Copper miners eye $100bn investment amid shocking supply shortage

Copper miners such as Rio Tinto and BHP are expected to be at the forefront of mining investment – Photo: Shutterstock

Copper miners plan to invest around $100 billion in the coming years, due to a massive supply shortage in the global copper market.

Copper demand has risen steadily over the past few months, fueled by supply chain constraints from Russia as well as dwindling supplies at London Metal Exchange (LME) registered warehouses.

As top consumer China slowly begins to recover from a recent surge in the number of Covid-19 cases, the reddish metal has seen a resurgence in demand coming mainly from industrial and manufacturing hubs.

According to Erik Heimlich, Head of Base Metals Supply at CRU Group, there could be a supply shortfall of around 4.7 million tonnes of copper per year by 2030.

It would take about eight more mines the size of Chile’s Escondida copper mine – currently the largest copper mine in the world, with a capacity of about 1.5 million metric tons – to close the gap. The Escondida mine is owned by BHP Billiton (BHP), Rio Tinto (RIOgb) and Japan Escondida.

Copper prices are on an upward trend

Which copper mining companies are likely to invest more in the coming years?

Rio Tinto is one of the key companies likely to drive this increase in investment, as the company has already made significant progress in expanding its copper business.

Recently, he made an offer to buy out the balance of Turquoise Hill to take majority control of the Oyu Tolgoi copper mine in Mongolia. The offer was all cash and worth around $2.7 billion.

Oyu Tolgoi is considered one of the largest copper and gold mines in the world. Therefore, Rio Tinto’s decision to simplify its previously troubled structure and increase copper production is timely.

At the end of March this year, one of the world’s largest copper mining companies, Codelco, also announced that it had started work on the Salar de Maricunga in Chile, a project that is expected to last around 10 months.

Other copper companies, such as Los Andes Copper (FWB: L41A), have also already taken significant steps to add additional financing to their existing copper projects.

In this case, the company recently secured approximately $4 million from Queen’s Road Capital Investment for pre-feasibility costs for the Vizcachitas copper mine in Chi

Which countries are likely to benefit the most from copper investments?

The world’s major copper producers such as Chile and Peru are likely to be the main beneficiaries of this increased wave of investment.

Several mine expansion plans in Peru are already underway, with the expansion of the Las Bambas mine, which accounts for around 2% of total global supply, being one of the latest. The mine is currently owned by MMG (1208).

Chile has also recently seen the proposed expansion of the Los Bronces mine, owned by Antofagasta (ANTO), which has so far met with resistance due to its impact on nearby glaciers.

The country is also considering implementing new tax standards for miners, which could help drive up copper prices further, if miners are unhappy with the new regulations and choose to look elsewhere.

Currently, BHP has announced that it is ready to invest up to $10 billion in Chile, but in return is asking for “legal certainty” regarding tax and regulatory conditions.

Investors believe that an investment of this size will likely be able to fund the copper sector in Chile for the next five decades or so.

Other countries with fewer but large mines, such as Mongolia with its Oyu Tolgoi mine, should also see some interest from copper miners in the coming months, as prices are currently hovering near a record level.

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What is driving the increased demand for copper?

According to Heimlich, the expected copper supply shortage over the next decade is expected to be around six million tonnes per year.

Copper is considered a key metal in the green transition, as it is vital for batteries and charging infrastructure. Thus, much of the metal’s current demand comes from the electric vehicle (EV) and clean energy sectors.

With demand for electric vehicles increasing lately as most economies attempt to pivot the green transition, copper prices are subsequently inflated. Copper, being one of the most commonly used metals after aluminum and steel, is also used in construction.

The metal is also seeing an upward push from the timid recovery in these sectors. Furthermore, a number of positive discoveries made by mining companies in recent days have also given the red metal a boost.

Recharge Metals (ASX:REC) recently announced strong results from its Western Australia project, Brandy Hill South. Tempest (ASX:TEM) also reported promising results from its Meleya project in Western Australia, as well as Culpeo (ASX:CPO) from its Chilean Lana Corina project.

Will lower Chinese demand affect copper prices?

China has recently struggled with demand for commodities as it struggles to get back on its feet after a fresh wave of Covid-19 cases. This has led to shutdowns in major industrial and manufacturing hubs in Shanghai and Dongguan.

Naturally, this has led to a drop in demand for copper, as China is one of the main consumers of this metal, accounting for around half of global copper demand. Other metals, such as nickel and iron ore, were also affected.

According to Carsten Menke, analyst at Julius Baer (BAER), this was also largely due to a drop in investment in the real estate and infrastructure sector.

He points out that the longer-term outlook for China’s real estate sector is likely to be largely driven by a decline in urbanization, as well as a decline in the number of working-age citizens.

Although copper prices were initially somewhat subdued following reports of new Covid-19 cases in China, demand is beginning to cautiously recover as China aims to increase production of several metals to fill the void left by Russian metals.

However, it remains to be seen to what extent the struggles of slowing economic growth will impact copper prices in the near future.

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