09 Apr Copper Week: Learn about the first day’s conferences
Copper Week: industry must invest more to fill major supply gap over next decade
By Laura Superneau – BNamericas
The persistent paradox between a positive copper price forecast and a lack of capital available for copper-focused mining exploration and development was a key theme during the Monday launch of the annual Exploration Forum organized by UK consultancy CRU.
“It’s a very optimistic market but it’s a very cash-poor market for us at this moment,” said John Black, CEO of junior Regulus Resources, which has the AntaKori project in Peru and Altar in Argentina.
Presentations by CRU analysts showed a supply gap emerging in 2021, which without the development of projects would grow to 2.5Mt in 2025 and 10Mt in 2030 as demand grows and reserves are depleted at existing operations. Such a deficit would support significantly higher copper prices.
CRU forecasts refined copper demand growth of 7.5Mt between now and the mid-2030s.
Projects in the pipeline will fill some of the gap – and some 50 new or previously on-hold projects have entered CRU’s pipeline in the last year thanks to stronger prices – but most are uncommitted projects that still need feasibility studies and could take years to get through permitting, said CRU consultant Hamish Sampson.
“More investments in projects are required to avoid the market slipping into deficit,” Sampson said.
But even major mining companies, which have been enjoying increased profits in recent quarters as they reap the benefits of stronger prices and the hard-earned cost reductions of the last years, are not necessarily prepared to spend their cash on project development.
Capital intensity remains high as the difficult-to-quantify cost of environmental and social license has risen, offsetting reductions in equipment prices in recent years, and the incentive price for new copper capacity remains significantly higher than current spot prices, according to CRU principal analyst Robert Edwards.
CRU estimates an incentive price of about US$3.15/lb if a company is considering a 10% discount rate and nearly US$4/lb if the company is considering 15% – and some companies are looking for as high as 20%, Edwards said, as projects compete internally for capital with dividend payments and acquisitions.
Early stage exploration continues to lag as juniors have had trouble accessing capital, while major miners are only starting to return to grassroots work.
A wider return to greenfield exploration will have to wait until a supply deficit and higher prices become a reality.
But panelists agreed that the fundamentals of the junior model have not changed, that marginal projects should be avoided and quality projects will always be able to obtain financing, but these are becoming harder to find.
The Exploration Forum is part of Cesco Week, which also includes CRU’s19th annual World Copper Conference.