Copper Miners Poised to Benefit from Surging Demand, Constrained Supply

• A new copper supercycle is emerging, driven by electrification, national security concerns, environmental policy, supply constraints and deglobalization.
• Copper demand is surging due to the clean energy transition, but supply is not keeping up, with major shortfalls projected by 2025.
• Resource nationalism in major copper-producing countries like Peru, Panama and Chile exacerbates supply disruptions.
• Environmental regulations make it difficult to bring new copper mines online fast enough to meet demand.
• High inflation and a weakening US dollar as the Fed eventually cuts rates are expected to increase copper prices.

Copper: The Essential Metal for the Clean Energy Transition

Copper is one of the most critical metals underpinning the global transition to clean energy. With demand surging for electric vehicles, renewable energy, and upgrading electrical grids, the world will need unprecedented amounts of copper in the coming decades. At the same time, the copper supply is tightening due to underinvestment in new mines, resource nationalism, and environmental opposition to mining projects. This supply-demand imbalance sets the stage for a new copper supercycle that could last years. For investors, exposure to copper through mining stocks offers significant potential upside.

The clean energy transition unleashes a new commodity supercycle, and copper is the metal at the heart of it. The shift from fossil fuels to renewable energy and electric vehicles requires massive amounts of copper, as it is essential for electrification due to its superior conductivity, durability, and malleability. Copper wiring and cabling connect solar panels and wind turbines to the grid, transmit electricity over vast distances, and power the motors and batteries in electric vehicles.

The scale of the coming demand boom or copper is hard to overstate. Consulting firm Wood Mackenzie estimates copper demand from the energy transition could jump from 1 million tonnes in 2020 to 16 million by 2040. That's on top of baseline growth in copper demand driven by rising global population, urbanization, and economic development, especially in emerging markets.

However, copper supply is not keeping pace, setting the stage for elevated prices until significant new production can be brought online - a process will take years, given the long lead times and capital intensity of new copper mines. This is the key dynamic that defines the bull case for investing in copper.

Demand Surge

Clean energy technologies are extremely copper-intensive compared to legacy fossil fuel infrastructure. For example, electric vehicles use triple the amount of copper as gasoline-powered cars. Renewable energy systems like wind and solar also require massive copper wiring. With countries setting ambitious targets for vehicle electrification and renewable energy adoption, copper demand is set to skyrocket.

Sberbank analyst Mikhail Shevelev estimates, "In 10 years, the share of green demand will be around a quarter of the total." Consulting firm Wood Mackenzie expects copper demand to reach 50 million tonnes annually by 2040, double the demand in 2024.

To put the demand surge into perspective, the average battery electric vehicle contains 83 kg of copper, compared to just 23 kg used in a conventional internal combustion engine car. A fully electric bus can use  224 kg and 369 kg of copper. As governments phase out gas-powered vehicles in favor of EVs, that will translate into millions of additional tonnes of annual copper demand.

Renewable energy is similarly copper-intensive. Offshore wind farms require around 15 tonnes of copper per megawatt of capacity. A single 3-megawatt wind turbine contains 4.7 tonnes, or 9,400 pounds, of copper. Solar panel arrays use approximately 5.5 tonnes of copper per megawatt.

According to the International Energy Agency, reaching the goals of the Paris Climate Agreement will require 200 million electric vehicles on the road by 2030, up from just 3 million in 2017. Annual clean energy investment will need to exceed $2 trillion annually by the late 2020s, much of it in copper-heavy renewable electricity generation.

Rising demand for copper isn't just coming from clean energy, however. Copper is also widely used in construction, electrical equipment, appliances, brass and copper alloys, and telecommunications and internet infrastructure. The global 5G rollout and continued growth in electronics will be additional sources of copper demand. Antimicrobial copper alloys are also seeing rapid growth for use in hospitals and other public spaces to reduce the spread of infections.

Supply Constraints

However, the copper mining industry might struggle to keep up with this demand surge. Developing a new copper mine is lengthy and expensive, often taking over a decade and billions in capital investment. A recent study by the University of Michigan and Cornell University found that copper is being mined at a rate that is too slow to keep pace with the green transition targets in US policy.

The researchers calculated that world needs to mine 115% more copper from 2024 to 2050 than has been mined in all human history to 2024. To electrify the global vehicle fleet, between 35 and 195 new copper mines need to be built, at a pace of up to six new mines per year for the next 32 years - a near impossibility given how long it takes to permit and construct a mine.

Derrick Weyrauch, President & CEO of GT Resources states:

“Filling the supply gap is going to be difficult with lead times from discovery to production now averaging over 16 years”

Lower ore grades are one challenge facing the industry. The average mined grade has fallen approximately 25% over the past decade. In mature mining districts like the United States and Chile, companies have to mine deeper deposits with lower grades and contend with harder rock, raising costs.

Another issue is the lack of new world-class copper discoveries in recent years. Exploration success rates are falling, and the existing mine supply is depleting. S&P Global estimates that even if all expected projects come online, the global copper market will fall into deficit as early as 2025 and reach a shortfall of nearly 2.2 million tons by 2032. By then, over 200 copper mines are expected to be mined out.

“The lack of recent copper discoveries is a result of continued focus on brownfield assets to extend known deposits and assets rather than exploration that could yield new discoveries” - Derrick Weyrauch

Even if junior miners identify a promising deposit, getting a copper mine into production is increasingly arduous. Obstacles include high capital intensity, complex (and often changing) permitting processes, local community opposition, and operating in jurisdictions with high geopolitical risk. These challenges and the industry's tendency to underinvest in down-cycles will make it difficult for the copper mining sector to resolve looming long-term supply deficits.

Tim Moody, President & CEO of Pan Global Resources shares his thoughts on the supply constraints:

“In the past two years we have seen a growing realization by investors and government that the future supply of copper is likely to face significant pressure to meet demand from global population growth, increasing electrification, energy security and military defence. Copper mines are facing decreasing grades and going deeper, increasing both technical and financial risk. At the same time, exploration expenditures and investment in mine expansions do not appear to be occurring at the pace required. If current forecasts are correct, the amount of copper consumed per year will double over the next 25 years, to 50 million tonnes per year. This requires the equivalent of an additional 5 new world-class-scale mines every year, each producing 200,000 tonnes of copper annually, to meet the growing demand. Sustained new mine development and production increasing at this pace has never occurred in history. Hence, the expectation is that copper prices will need to increase significantly to incentivise new developments and mine expansions to treat lower grade ores.”

Resource Nationalism & Environmental Opposition

Making matters worse, the world's major copper-producing countries are increasingly prone to resource nationalism - the tendency of governments to assert control over natural resources for economic and political reasons. In 2024, a strike at Peru's Las Bambas mine and a dispute between the government of Panama and First Quantum Minerals removed hundreds of thousands of tonnes of production from the market.

Chile, the top producer, is also struggling with declining ore grades, water shortages, and underperforming state-owned mega projects. Regulatory uncertainty and higher mining taxes are additional risks.

Chile's newly elected government is pursuing a new constitution that strengthens environmental protections and indigenous rights, while raising royalties and taxes on mining. State-owned Codelco, the world's largest copper miner, has recently struggled with declining ore grades, project delays and cost overruns. Chile's copper production peaked in 2022 and fell in 2023 and early 2024 due to lower grades and water scarcity exacerbated by climate change.

Peru, the second largest producer, has seen recurring mining protests, strikes and blockades of mining roads and railways by local communities. The country has growing anti-mining sentiment and political risk of higher taxes and royalties. Due to protests, southern Copper and MMG Ltd have repeatedly suspended operations at key mines like Cuajone and Las Bambas. Underperforming mines, the slow progression of deposits into production, protests and political changes have dented Peru's production since 2022.

Meanwhile, environmental concerns are slowing down copper mine development globally. According to Sprott, copper miners face increasingly stringent land use, pollution, and conservation regulations that delay project timelines. While necessary, this makes it even harder for supply to respond to price signals.

Mining requires large amounts of water for processing ore, dust suppression, cleaning equipment, and employee use. However, many major copper districts, like Chile's Atacama desert, are water-stressed regions that are getting drier due to climate change. Securing water rights and building desalination plants (to use seawater instead of fresh water) add significant costs and lengthen project timelines.

New mines often face opposition from local communities and environmental groups over concerns about water usage, deforestation, tailings dams, waste rock disposal, and air and water pollution. Indigenous groups are also increasingly asserting their land rights to oppose mining projects. Even when environmental studies are completed, and permits are secured, lawsuits and protests can still derail projects.

The growing focus on supply chain sustainability and scope 3 emissions means that copper end users, like automakers, will favour mines that are powered by clean energy and have strong ESG (environmental, social, and governance) practices. This could disadvantage mines in countries with coal-heavy electricity grids. The added costs of decarbonizing mining operations with renewable energy may be passed on through higher copper prices.

Inflation & The US Dollar

The final key driver for copper is the macroeconomic backdrop of stubbornly high inflation and an eventual pivot by the Federal Reserve towards rate cuts and a weaker US dollar. Because copper is priced in dollars, a falling dollar makes copper more expensive, just as demand is surging and supply remains constrained.

Commentators like Peter Schiff see this as a perfect storm for much higher copper prices, arguing that "impractical 'net zero' targets are revised down to more realistic figures, the demand will still be there, and the current supply squeeze and inflationary pressures are here to stay…"

After aggressively hiking interest rates from near-zero to over 5% in just over a year, the Federal Reserve has paused to assess the effects on the economy. However, inflation is proving stickier than expected, remaining well above the 2% target.  Recent banking stresses are a warning sign that rates are already high enough to start breaking things.

The Fed's dilemma is that it needs to keep rates elevated to bring inflation down but not so high as to cause a banking or real estate crisis. Many commentators expect the Fed will eventually have to cut rates and potentially expand its balance sheet again to provide liquidity, especially if a recession starts or unemployment rises significantly. This would likely lead to a softer US dollar.

Copper, like most commodities, has historically had a strong inverse relationship with the US dollar. A weaker dollar is bullish for copper prices, as it takes more dollars to buy the same amount of copper. This could amplify the impact of the structural supply deficit, inventory drawdowns, and surging demand for clean energy end-uses.

The Investment Thesis for Copper

• Long-term supply-demand fundamentals for copper are highly bullish due to the clean energy transition
• Copper demand is expected to double by 2040, with shortfalls starting as early as 2025, while supply faces significant headwinds
• Lower ore grades, water scarcity, lack of new discoveries, and slow mine development timelines will constrain supply
• Resource nationalism in Chile and Peru, plus environmental/social opposition globally, are making it harder to bring on new copper production
• High energy costs, decarbonization of mining, and sustainability pressures are likely to increase the marginal cost of producing copper
• Exposure to copper producers and developers, especially those with lower costs, high grades, and strong ESG practices, is an attractive way for investors to get leverage to a potential supercycle
• Elevated copper prices will be needed for an extended period to incentivize enough new supply to meet booming demand
• Consider investing in quality juniors and developers to maximize upside potential as their projects become more viable and attract M&A

The global energy transition unleashes a structural supply deficit in the copper market, requiring a significant and sustained price rise. Surging demand for copper for electric vehicles, renewable energy, and electrical infrastructure will increasingly outstrip supply in the years ahead. As David Kelley, President & CEO of Chakana Copper states:

“The next commodity supercycle will bring about the realization that society critically depends on exploration to find new resources to the point that it becomes the single most important aspect of the mining industry.”

The world's major copper miners face headwinds from declining ore grades, slow reserve replacement, water scarcity, resource nationalism, and rising environmental/social barriers to developing new mines. Even with prices at record highs, supply will likely remain highly constrained relative to demand.

This creates a compelling opportunity for investors to invest in copper producers and developers. Companies with high-quality assets in stable jurisdictions, lower costs, strong ESG practices, and exposure to rising copper prices benefit immensely from the supply-demand imbalance. In particular, junior miners with promising projects could offer the greatest upside potential.

The clean energy transition is essential for addressing climate change, but it cannot happen without an adequate copper supply. This will likely require an extended period of higher prices to incentivize new production. Copper's critical role in electrification and decarbonization, coupled with constrained supply growth, has set the stage for a potential supercycle that could last well into the 2030s.

Investors positioning for this trend should consider gaining exposure to copper equities that provide leverage to rising prices. However, careful due diligence is required to assess asset quality, jurisdiction risk, ESG factors, and management prowess to select the companies best positioned to capitalize on the coming bull market in copper.

Companies to Watch

Chakana Copper

Chakana Copper Corp is a Canadian-based minerals exploration company focused on advancing the Soledad Project located in the Ancash region of Peru, a highly favorable mining jurisdiction with supportive communities. The company recently commenced a fully funded 3,000 m drill program at Soledad in April 2024, with initial results confirming another mineralized breccia pipe at the Estremadoyro target. Highlights include 23.0m of 0.61 g/t gold, 1.02% copper and 26.1 g/t silver. Drilling is also underway at the promising Mega-Gold target area. Chakana previously announced an initial inferred resource estimate for seven breccia pipes at Soledad, and has identified a total of 154 exploration targets on the project, with significant potential to expand the known mineralization. With a strong portfolio in a top mining jurisdiction, Chakana Copper is well-positioned for growth as it continues to explore and de-risk the Soledad project.

GT Resources

GT Resources Inc. is a Canadian mineral exploration and development company focused on discovering and producing critical Green Transportation Metals, including nickel, copper, palladium, platinum, and cobalt, with a strategy to deliver Net-Zero Greenhouse Gas emissions throughout the full life cycle of its projects. The company recently announced the completion of a C$1.84 million non-brokered private placement, with proceeds for immediate exploration diamond drilling at its flagship Canalask copper-nickel project in the Yukon. GT Resources plans to drill up to 2,000 meters to test the electromagnetic Maxwell plate defined in the 2023 field season and conduct additional downhole EM surveys to locate massive copper-nickel sulphide mineralization and to locate the source of the historical footwall resource estimate. The company also has projects in Ontario (Tyko) and Finland (Läntinen Koillismaa), demonstrating its commitment to advancing district-scale deposits in favorable jurisdictions.

Marimaca Copper

Marimaca Copper Corp. is a copper exploration and development company focused on advancing its flagship Marimaca Oxide Deposit (MOD) in Chile. The company is collaborating with Ausenco Chile and Mitsubishi to progress the MOD towards construction, with permitting submissions on track for early Q3 2024 and the Definitive Feasibility Study (DFS) expected to be completed in late Q4 2024. Marimaca Copper is considering strategic options to move directly into detailed engineering post-DFS in 2025, targeting a construction decision in late 2025. The company is also actively exploring its regional land package, with geophysics work underway at the promising Sierra de Medina property block 25km from the MOD, and initial trenching and surface sampling at the nearby Mercedes satellite target. With a constructive macro backdrop for copper and a high-quality development project in the MOD, Marimaca Copper is well-positioned to create value for shareholders as it advances its Chilean copper assets.

Pan Global Resources

Pan Global Resources Inc. is a copper-focused exploration company dedicated to discovering and developing copper-rich mineral deposits. The Company's flagship Escacena Project, located in southern Spain's renowned Iberian Pyrite Belt, hosts the promising La Romana copper-tin-silver and Cañada Honda copper-gold discoveries. With a commitment to responsible mining practices, a highly experienced team, and a strategic location in a tier-one mining jurisdiction, Pan Global is well-positioned to capitalize on the compelling supply-demand fundamentals and strong long-term outlook for copper as a critical metal in the global electrification and energy transition.