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Are We On the Brink of a Big Copper Shortage?

21 September 2023 17:13
Copper Feature

The demand for metals has surged in tandem with the worldwide transition to renewables and more sustainable energy sources, yet there are concerns among analysts that a crucial resource in this shift may lack the necessary supply to achieve our decarbonisation objectives.

Copper’s Supply Shortage

Copper, known for its exceptional conductivity of electricity and heat, serves as a critical indicator of economic vitality and plays an indispensable role in the infrastructure necessary to support renewable energy and achieve ambitious net zero climate goals.

This versatile metal is a cornerstone of technologies related to electricity and, by extension, the proposals aimed at transitioning to cleaner energy sources. Despite the vital role copper must assume in the global pursuit of a greener future, concerns have been raised among mining experts as to the potential of supply shortages as early as 2025.

The International Copper Study Group (ICSG) has reported that the copper market is anticipated to experience yet another year of deficits, with projections for the global refined copper balance indicating a deficit of approximately 114,000 tonnes in 2023, in contrast to a 431,000-tonne deficit in 2022.

Paradoxically, predictions for copper demand continue to rise, with copper production expected to increase by about 2.6 percent by the end of 2023 and a further 4.4 percent in 2024.

BHP’s FY2023 profit report underscores the deficits, attributing them to historical underinvestment in new primary supply sources, geological challenges in existing operations, and an escalating demand for copper driven by the imperatives of the energy transition.

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Figure 1: McKinsey & Company data reflecting the estimated 6.6 million metric tonne copper supply gap

According to McKinsey & Company, the electrification trend is expected to drive annual copper demand up to 36.6 million metric tonnes by 2031. However, current supply forecasts, which take into account restarts, confirmed or likely projects, and recycled production, indicate a potential supply of 30.1 million metric tons, leaving a substantial supply gap of 6.5 million metric tons.

Analysts posit that these supply shortages could arise from challenges in South America’s supply chains or the possibility of limited new discoveries, with it widely agreed that the surging demand is exacerbating the pressure faced by both explorers and producers in the copper industry.

Lack of New Discoveries

The lack of new discoveries in the copper sector may stem from inadequate investment in exploration endeavors. Reports indicate that out of 224 copper deposits identified between 1990 and 2019, only 16 have been uncovered in the past decade.

Independent consulting geologist Doug Kirwin expressed concerns to The Japan Times, suggesting that many are apprehensive about the availability of sufficient copper supplies over the next decade to facilitate the energy transition and achieve carbon neutrality.

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Figure 2: S&P Global are expecting a surge in copper demand to double to 50 million tonnes by 2035

Rocketing Demand: The Road to Net Zero Begins and Ends with Copper

Driven by the surge in green energy adoption, decarbonisation initiatives, and the burgeoning automotive industry, the increasing demand for copper resources is placing additional pressure on their availability, potentially jeopardizing climate goals.

In 2021, the International Energy Agency reported that electric vehicle (EV) sales more than doubled, resulting in approximately 16.5 million EVs worldwide, ultimately necessitating the expansion of EV-charging infrastructure, where copper plays a vital and irreplaceable role.

Moreover, copper is indispensable for solar and wind farms, with offshore wind turbines requiring 8 tonnes of copper per megawatt of generation capacity.

While green applications accounted for just 4% of copper consumption in 2020, this figure is projected to escalate to 17% by 2030. Consequently, to achieve a net-zero emissions trajectory, the world would need to secure an additional 54% of copper by 2030, beyond existing forecasts.

Goldman Sachs: “Green” copper accounted for 3 percent of copper consumption  in 2020 - American Experiment

Figure 3: “Green” copper consumption from 2019 – 2030 predictions

Turning Heads

Among the prominent copper producers addressing concerns about supply shortages are industry leaders such as BHP Group Limited (ASX:BHP) and RIO Tinto Limited (ASX:RIO).

BHP, for instance, has demonstrated its commitment to alleviating these concerns by producing 1,716.5 kilotonnes of copper in the current 2023 fiscal year, also extending the operational life of their Spence mine in Chile by 50 years. Furthermore, BHP is poised for expansion, with substantial investments of $20 billion USD earmarked for the enhancement of their copper production facilities and mines in Chile and South Australia.

RIO Tinto boasts a diverse portfolio of copper assets worldwide, spanning various stages of the mining lifecycle, from exploration to rehabilitation. Notably, their Oyu Tolgoi Project in the South Gobi region of Mongolia stands out as one of the largest known deposits of copper and gold globally. Upon completion of the underground mining phase, it is slated to become the fourth-largest copper mine in the world.

Similarly, the current tumultuous climate for the metal has opened up new opportunities for emerging explorers to carve out a larger share of the market.

Castillo Copper (ASX:CCZ)

One such company is Castillo Copper (ASX:CCZ), an Australian-based exploration firm with a primary focus on copper assets in both Australia and Zambia.

Their portfolio includes the NWQ Copper Project, Zambia Zed Projects, Broken Hill Project, and the Cangai Copper Mine. Notably, the Cangai Copper Mine stands out as one of Australia’s historically high-grade copper mines, boasting a JORC compliant resource of 3.2 million tonnes at 3.3% copper, with grades reaching up to 14.45% copper and significant potential for further development.

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Figure 4: Castllo Copper high-grade RC drilled assay results from the Cangai Copper Mine – up to 10.25% Cu, with the best intersection 11m @ 5.94% Cu from 40m including 1m @ 10.25% Cu

Austral Resources (ASX:AR1)

Austral Resources (ASX:AR1) is situated in Queensland’s Gulf region and operates an open-cut mine, producing LME Grade A copper cathode.

The Company boasts a robust portfolio and a range of copper projects at different stages of advancement. Of particular significance is the Anthill Project, which has successfully undergone multiple studies, leading to the establishment of an ore reserve of 5.1 million tonnes at a grade of 0.94% copper, with all necessary approvals in place for development.

Additionally, the Company is involved in other copper projects such as Lady Annie, Cameron River and Miranda.

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Figure 5: Austral Resources 3D schematic of the Anthill Project pit shells and block model looking north east

Kavango Resources (LSE:KAV)

Kavango Resources (LSE:KAV) is an exploration company with a strong focus on Africa, aiming to discover world-class base and precious metal deposits primarily in Botswana.

Recently, the Company made an exciting announcement regarding its acquisition options for two promising gold projects in Zimbabwe.

Notably, their exploration efforts at the Karakubis Project have yielded significant results, revealing the presence of a substantial copper target. Through an extensive mapping, surveying, and soil sampling initiative, Kavango Resources has identified a zone measuring 5 kilometres in length and 3.5 kilometres in width, displaying anomalous copper values reaching as high as 73 parts per million (ppm) Cu.

Power Metal Resources (AIM:POW)

Power Metal Resources (AIM:POW) has a vast portfolio targeting 10 commodities over three continents. It’s copper assets include its land claims in Botswana and interests in other exploration entities like First Development Resources.

First Development Resources stands out with its flagship Wallal copper-gold Project, spanning a vast 572 square kilometres within the prolific Paterson Province. Notably, this Project shares a substantial border with Rio Tinto’s exploration activities and has already identified several large-scale magnetic anomalies concealed beneath the surface, exhibiting geological resemblances to the nearby Havieron Deposit.

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Figure 6: Power Metals Copper Assets

Final Thoughts…

Although these experienced and novice exploration companies provide a ray of hope in addressing the continuously escalating demand for this vital metal, the looming specter of copper supply shortages can only be met through further investment into new projects enabling the increase of discoveries across the globe.

As of 5.15pm UTC+8, the price of copper had declined by 2.29% and currently stands at $3.69 per pound.

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