dat...
Demand in summary<br />Short term<br />Long term<br />Bulls<br />Bears<br />
Demand in summary<br />Short term<br />Long term<br />Bulls<br />Government stimulus<br />Rise of China<br />Bears<br />
Demand in summary<br />Short term<br />Long term<br />Bulls<br />Industrialisation V2.0<br />Government stimulus<br />Rise...
Demand in summary<br />Short term<br />Long term<br />Bulls<br />Industrialisation V2.0<br />Government stimulus<br />Rise...
Demand in summary<br />Short term<br />Long term<br />Bulls<br />Industrialisation V2.0<br />Government stimulus<br />Rise...
Bulls versus bears<br />Government stimulus<br />Rise of China<br />New demand sectors<br />Industrialisation V2.0<br />As...
Bulls versus bears<br />Government stimulus<br />Rise of China<br />New demand sectors<br />Industrialisation V2.0<br />In...
Bulls versus bears<br />Government stimulus<br />Rise of China<br />New demand sectors<br />Industrialisation V2.0<br />In...
Prices are at historical highs<br />But strong demand doesn’t mean high prices<br />The example of the 1990s<br />Economic...
Prices are at historical highs<br />Average monthly LME cash copper prices (US$/t): 1981-2011<br />Copper prices: www.inde...
Prices are at historical highs<br />Average monthly LME cash copper prices (US$/t): 1981-2011<br />Copper prices: www.inde...
Strong demand doesn’t mean higher prices<br />World Refined Copper Usage versus Copper Prices, 1960-1999<br />ICSG The Wor...
Strong demand doesn’t mean higher prices<br />World Refined Copper Usage versus Copper Prices, 1960-1999<br />More copper ...
Demand & prices in the 1990s<br />World Refined Copper Usage versus Copper Prices, 1990-1999<br />ICSG The World Copper Fa...
Demand & prices in the 1990s<br />World Refined Copper Usage versus Copper Prices, 1960-1999<br />ICSG The World Copper Fa...
Economics 101<br />Demand – Supply = Price<br />–<br />=<br />
Supercycles & supply chains<br />Supercycles<br />Supply chains<br />
Can copper supply keep up with demand?<br />Where does copper come from?<br />Are we running out of copper?<br />Brownfiel...
Where does copper come from?<br />Simplified copper production supply chain<br />Mine<br />Mines sulphide ore to produce c...
Are we running out of copper?<br />2010 estimates<br />U.S. Geological Survey Mineral Commodity Summaries, January 2011<br />
Are we running out of copper?<br />2010 estimates (unless stated)<br />U.S. Geological Survey Mineral Commodity Summaries,...
Are we running out of copper?<br />2010 estimates<br />U.S. Geological Survey Mineral Commodity Summaries, January 2011<br />
So what’s the problem?<br />Global average copper mine head grade, 1978-2018<br />Average decline:  ~0.05% /year<br />Aver...
Grade is King!<br />Global average copper mine head grade, 1978-2018<br />Increase in mining + milling costs related to gr...
Grade is King!<br />Global average copper mine head grade, 1978-2018<br />Increase in mining + milling costs related to gr...
Can mine production keep pace with demand?<br />Simplified copper production supply chain<br />Mine<br />Mines sulphide or...
Can mine production keep pace with demand?<br />Simplified copper production supply chain<br />~4.0Mt<br />SXEW Mine<br />...
The miracle of SXEW<br />Typical oxide capped copper sulphide deposit<br />
The miracle of SXEW<br />Typical oxide capped copper sulphide deposit<br />Conventional mining of sulphides (pre-1970s)<br />
The miracle of SXEW<br />Typical oxide capped copper sulphide deposit<br />Conventional mining of sulphides (pre-1970s)<br...
Can mine production keep pace with demand?<br />World Copper Mine Production, SXEW versus Concs, 1900-2009<br />ICSG The W...
Can SXEW supply continue to grow?<br />Indicative depth of discoveries, 1980s, 1990s & 2000s<br />Depth chart: Robin Bahr,...
Can SXEW supply continue to grow?<br />Indicative depth of discoveries, 1980s, 1990s & 2000s<br />Sulphuric Acid Import Pr...
Mine production growth stalling<br />World Copper Mine Capacity versus Production, 2005-2010<br />+1.9%<br />+4.2%<br />+3...
Can mine production keep pace with demand?<br />Simplified copper production supply chain<br />~4.0Mt<br />SXEW Mine<br />...
What about non-mine production?<br />World Copper Mine Production versus Copper Usage, 1960-2010<br />2000-2009 Data: ICSG...
What about non-mine production?<br />World Copper Mine Production versus Copper Usage, 1960-2010<br />3.2Mt shortfall (~16...
Can copper supply keep pace with demand?<br />Simplified copper production supply chain<br />SXEW Mine<br />Mines oxide or...
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Stunted Copper Supply Growth - July 2011 - Greenfields Research

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Stunted copper supply growth: How soaring copper demand is straining the supply chain and supporting the medium to long term price outlook.

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Stunted Copper Supply Growth - July 2011 - Greenfields Research

  1. 1. Stunted copper supply growth<br />How soaring copper demand is straining the supply chain and supporting the medium to long term price outlook<br />
  2. 2. The BIG Questions<br />How is soaring copper demand straining the supply chain and supporting the medium to long term price outlook?<br />
  3. 3. The BIG Questions<br />Where is all this copper demand growth coming from? <br />What has all this copper demand meant for prices?<br />Can copper supply keep up with demand?<br /><ul><li>Why are so few new copper mines coming on stream?</li></ul>How will copper supply problems affect long term prices?<br />
  4. 4. Where is all this demand coming from?<br />Copper – the industry bellwether<br />Feeding the bulls<br />Government stimulus, Rise of China, New demand sectors, Industrialisation V2.0<br />Feeding the bears<br />Asset bubbles, Western woes, Substitution, Chinese decline<br />
  5. 5. The industry bellwether<br />Major Uses of Copper: Usage by End‐Use Sector, 2009<br />Construction<br />7,264Kt (33%)<br />Manufacturing<br />11,569Kt (52%)<br />Infrastructure<br />3,266Kt (15%)<br />ICSG The World Copper Factbook 2010 Presentation<br />(Based on International Copper Association data) <br />
  6. 6. The industry bellwether<br />Major Uses of Copper: Usage by End‐Use Sector, 2009<br />Construction<br />7,264Kt (33%)<br /><ul><li>Electrical Power
  7. 7. 5,273Kt (24%)
  8. 8. Plumbing
  9. 9. 1,336Kt (6%)
  10. 10. Architecture
  11. 11. 327Kt (1.5%)
  12. 12. Communications
  13. 13. 193Kt (<1%)
  14. 14. Building Plant
  15. 15. 133Kt (<1%)</li></ul>Manufacturing<br />11,569Kt (52%)<br />Infrastructure<br />3,266Kt (15%)<br />ICSG The World Copper Factbook 2010 Presentation<br />(Based on International Copper Association data) <br />
  16. 16. The industry bellwether<br />Major Uses of Copper: Usage by End‐Use Sector, 2009<br />Construction<br />7,264Kt (33%)<br /><ul><li>Electrical Power
  17. 17. 5,273Kt (24%)
  18. 18. Plumbing
  19. 19. 1,336Kt (6%)
  20. 20. Architecture
  21. 21. 327Kt (1.5%)
  22. 22. Communications
  23. 23. 193Kt (<1%)
  24. 24. Building Plant
  25. 25. 133Kt (<1%)</li></ul>Manufacturing<br />11,569Kt (52%)<br />Infrastructure<br />3,266Kt (15%)<br /><ul><li>Power Utility
  26. 26. 2,541Kt (11.5%)
  27. 27. Telecoms
  28. 28. 725Kt (3.5%)</li></ul>ICSG The World Copper Factbook 2010 Presentation<br />(Based on International Copper Association data) <br />
  29. 29. The industry bellwether<br />Major Uses of Copper: Usage by End‐Use Sector, 2009<br />Construction<br />7,264Kt (33%)<br /><ul><li>Electrical Power
  30. 30. 5,273Kt (24%)
  31. 31. Plumbing
  32. 32. 1,336Kt (6%)
  33. 33. Architecture
  34. 34. 327Kt (1.5%)
  35. 35. Communications
  36. 36. 193Kt (<1%)
  37. 37. Building Plant
  38. 38. 133Kt (<1%)</li></ul>Manufacturing<br />11,569Kt (52%)<br /><ul><li>Industrial
  39. 39. 2,742Kt (12.5%)
  40. 40. Diverse
  41. 41. 2,359Kt (10.5%)
  42. 42. Consumer
  43. 43. 1,814Kt (8%)
  44. 44. Automotive
  45. 45. 1,590Kt (7%)
  46. 46. Cooling
  47. 47. 1,330Kt (6%)
  48. 48. Transport
  49. 49. 967Kt (4.5%)
  50. 50. Electronics
  51. 51. 768Kt (3.5%)</li></ul>Infrastructure<br />3,266Kt (15%)<br /><ul><li>Power Utility
  52. 52. 2,541Kt (11.5%)
  53. 53. Telecoms
  54. 54. 725Kt (3.5%)</li></ul>ICSG The World Copper Factbook 2010 Presentation<br />(Based on International Copper Association data) <br />
  55. 55. Demand in summary<br />Short term<br />Long term<br />Bulls<br />Bears<br />
  56. 56. Demand in summary<br />Short term<br />Long term<br />Bulls<br />Government stimulus<br />Rise of China<br />Bears<br />
  57. 57. Demand in summary<br />Short term<br />Long term<br />Bulls<br />Industrialisation V2.0<br />Government stimulus<br />Rise of China<br />New demand sectors<br />Bears<br />
  58. 58. Demand in summary<br />Short term<br />Long term<br />Bulls<br />Industrialisation V2.0<br />Government stimulus<br />Rise of China<br />New demand sectors<br />Bears<br />Western woes<br />Asset bubbles<br />
  59. 59. Demand in summary<br />Short term<br />Long term<br />Bulls<br />Industrialisation V2.0<br />Government stimulus<br />Rise of China<br />New demand sectors<br />Bears<br />Chinese decline<br />Western woes<br />Substitution<br />Asset bubbles<br />
  60. 60. Bulls versus bears<br />Government stimulus<br />Rise of China<br />New demand sectors<br />Industrialisation V2.0<br />Asset bubbles<br />Western woesSubstitution<br />Chinese decline<br />
  61. 61. Bulls versus bears<br />Government stimulus<br />Rise of China<br />New demand sectors<br />Industrialisation V2.0<br />In the short term?<br />Asset bubbles<br />Western woesSubstitution<br />Chinese decline<br />
  62. 62. Bulls versus bears<br />Government stimulus<br />Rise of China<br />New demand sectors<br />Industrialisation V2.0<br />In the long term?<br />Asset bubbles<br />Western woesSubstitution<br />Chinese decline<br />
  63. 63. Prices are at historical highs<br />But strong demand doesn’t mean high prices<br />The example of the 1990s<br />Economics 101<br />Supercycles & supply chains<br />What has all this copper demand meant for prices?<br />
  64. 64. Prices are at historical highs<br />Average monthly LME cash copper prices (US$/t): 1981-2011<br />Copper prices: www.indexmundi.com<br />
  65. 65. Prices are at historical highs<br />Average monthly LME cash copper prices (US$/t): 1981-2011<br />Copper prices: www.indexmundi.com<br />Inflation data: www.inflationdata.com<br />
  66. 66. Strong demand doesn’t mean higher prices<br />World Refined Copper Usage versus Copper Prices, 1960-1999<br />ICSG The World Copper Factbook 2010 Presentation (Based on ICSG data) <br />Copper Prices: USGS; Inflation data: www.inflationdata.com<br />
  67. 67. Strong demand doesn’t mean higher prices<br />World Refined Copper Usage versus Copper Prices, 1960-1999<br />More copper consumed than ever before...<br />...but historically low prices<br />ICSG The World Copper Factbook 2010 Presentation (Based on ICSG data) <br />Copper Prices: USGS; Inflation data: www.inflationdata.com<br />
  68. 68. Demand & prices in the 1990s<br />World Refined Copper Usage versus Copper Prices, 1990-1999<br />ICSG The World Copper Factbook 2010 Presentation (Based on ICSG data) <br />Copper Prices: USGS; Inflation data: www.inflationdata.com<br />
  69. 69. Demand & prices in the 1990s<br />World Refined Copper Usage versus Copper Prices, 1960-1999<br />ICSG The World Copper Factbook 2010 Presentation (Based on ICSG data) <br />Copper Prices: USGS; Inflation data: www.inflationdata.com<br />
  70. 70. Economics 101<br />Demand – Supply = Price<br />–<br />=<br />
  71. 71. Supercycles & supply chains<br />Supercycles<br />Supply chains<br />
  72. 72. Can copper supply keep up with demand?<br />Where does copper come from?<br />Are we running out of copper?<br />Brownfields - current mine expansions <br />Can the industry’s ageing mines increase capacity or is the opposite likely?<br />Greyfields - the scrap market <br />The collar on copper prices and can it contain them in the future?<br />
  73. 73. Where does copper come from?<br />Simplified copper production supply chain<br />Mine<br />Mines sulphide ore to produce concentrates<br />Smelter<br />Smelts concentrates to produce anodes<br />Refinery<br />Refines anodes to produce cathodes<br />~12.0Mt<br />~12.0Mt<br />~12.0Mt<br />Copper cathode image: http://en.wikipedia.org/wiki/Whim_Creek_Copper_Mine<br />Production estimates based on ICSG June 2011 Press Release <br />
  74. 74. Are we running out of copper?<br />2010 estimates<br />U.S. Geological Survey Mineral Commodity Summaries, January 2011<br />
  75. 75. Are we running out of copper?<br />2010 estimates (unless stated)<br />U.S. Geological Survey Mineral Commodity Summaries, January 2011<br />Except coal & oil: U.S. Energy Information Administration, International Energy Statistics (online)<br />
  76. 76. Are we running out of copper?<br />2010 estimates<br />U.S. Geological Survey Mineral Commodity Summaries, January 2011<br />
  77. 77. So what’s the problem?<br />Global average copper mine head grade, 1978-2018<br />Average decline: ~0.05% /year<br />Average global grade decline: <br />~0.015% /year<br />~0.15%/decade<br />Average decline: ~0.017% /year<br />Left chart: Robin Bahr, Credit Agricole, Global Copper Market Trends 2011-12 for the ICSG Environmental & Economic Committee Meeting, 14th April 2011<br />Escondida & Grasberg data from Rio Tinto Operation Reviews Q4 2002-10<br />
  78. 78. Grade is King!<br />Global average copper mine head grade, 1978-2018<br />Increase in mining + milling costs related to grade decline for a hypothetical open pit copper mine with a stripping ratio of 2:1, processing recovery of 95% and producing 100,000 tonnes of copper per year <br />Chart: Robin Bahr, Credit Agricole, Global Copper Market Trends 2011-12 for the ICSG Environmental & Economic Committee Meeting, 14th April 2011<br />Operating cost data based on Costmine (Infomine USA) Mining Cost Service 2010<br />
  79. 79. Grade is King!<br />Global average copper mine head grade, 1978-2018<br />Increase in mining + milling costs related to grade decline for a hypothetical open pit copper mine with a stripping ratio of 2:1, processing recovery of 95% and producing 100,000 tonnes of copper per year <br />Chart: Robin Bahr, Credit Agricole, Global Copper Market Trends 2011-12 for the ICSG Environmental & Economic Committee Meeting, 14th April 2011<br />Operating cost data based on Costmine (Infomine USA) Mining Cost Service 2010<br />
  80. 80. Can mine production keep pace with demand?<br />Simplified copper production supply chain<br />Mine<br />Mines sulphide ore to produce concentrates<br />Smelter<br />Smelts concentrates to produce anodes<br />Refinery<br />Refines anodes to produce cathodes<br />~12.0Mt<br />~12.0Mt<br />~12.0Mt<br />Copper cathode image: http://en.wikipedia.org/wiki/Whim_Creek_Copper_Mine<br />Production estimates based on ICSG June 2011 Press Release <br />
  81. 81. Can mine production keep pace with demand?<br />Simplified copper production supply chain<br />~4.0Mt<br />SXEW Mine<br />Mines oxide ore to produce cathodes<br />~12.0Mt<br />~12.0Mt<br />~12.0Mt<br />Sulphide Mine<br />Mines sulphide ore to produce concentrates<br />Smelter<br />Smelts concentrates to produce anodes<br />Refinery<br />Refines anodes to produce cathodes<br />Copper cathode image: http://en.wikipedia.org/wiki/Whim_Creek_Copper_Mine<br />Production estimates based on ICSG June 2011 Press Release <br />
  82. 82. The miracle of SXEW<br />Typical oxide capped copper sulphide deposit<br />
  83. 83. The miracle of SXEW<br />Typical oxide capped copper sulphide deposit<br />Conventional mining of sulphides (pre-1970s)<br />
  84. 84. The miracle of SXEW<br />Typical oxide capped copper sulphide deposit<br />Conventional mining of sulphides (pre-1970s)<br />Modern mining of sulphides & oxides (post-1970s)<br />
  85. 85. Can mine production keep pace with demand?<br />World Copper Mine Production, SXEW versus Concs, 1900-2009<br />ICSG The World Copper Factbook 2010 Presentation (Based on ICSG data)<br />Copper cathode image: http://en.wikipedia.org/wiki/Whim_Creek_Copper_Mine <br />
  86. 86. Can SXEW supply continue to grow?<br />Indicative depth of discoveries, 1980s, 1990s & 2000s<br />Depth chart: Robin Bahr, Credit Agricole, Global Copper Market Trends 2011-12 for the ICSG Environmental & Economic Committee Meeting, 14th April 2011<br />
  87. 87. Can SXEW supply continue to grow?<br />Indicative depth of discoveries, 1980s, 1990s & 2000s<br />Sulphuric Acid Import Prices, CIF Meijillones, Chile, 2001-2008<br />Depth chart: Robin Bahr, Credit Agricole, Global Copper Market Trends 2011-12 for the ICSG Environmental & Economic Committee Meeting, 14th April 2011<br />Sulphuric Acid chart: Cochilco, The Chilean Sulfuric Acid market Estimations Through 2015, Aprll 2009<br />
  88. 88. Mine production growth stalling<br />World Copper Mine Capacity versus Production, 2005-2010<br />+1.9%<br />+4.2%<br />+3.5%<br />+5.5%<br />+6.5%<br />+0.9%<br />+2.6%<br />+0.4%<br />+3.3%<br />+0.5%<br />2005-2010 Data: ICSG Press Release 23rd May 2011<br />
  89. 89. Can mine production keep pace with demand?<br />Simplified copper production supply chain<br />~4.0Mt<br />SXEW Mine<br />Mines oxide ore to produce cathodes<br />~12.0Mt<br />~12.0Mt<br />~12.0Mt<br />Sulphide Mine<br />Mines sulphide ore to produce concentrates<br />Smelter<br />Smelts concentrates to produce anodes<br />Refinery<br />Refines anodes to produce cathodes<br />Copper cathode image: http://en.wikipedia.org/wiki/Whim_Creek_Copper_Mine<br />Production estimates based on ICSG June 2011 Press Release <br />
  90. 90. What about non-mine production?<br />World Copper Mine Production versus Copper Usage, 1960-2010<br />2000-2009 Data: ICSG The World Copper Factbook 2010 Presentation <br />2010 Data: ICSG Press Release 23rd May 2011<br />
  91. 91. What about non-mine production?<br />World Copper Mine Production versus Copper Usage, 1960-2010<br />3.2Mt shortfall (~16.7%)<br />0.8Mt shortfall (~17%)<br />2000-2009 Data: ICSG The World Copper Factbook 2010 Presentation <br />2010 Data: ICSG Press Release 23rd May 2011<br />
  92. 92. Can copper supply keep pace with demand?<br />Simplified copper production supply chain<br />SXEW Mine<br />Mines oxide ore to produce cathodes<br />~4.0Mt<br />~12.0Mt<br />~15.0Mt<br />~15.0Mt<br />Sulphide Mine<br />Mines sulphide ore to produce concentrates<br />Smelter<br />Smelts concentrates to produce anodes<br />Refinery<br />Refines anodes to produce cathodes<br />~3.0Mt<br />Scrap<br />Low grade “old scrap” for smelting into anodes and high grade “new scrap” for refining into cathodes<br />Copper cathode image: http://en.wikipedia.org/wiki/Whim_Creek_Copper_Mine<br />Production estimates based on ICSG June 2011 Press Release <br />
  93. 93. Can copper supply keep pace with demand?<br />World Refined Copper Production, Primary, Secondary & SXEW, 1960-2009<br />ICSG The World Copper Factbook 2010 Presentation (Based on ICSG data) <br />Copper cathode image: http://en.wikipedia.org/wiki/Whim_Creek_Copper_Mine<br />
  94. 94. Can scrap supply continue to grow?<br />“New scrap”<br />Generated during manufacturing<br />Usually high grade<br />Production linked to industrial production (IP)<br />Production is price sensitive<br />“Old scrap”<br />Generated from disused end-use products<br />Usually lower grade<br />Production linked to construction<br />Production is price sensitive<br />
  95. 95. Scrap acts as marginal supply<br />World Secondary Copper Production, 2006-2010<br />2005-2010 Data: ICSG Press Release 23rd May 2011<br />
  96. 96. Scrap supply tight<br />World Secondary Copper Production, 2006-2010<br />Scrap chart: Robin Bahr, Credit Agricole, Global Copper Market Trends 2011-12 for the ICSG Environmental & Economic Committee Meeting, 14th April 2011<br />2005-2010 Data: ICSG Press Release 23rd May 2011<br />
  97. 97. Can copper supply keep pace with demand?<br />Simplified copper production supply chain<br />SXEW Mine<br />Mines oxide ore to produce cathodes<br />~4.0Mt<br />~12.0Mt<br />~15.0Mt<br />~15.0Mt<br />Sulphide Mine<br />Mines sulphide ore to produce concentrates<br />Smelter<br />Smelts concentrates to produce anodes<br />Refinery<br />Refines anodes to produce cathodes<br />~3.0Mt<br />Scrap<br />Low grade “old scrap” for smelting into anodes and high grade “new scrap” for refining into cathodes<br />Copper cathode image: http://en.wikipedia.org/wiki/Whim_Creek_Copper_Mine<br />Production estimates based on ICSG June 2011 Press Release <br />
  98. 98. New mines required!<br />Simplified copper production supply chain<br />SXEW Mine<br />Mines oxide ore to produce cathodes<br />~4.0Mt<br />Sulphide Mine<br />Mines sulphide ore to produce concentrates<br />Smelter<br />Smelts concentrates to produce anodes<br />Refinery<br />Refines anodes to produce cathodes<br />~12.0Mt<br />~12.0Mt<br />~12.0Mt<br />Exploration & Development<br />Of new mines, particularly sulphide mines to produce copper concentrates<br />~3.0Mt<br />Scrap<br />Low grade “old scrap” for smelting into anodes and high grade “new scrap” for refining into cathodes<br />Copper cathode image: http://en.wikipedia.org/wiki/Whim_Creek_Copper_Mine<br />Production estimates based on ICSG June 2011 Press Release <br />
  99. 99. Why are so few new copper mines coming on stream?<br />Geology versus geography <br />Is it the house that matters or the neighbourhood?<br />Capital costs versus operating costs<br />Pay now or pay later?<br />Delays <br />Why are so many copper mine projects late and over-budget?<br />
  100. 100. Why are so few new copper mines coming on stream?<br />Challenges facing copper mine development<br />Based on “The Share Buyers Guide to Investing in the Australian Mining Boom” by Dr. Allan Trench, 2011<br />
  101. 101. Geology versus geography<br />Challenges facing copper mine development<br />Based on “The Share Buyers Guide to Investing in the Australian Mining Boom” by Dr. Allan Trench, 2011<br />
  102. 102. Falling resource grades or...<br />Resource size and grade of recent large copper mine start-ups<br />TenkeFungurume<br />4.23 Mt Copper<br />Prominent Hill<br />2.60 Mt Copper<br />Lumwana<br />6.27 Mt Copper<br />Esperanza<br />7.38 Mt Copper<br />Data from company websites: Antofagasta (Esperanza); Equinox Minerals (Lumwana); Freeport McMoRan (TenkeFungurume); OZ Minerals (Prominent Hill)<br />
  103. 103. Falling resource grades or...<br />Resource size and grade of recent large copper mine start-ups<br />TenkeFungurume<br />4.23 Mt Copper<br />Prominent Hill<br />2.60 Mt Copper<br />Current average global mined copper grade<br />Lumwana<br />6.27 Mt Copper<br />Esperanza<br />7.38 Mt Copper<br />Data from company websites: Antofagasta (Esperanza); Equinox Minerals (Lumwana); Freeport McMoRan (TenkeFungurume); OZ Minerals (Prominent Hill)<br />
  104. 104. Falling resource grades or...<br />Resource size and grade of recent large copper mine start-ups<br />TenkeFungurume<br />6.70 Mt Copper Eq.<br />Prominent Hill<br />4.00 Mt Copper Eq.<br />Current average global mined copper grade<br />Lumwana<br />6.34 Mt Copper Eq.<br />Esperanza<br />15.18 Mt Copper Eq.<br />Data from company websites: Antofagasta (Esperanza); Equinox Minerals (Lumwana); Freeport McMoRan (TenkeFungurume); OZ Minerals (Prominent Hill)<br />
  105. 105. Geology versus geography<br />Challenges facing copper mine development<br />Based on “The Share Buyers Guide to Investing in the Australian Mining Boom” by Dr. Allan Trench, 2011<br />
  106. 106. ...increasing political risk<br />Key copper mining countries in mining risk ranking surveys<br />U.S. Geological Survey Mineral Commodity Summaries, January 2011<br />
  107. 107. ...increasing political risk<br />Key copper mining countries in mining risk ranking surveys<br />Chart: Robin Bahr, Credit Agricole, Global Copper Market Trends 2011-12 for the ICSG Environmental & Economic Committee Meeting, 14th April 2011<br />U.S. Geological Survey Mineral Commodity Summaries, January 2011<br />
  108. 108. Pay now or pay later?<br />Challenges facing copper mine development<br />Based on “The Share Buyers Guide to Investing in the Australian Mining Boom” by Dr. Allan Trench, 2011<br />
  109. 109. Going underground...<br />Indicative depth of discoveries, 1980s, 1990s & 2000s<br />Chart: Robin Bahr, Credit Agricole, Global Copper Market Trends 2011-12 for the ICSG Environmental & Economic Committee Meeting, 14th April 2011<br />
  110. 110. Going underground...<br />Indicative depth of discoveries, 1980s, 1990s & 2000s<br />Effect of stripping ratio on operating costs<br />Chart: Robin Bahr, Credit Agricole, Global Copper Market Trends 2011-12 for the ICSG Environmental & Economic Committee Meeting, 14th April 2011<br />Operating cost data based on Costmine (Infomine USA) Mining Cost Service 2010<br />
  111. 111. Going underground...<br />Indicative depth of discoveries, 1980s, 1990s & 2000s<br />Effect of stripping ratio on operating costs<br />Different underground operating costs versus open pit mining<br />Chart: Robin Bahr, Credit Agricole, Global Copper Market Trends 2011-12 for the ICSG Environmental & Economic Committee Meeting, 14th April 2011<br />Operating cost data based on Costmine (Infomine USA) Mining Cost Service 2010<br />
  112. 112. Mining costs on the rise<br />US Mine Cost Input Indices versus US Consumer Price Inflation<br />Operating cost data based on Costmine (Infomine USA) Mining Cost Service 2010<br />
  113. 113. Mining costs on the rise<br />US Mine Cost Input Indices versus US Consumer Price Inflation<br />Operating cost data based on Costmine (Infomine USA) Mining Cost Service 2010<br />
  114. 114. Pay now or pay later?<br />Challenges facing copper mine development<br />Based on “The Share Buyers Guide to Investing in the Australian Mining Boom” by Dr. Allan Trench, 2011<br />
  115. 115. Capital costs soaring<br />US Capital Cost Input Indices versus US Consumer Price Inflation<br />Prominent Hill Construction Stats<br />Man hours: 4.3 million<br />Litres of diesel/day: 2,400<br />Concrete: 23,000 m3<br />Steel: 2,400 t<br />Cable: 252,000m<br />Pipe: 43,000m<br />Capital cost data based on Costmine (Infomine USA) Mining Cost Service 2010<br />Prominent Hill Data: Prominent Hill Analyst Tour, 3 June 2009<br />
  116. 116. Battling with grades & scale<br />US Capital Cost Indices versus US Consumer Price Inflation<br />Capital cost data based on Costmine (Infomine USA) Mining Cost Service 2010<br />
  117. 117. Battling with grades & scale<br />US Capital Cost Indices versus US Consumer Price Inflation<br />Increase in mining + milling capital costs related to decreasing resource grade for a hypothetical open pit copper mine with a stripping ratio of 2:1, processing recovery of 95% and producing 100,000 tonnes of copper per year <br />Capital cost data based on Costmine (Infomine USA) Mining Cost Service 2010<br />
  118. 118. Delays and blow-outs!<br />Data from company websites: Antofagasta (Esperanza); Equinox Minerals (Lumwana); Freeport McMoRan (TenkeFungurume); OZ Minerals (Prominent Hill)<br />
  119. 119. Delays and blow-outs!<br />Data from company websites: Antofagasta (Esperanza); Equinox Minerals (Lumwana); Freeport McMoRan (TenkeFungurume); OZ Minerals (Prominent Hill)<br />
  120. 120. Delays and blow-outs!<br />Data from company websites: Antofagasta (Esperanza); Equinox Minerals (Lumwana); Freeport McMoRan (TenkeFungurume); OZ Minerals (Prominent Hill)<br />
  121. 121. Delays and blow-outs!<br />Data from company websites: Antofagasta (Esperanza); Equinox Minerals (Lumwana); Freeport McMoRan (TenkeFungurume); OZ Minerals (Prominent Hill)<br />
  122. 122. Weighing up the challenges<br />The BCG Box for mine projects<br />Challenges<br />Black Holes<br />Politically challenging (Capex Risk)<br />Stars<br />Marginals<br />Technically challenging (Opex Risk)<br />
  123. 123. Weighing up the challenges<br />The BCG Box for mine projects<br />Challenges<br />Black Holes<br />S. America<br />Asia<br />Africa<br />Politically challenging (Capex Risk)<br />Chile<br />N. America<br />Australia<br />Stars<br />Marginals<br />Europe<br />Technically challenging (Opex Risk)<br />
  124. 124. Where are we heading?<br />The BCG Box for mine projects (into the future)<br />Africa<br />Challenges<br />Black Holes<br />N. America<br />Chile<br />Australia<br />Politically challenging (Capex Risk)<br />Asia<br />Europe<br />Stars<br />Marginals<br />S. America<br />Technically challenging (Opex Risk)<br />
  125. 125. How will copper supply problems affect long term prices?<br />The mining (super)cycle<br />Where are we in the mining cycle and where are we going?<br />
  126. 126. The economist’s view<br />Average annual LME cash copper prices (US$/t): 1914-2010<br />World War 1<br />Oil crisis<br />Iranian Revolution<br />Vietnam War<br />Korean<br /> War<br />Housing boom<br />GFC<br />Great Depression<br />Collapse of Soviet Union<br />World War 2<br />Asian Flu<br />Dot.com<br />War production<br />Post-war collapse<br />Reconstruction of Europe & Japan<br />Demand miniaturisation / substitution<br />Rise of China <br />War production<br />Copper prices: USGS & www.metalpages.com<br />Inflation data: www.inflationdata.com<br />
  127. 127. Mineral economics 101<br />Sticky supply<br />Dynamic demand<br />
  128. 128. “The mining cycle”<br />Idealised mining cycle<br /> 1 2 3 4 5 6 7 8 1<br />Balanced market, steady demand, steady supply.<br />Demand increases, but supply cannot respond as quickly, prices rise and spike.<br />Supply begins to respond to demand, prices stabilise at a high level.<br />Lagging supply continues to come on stream even though demand has stabilised, prices fall from high levels.<br />Lower prices and demand, discourages investment in new supply, prices stabilise at a lower level.<br />Falling demand or falling costs lead to low prices.<br />Falling prices and demand eventually leads to falling supply which steadies prices.<br />Slowly responding supply reductions may lag and lead to a small bounce from the lowest prices.<br />
  129. 129. The mining investment cycle<br />2. DEMAND SPIKEHistorically low prices encourage new demandUnderinvested supply size not readySharp rise in prices as supply doesn’t respond<br />3. MARGINAL RESPONSEInvestment in marginal supply to meet new demand<br />Prices stabilise at high levels as high prices discourage increased demand<br />8. & 1. LOW PROFIT MALAISELow prices create unprofitable mining industry stopping investmentDemand stabilises as low prices discourage demand destruction<br />4. & 5. NEW LONG TERM SUPPLYHigh profits for low cost miners encourages investment in major minesPrices begin to fall<br />7. DEMAND DESTRUCTIONEffects of demand destruction begin to take holdMine supply focuses on cost cutting to preserve marginPrices fall steeply<br />6. EXPANSION OF LOW COST SUPPLYNew low cost supply pushes marginal supply off the curve<br />Marginal costs fall, allowing prices to fall<br />
  130. 130. Where are we in the mining cycle?<br />Idealised mining cycle<br />Copper is here<br /> 1 2 3 4 5 6 7 8 1<br />Balanced market, steady demand, steady supply.<br />Demand increases, but supply cannot respond as quickly, prices rise and spike.<br />Supply begins to respond to demand, prices stabilise at a high level.<br />Lagging supply continues to come on stream even though demand has stabilised, prices fall from high levels.<br />Lower prices and demand, discourages investment in new supply, prices stabilise at a lower level.<br />Falling demand or falling costs lead to low prices.<br />Falling prices and demand eventually leads to falling supply which steadies prices.<br />Slowly responding supply reductions may lag and lead to a small bounce from the lowest prices.<br />
  131. 131. Lack of copper mine investment<br />Start-up, capacity & current resource of top 20 copper mines<br />Resource & Start-up Data: Infomine<br />Production Capacity Data: ICSG World Copper Factbook 2010<br />
  132. 132. Lack of copper mine investment<br />Start-up, capacity & resource of top 20 copper mines 1980><br />Resource & Start-up Data: Infomine<br />Production Capacity Data: ICSG World Copper Factbook 2010<br />
  133. 133. Lack of copper mine investment<br />Start-up, capacity & resource of large copper mines vs recent start-ups<br />Resource & Start-up Data: Infomine<br />Production Capacity Data: ICSG World Copper Factbook 2010<br />
  134. 134. New capacity on its way?<br />Start-up, capacity & resource of large copper mines vs large projects<br />Mine Resource & Start-up Data: Infomine; Mine Production Capacity Data: ICSG World Copper Factbook 2010<br />Production and start-up for projects are estimates by Greenfields Research<br />
  135. 135. The geologist’s view<br />Average annual LME cash copper prices (US$/t): 1914-2010<br />World War 1<br />2<br />1<br />6<br />4<br />2<br />3<br />5<br />7<br />6<br />7<br />8<br />1<br />8<br />Marginal supply response<br />Post-war overcapacity<br />No investment in new supply<br />Marginal supply response<br />New low cost supply<br />No investment in new supply<br />Oil crisis<br />Surplus building<br />Surplus building<br />Iranian Revolution<br />Vietnam War<br />Korean<br /> War<br />Housing boom<br />GFC<br />Great Depression<br />Collapse of Soviet Union<br />World War 2<br />Asian Flu<br />Dot.com<br />War production<br />Post-war collapse<br />Reconstruction of Europe & Japan<br />Demand miniaturisation / substitution<br />Rise of China <br />War production<br />Copper prices: USGS & www.metalpages.com<br />Inflation data: www.inflationdata.com<br />
  136. 136. The BIG Answers<br />Where is all this copper demand growth coming from?<br />Developing world industrialisation & increased copper use intensity.<br />What has all this copper demand meant for prices?<br />Prices are at historically high levels partially due to strong demand but also supply side issues are required to create the spikes we have seen.<br />Can copper supply keep up with demand?<br />Copper supply has relied on a large expansion of SXEW capacity and scrap recycling, to keep up with demand in the medium to long term more new mines (particularly concentrates mines) will have to be built.<br />Where will new copper supply come from?<br />Mine developers will have to choose between high risk, logistically challenging, high capital cost but potentially very profitable projects in the developing world or lower risk, but technically challenging, high operating cost projects in mature mining regions. <br />Asian and South American countries seem increasingly well positioned.<br />
  137. 137. The BIG Answers<br /><ul><li>Why are so few new copper mines coming on stream?</li></ul>Mine project developers face a multitude of challenges based on poorer geological quality, increased technical challenges, volatile commodity markets, financing problems, equipment and recruitment issues, political and governmental problems. <br />The most significant challenges are in controlling capital costs and project timelines.<br />How will copper supply problems affect long term prices?<br />Although there is softer demand sentiment in the short term, fundamental supply problems will support medium to long prices, creating a period of high but volatile prices (which may be exaggerated by increased investor influence in the physical copper market). <br />This is a normal part of the mining cycle with the higher prices encouraging investment. Ultimately either new supply will come on stream or demand destruction will occur and prices will stabilise at historically typical levels.<br />
  138. 138. Thank you<br />Questions?<br />
  • GriselleColonWright

    Apr. 6, 2015
  • JohnSykes

    Aug. 24, 2014

Stunted copper supply growth: How soaring copper demand is straining the supply chain and supporting the medium to long term price outlook.

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