Copper Crunch: Why Junior Explorers Could Be the Key to Meeting Future Demand

• Major copper discoveries have become increasingly rare, with only 14 significant finds in the past decade.
• Latin America remains the top region for copper discoveries, but Africa has dominated in recent years.
• The industry is shifting away from early-stage exploration, focusing instead on extending known deposits.
• A looming copper deficit is expected by 2027, with mine supply potentially peaking in 2029.
• Junior explorers like Chakana Copper, GT Resources, Pan Global Resources and developer Marimaca Copper are crucial in the search for new copper deposits.

The global copper industry is at a critical juncture, facing the dual challenges of dwindling discoveries and an impending supply deficit. This situation presents risks and opportunities for investors, particularly those interested in junior mining companies at the forefront of exploration efforts. Companies like Chakana Copper, with its high-grade Soledad project in Peru; Marimaca Copper, developing its oxide deposit in Chile; GT Resources, exploring in Ontario and Yukon, Canada; and Pan Global Resources, advancing its Escacena project in Spain, are playing crucial roles in the search for new copper resources. As the world increasingly relies on copper for renewable energy infrastructure and electric vehicles, understanding the dynamics of copper exploration and production becomes essential for informed investment decisions.

The State of Copper Discoveries

The copper industry is experiencing a significant downturn in major discoveries, an intensifying trend over the past decade. According to S&P Global Commodity Insights, out of 239 copper deposits discovered between 1990 and 2023, only 14 have been found in the last ten years. These recent discoveries account for a mere 3.5% of all copper in major discoveries since 1990, totaling 46.2 million metric tons (MMt).

This scarcity of new finds is primarily attributed to the industry's shift from early-stage exploration. In the 1990s and early 2000s, grassroots exploration typically accounted for 50-60% of copper exploration budgets. However, by 2023, this figure had dropped to a record low of 28%. The focus has instead turned to brownfield assets, extending known deposits rather than seeking new ones.

This trend is exemplified by companies like Chakana Copper, which is focusing on its Soledad project in Peru. While not a discovery, Soledad represents the type of high-grade, near-surface deposit companies are increasingly targeting. Similarly, Marimaca Copper's namesake project in Chile, discovered in 2016, illustrates the industry's focus on expanding known deposits rather than making entirely new finds.

Regional Dynamics of Copper Discoveries

Latin America continues to dominate the copper discovery landscape, hosting 55.6% of discovered copper since 1990. Chile and Peru, in particular, account for 78.5% of the copper discovered within Latin America. This regional concentration is reflected in the exploration efforts of companies like Chakana Copper and Marimaca Copper, both operating in traditional copper-rich areas.

However, the past decade has seen a shift in regional dominance. Africa has emerged as the leader in recent discoveries, accounting for 56% of the copper in the last ten years. This is primarily due to Ivanhoe Mines' discoveries in the Democratic Republic of Congo, including the Kamoa-Kakula deposit and the Western Foreland project.

Meanwhile, North America has maintained a significant presence, ranking third with 10% of discovered copper. GT Resources exemplifies the ongoing exploration efforts in this region, focusing on the Tyko project in Ontario and the Canalask project in Yukon, Canada. These projects demonstrate the potential for discoveries in mature mining jurisdictions that have historically been overlooked.

Derek Weyrauch, President and CEO of GT Resources, emphasizes the importance of strategic positioning:

"We're an exploration Stage Company focused on copper, nickel and PGEs in Europe and Canada... We've got Glencore supporting us. They've written cheques four times over the last year and a half to support the company and allow us to do our exploration programs... There is an awareness that there has to be support for the exploration stage companies, but it's happening from the corporations right now for the most part."

While not a traditional copper powerhouse, Europe is also seeing renewed interest. Pan Global Resources' Escacena project in Spain's Iberian Pyrite Belt demonstrates the potential for discoveries in historically productive areas.

Tim Moody, President and CEO of Pan Global Resources, highlights the advantages of their location:

"Being in southern Spain, in the Iberian pyrite belt, this area is mining-friendly. This is where we have all the infrastructure. We're almost like a brownfield project, given that we're right next door to Spain's third-largest copper mine... This area has lots of mining activity and thousands of years of mining history... I don't think the risk profile gets much better than our location. Additionally, we've got Copper from near surface and open pit target."

The Challenges of Bringing New Discoveries to Production

The path from discovery to production has become increasingly lengthy and complex. S&P Global's analysis reveals that the average lead time from discovery to production has grown from 12.7 years for mines that started in the 2005-2009 to 17.9 years for those that began production in 2020-2023.

This extended timeline is due to various factors, including longer exploration phases, more complex permitting processes, and increased time spent securing financing and construction permits. For junior explorers like Chakana Copper, Marimaca Copper, GT Resources, and Pan Global Resources, this means a longer path to potential production and cash flow.

Hayden Locke, President and CEO of Marimaca Copper, explains their approach to project advancement:

"We're in the execution phase, just finishing up on the permit application, which is the critical path. We'll get that in as quickly as we can. We're just taking our time to go back over and review with a fresh set of eyes to make sure we haven't missed anything and that we're not inadvertently walking ourselves into problems in the future in our permitting. Once the team is finished with the permit application, we'll turn all of our attention to pushing ahead and finishing that DFS, which is all-important for telling the market you know what the project looks like and why we think it's financeable."

The Looming Copper Supply Deficit

The lack of new major discoveries and increasing global demand sets the stage for a significant copper supply deficit. S&P Global's Commodity Briefing Service report predicts a refined copper deficit beginning in 2027. More pressingly, the concentrate market is already estimated to be in deficit and is expected to remain so for the next five years.

This supply crunch is reflected in recent copper prices, which have pushed above $10,000 per metric ton. Treatment charges have also collapsed to record lows, indicating a shortage of copper concentrate for smelters. Further, mine supply is expected to peak in 2029, with a potential concentrate deficit of 2.2 MMt forecast by 2032. This scenario underscores the critical need for discoveries and developing existing projects.

The Role of Junior Explorers in Addressing the Supply Gap

In this context, junior exploration companies play a vital role in the future of copper supply. While major mining companies have shifted their focus to brownfield exploration and development, juniors are often at the forefront of greenfield exploration, seeking entirely new deposits.

Chakana Copper's high-grade Soledad project in Peru exemplifies the type of discovery that could contribute to future supply. The project's high-grade nature and proximity to surface make it an attractive potential development target. David Kelley elaborates on their strategy:

"We've got 6.7 million tons of resource in highgrade breccia's. We want to get that to about a 10 million ton resource because we think a 10 million ton high-grade resource starting at surface in a great location like we have could become a mine okay that's a threshold we're trying to get to."

Marimaca Copper's oxide deposit in Chile is another important contribution to the copper pipeline. A relatively recent discovery demonstrates that new, economically viable deposits can still be found in mature mining jurisdictions.

GT Resources, exploring in Ontario's Tyko project and Yukon's Canalask project, is pursuing opportunities in regions that have seen limited modern exploration. Applying new technologies and geological understanding to known mining areas could unlock previously overlooked resources.

Pan Global Resources' Escacena project in Spain's Iberian Pyrite Belt showcases the potential for discoveries in Europe, a region that could become increasingly important for securing local copper supply chains. Tim Moody explains their recent success:

"We put out some great news this week. Those three holes were part of a 25-hole extensional drilling program, something where we were trying to target the Western extension near the surface, extend the strike length, and find more open pit potential. Overall, we've been really successful. We've added about 300m of strike length, and it's still open, and that's about 20% of the overall deposit in this just 25 whole program, so that's a pretty good outcome."

The Changing Landscape of Copper Exploration

The shift away from early-stage exploration poses challenges and opportunities for the copper industry. While it has led to a decrease in new major discoveries, it has also created space for junior explorers to take on a more significant role in the sector.

Major companies' focus on brownfield exploration has underexplored many prospective greenfield areas. This presents an opportunity for companies like Chakana Copper, Marimaca Copper, GT Resources, and Pan Global Resources to make meaningful discoveries in areas that may have been overlooked or considered too risky by larger players.

With an additional project in Finland, GT Resources' exploration strategy in Ontario and Yukon exemplifies how junior companies can leverage their agility to pursue diverse opportunities. Their focus on these areas demonstrates the potential for significant discoveries in mature mining jurisdictions that may have been overlooked by larger companies focused on brownfield exploration.

The Impact of Global Trends on Copper Demand

The copper industry is not operating in isolation. Global trends, particularly the push towards renewable energy and electric vehicles, drive unprecedented copper demand. Solar panels, wind turbines, and electric vehicle batteries all require significant amounts of copper, far more than their traditional counterparts.

Derek Wilton of GT Resources comments on the evolving market dynamics:

"If you go back 24 months and earlier, people were saying the electric vehicle will take over the world tomorrow. There will be a huge ramp-up in demand for all these Metals. However, people have realized that's not going to happen. I was pleasantly surprised here at the conference to see that many people have been inquiring and talking about the hybrid vehicle, and they see that as the near-term future. That means you not only have a battery but also the internal combustion engine, the catalytic converter, and the demand for the PGEs."

This increasing demand and supply constraints create a compelling case for copper exploration and development investment. Junior explorers, focusing on discoveries and resource expansion, are well-positioned to benefit from this trend.

Navigating the Risks and Opportunities

Investing in junior copper explorers comes with inherent risks. Many exploration projects will not result in economically viable mines, and even those that do face a long and capital-intensive path to production. However, for those companies that succeed, the rewards can be substantial, particularly in a market facing supply deficits.

Investors considering the copper sector should carefully evaluate the projects, management teams, and jurisdictions of potential investments. Companies operating in established mining jurisdictions with supportive regulatory environments, like Chakana Copper and Marimaca Copper in Latin America, may offer a different risk profile compared to those exploring in less established areas.

The management team's technical expertise and track record in moving projects from exploration to development stages are crucial factors to consider. Additionally, the potential for high-grade discoveries, like those targeted by Chakana Copper, or large-scale deposits, such as those sought by GT Resources and Pan Global Resources, can significantly impact a project's economic viability.

Hayden Locke of Marimaca Copper emphasizes the importance of building a strong team:

"Oscar and Alexis have come out of Capstone, and before that, they were at Mantos Copper, so they are part of one of the success stories in our industry. They have built a businesses of significant value as members of the senior executive team."

Conclusion

The copper industry is at a critical juncture, facing a potential supply crunch amidst rising global demand. The lack of major new discoveries over the past decade, combined with the long lead times for bringing new mines into production, creates a challenging environment for meeting future copper needs.

In this context, junior exploration companies play a crucial role in the future of copper supply. Their focus on greenfield exploration and willingness to take on the risks associated with early-stage projects make them essential players in addressing the looming supply gap.

For investors, this situation presents both risks and opportunities. While investing in junior explorers carries inherent risks, the potential rewards in a market facing supply deficits could be substantial. Companies like Chakana Copper, Marimaca Copper, GT Resources, and Pan Global Resources represent the type of explorers that could significantly shape the future of copper supply.

As the world increasingly relies on copper to transition to a low-carbon economy, understanding the dynamics of copper exploration, development, and production becomes essential for informed investment decisions. The copper industry's challenges in discovering and developing new deposits underscore the potential value of successful exploration efforts, making this an area of keen interest for investors looking to capitalize on the critical role of copper in the global economy.