Global Copper Supply Broken Down...

Copper Supply Challenges Demand Innovation

The global copper industry is at a critical juncture as it confronts the dual challenges of meeting the growing demand for this essential metal while navigating a complex web of geopolitical, environmental, social, and technological challenges. With mine production forecast to peak in 2026 at 25.7 Mt before declining to 20.3 Mt by 2034 and 9.1 Mt by 2050, based on current projections, the industry must confront a significant supply gap of around 17 Mt by 2050. Closing this gap will require a multi-faceted approach that includes discovering new reserves, converting identified resources into reserves, and bringing new projects online.

Geopolitical and Legislative Challenges

The path to long-term supply growth is fraught with obstacles, particularly in the realm of geopolitics and legislation. Changes in government policies, such as shifts in mining royalties and tax regimes, can create uncertainty and hinder investment in new projects. For example, recent efforts by the governments of Chile and Peru to modify mining taxes and royalties have led some companies to adopt a wait-and-see approach, potentially delaying project development.

Moreover, stricter environmental regulations and permitting processes can increase the time and cost of bringing new mines online. For instance, several major copper projects have faced significant delays in the United States due to environmental concerns and lengthy permitting procedures. As governments worldwide emphasise environmental protection and sustainable development, copper miners must navigate an increasingly complex regulatory landscape.

Social and Environmental Considerations

In addition to geopolitical and legislative challenges, the copper industry must also contend with growing social and environmental pressures. Securing and maintaining a social license to operate has become a critical consideration for miners, particularly in regions with a history of conflict between mining companies and local communities.

In Peru, for example, anti-mining sentiment has led to protests and disruptions at several major copper mines in recent years. To mitigate these risks, companies must invest in community engagement programs and work to build trust and support among local stakeholders. This may involve initiatives such as job training, infrastructure development, and environmental conservation efforts.

Water scarcity is another key environmental challenge facing the copper industry, particularly in arid regions like Chile and Peru. As mines expand and deepen, they require increasing amounts of water for processing and dust suppression. This can lead to conflicts with local communities and other water users, such as farmers and municipalities. To address these concerns, copper miners invest in water-efficient technologies and explore alternative water sources, such as desalination plants.

Regional Mining Landscape

The global copper mining landscape is evolving, with different regions presenting unique opportunities and challenges. Latin America, particularly Chile and Peru, will continue to play a central role in meeting global copper demand, but project development in the region faces significant obstacles. In addition to the geopolitical and social challenges discussed above, these countries must also contend with declining ore grades and increasing mining depths, which can drive up production costs and reduce profitability.

Africa, particularly the Democratic Republic of Congo (DRC), has emerged as a significant copper producer recently, with several major projects coming online. However, the DRC's long-term growth potential will depend on infrastructure development to support transport logistics and power stability. The country's mining sector has also been plagued by corruption, human rights abuses, and environmental concerns, which pose significant investor risks.

In the United States, the copper project pipeline is substantial, but regulatory hurdles related to environmental concerns and permitting issues have slowed development. For example, the Resolution Copper project in Arizona, which has the potential to supply over 25% of the country's copper needs, has faced significant opposition from environmental groups and Native American tribes who are concerned about the project's impact on sacred lands and water resources.

Other regions like Australia, Mongolia, and Russia also have significant copper reserves and project pipelines. However, these jurisdictions come with their own geopolitical, social, and environmental risks that investors must consider carefully.

Smelting and Refining Outlook

On the smelting front, global production capability is expected to reach 23.9 Mt in 2024, a 9% increase from 2023. However, feed material availability and utilization rates may restrict actual production to 22.2 Mt. Africa and Asia (excluding China) are poised for significant growth in smelter output, driven by new projects and expansions in the DRC, India, and Indonesia.

In the DRC, the Kamoa-Kakula project, a joint venture between Ivanhoe Mines and Zijin Mining, is expected to majorly contribute to the country's smelter output growth. The project's first phase, which includes a 3.8 Mtpa concentrator and associated infrastructure, commenced production in May 2021. The second phase, which will double the mill throughput to 7.6 Mtpa, is currently under construction and is expected to come online in Q2 2022. At full production, Kamoa-Kakula is expected to be the world's second-largest copper mine, with an annual output of more than 800,000 tonnes of copper.

In India, the Adani Group is developing a major copper smelter and refinery complex in the state of Gujarat. The project, which has an estimated investment of $10 billion, will have an annual capacity of 1 million tonnes of copper cathode and is expected to come online in phases starting from 2024. The Adani smelter is expected to play a significant role in meeting India's growing copper demand, which is forecast to double by 2030.

Indonesia is also poised for significant growth in smelter output, driven by the country's ban on exporting unprocessed minerals, which has encouraged investment in downstream processing facilities. Two major projects, PT Freeport Indonesia's new smelter in East Java and PT Amman Mineral Nusa Tenggara's smelter in West Nusa Tenggara, are expected to come online in 2024 and contribute significantly to the country's smelter production growth.

Chinese smelter production capability is forecast to grow from 10.3 Mt in 2023 to 13.6 Mt by 2027, propelled by new integrated smelters and expansions. China is the world's largest consumer and importer of copper concentrates, and the country's smelting sector has undergone significant consolidation and modernization in recent years. The growth in Chinese smelter output will be driven by several major projects, including Zijin Mining's Qulong smelter (400,000 tpa), Tongling Nonferrous Metals Group's Shenghan smelter (300,000 tpa), and China Copper's Wudu smelter (300,000 tpa).

Refined copper production capability is projected to reach 28 Mt in 2024, a 6.8% increase from 2023. However, due to reduced feed material availability and mine disruptions, actual refined production is expected to be around 26.4 Mt. Asia will be the primary driver of refined production growth, offsetting declines in Latin America's SxEw cathode output. Global refined copper production capability is expected to peak at 32 Mt by 2029 before declining to 31 Mt from 2034 onwards.

Bridging the Supply Gap

To bridge the projected supply gap and ensure a sustainable future for the copper industry, stakeholders must focus on several key areas:

1. Exploration and reserve replacement: Discovering new reserves and converting identified resources into reserves will be critical to maintaining long-term production levels. This will require significant investment in exploration activities and the development of new mining technologies. Companies that can successfully identify and develop new deposits will be well-positioned to capitalize on the growing demand for copper.

However, exploration success rates have declined in recent years, with the average grade of new discoveries falling and the time between discovery and production lengthening. To reverse this trend, miners will need to adopt new exploration technologies, such as advanced geophysical and geochemical techniques, machine learning, and data analytics. These tools can help identify new deposits in previously unexplored or underexplored regions, as well as extend the life of existing mines through near-mine exploration.

2. Technological advancements: Improving mining and processing technologies, such as sulphide leaching, could help unlock additional production from existing mines and lower-grade deposits. These advancements could also bring environmental benefits by reducing water and carbon intensity. Companies that invest in research and development and adopt innovative technologies will have a competitive edge in the years ahead.

One promising area of technological innovation is the development of in-situ leaching techniques, which involve the extraction of copper from ore bodies without the need for traditional mining methods. This approach can significantly reduce the environmental impact of mining and lower production costs. Companies such as BHP and Rio Tinto are investing in research and development to commercialize in-situ leaching technology, to unlock previously uneconomic deposits and extend the life of existing mines.

Another area of focus is the development of advanced processing technologies, such as bioleaching and electrowinning, which can improve metal recovery rates and reduce energy consumption. For example, bioleaching, which involves using microorganisms to extract metals from ore, can significantly increase copper recovery rates while reducing the use of harsh chemicals and energy-intensive processing methods.

3. Alternative sources of supply: Exploring new sources of copper, such as deep-sea mining and tailings reprocessing, could help increase known reserves. However, these approaches have environmental and regulatory challenges that must be addressed. Companies that can navigate these challenges and responsibly develop alternative sources of supply will be better positioned to meet the growing demand for copper.

Deep-sea mining, in particular, has emerged as a potentially significant source of copper and other critical metals. The seabed contains vast deposits of polymetallic nodules and sulfides, which are estimated to contain more copper than all land-based reserves combined. However, the environmental impact of deep-sea mining is not yet fully understood, and there are concerns about the potential harm to marine ecosystems and biodiversity.

Several companies, including DeepGreen Metals and Nautilus Minerals, are developing deep-sea mining projects in international waters, but the regulatory framework for this emerging industry is still evolving. The International Seabed Authority, a United Nations body, is currently developing regulations for exploiting seabed minerals to balance economic development with environmental protection.

The reprocessing of tailings, which are the waste materials left over from mining and processing operations, is another potential source of copper supply. Advances in processing technologies have enabled extracting valuable metals from previously considered uneconomic tailings. For example, the Escondida mine in Chile, one of the world's largest copper mines, has invested in a tailings reprocessing plant that is expected to recover an additional 57,000 tonnes of copper per year.

4. Recycling and secondary sources: As copper scrap becomes an increasingly important source of supply, efforts to expand collection, recycling, and processing will need to intensify. By 2050, the share of scrap in total copper consumption is expected to reach around 50%, reducing the demand for mined copper. Companies that invest in recycling infrastructure and technologies will be able to capitalize on this growing trend and contribute to a more circular economy.

Using recycled copper has several advantages over primary production, including lower energy consumption, reduced greenhouse gas emissions, and a smaller environmental footprint. However, the availability of high-quality scrap is limited, and the recycling process can be complex and costly, particularly for low-grade scrap.

To increase the supply of recycled copper, governments and industry stakeholders will need to invest in collection and sorting infrastructure and develop new technologies to efficiently process complex scrap materials. For example, the European Union has set a target of increasing the recycling rate of copper to 65% by 2025, up from the current rate of around 50%.

Companies that can develop innovative recycling technologies and establish closed-loop supply chains will be well-positioned to capitalize on the growing demand for secondary copper. For example, the Belgian recycling company Metallo has developed a proprietary process for recovering copper and other metals from complex scrap materials, such as printed circuit boards and automotive shredder residue.

5. Sustainable development: Copper miners must prioritize sustainable development practices to maintain their social license to operate. This includes addressing environmental concerns, engaging with local communities, and contributing to the economic development of host countries. Companies that embed sustainability into their core strategies and operations will be better positioned to navigate the industry's complex social and environmental challenges.

One key area of focus for sustainable development is reducing greenhouse gas emissions. The copper industry significantly contributes to global carbon emissions, with mining and processing operations accounting for around 4% of total emissions. To meet the goals of the Paris Agreement and limit global warming to well below 2°C, the industry will need to reduce its carbon footprint dramatically.

Several companies have set ambitious targets for reducing their emissions, with some aiming for net-zero emissions by 2050. To achieve these goals, miners must invest in renewable energy, energy efficiency, and low-carbon technologies, such as electric vehicles and hydrogen fuel cells. For example, BHP has committed to reducing its operational emissions by 30% by 2030 and has invested in renewable energy projects, such as the Escondida and Spence solar farms in Chile.

Another key aspect of sustainable development is protecting biodiversity and ecosystem services. Mining operations can significantly impact local environments, including the destruction of habitats, the contamination of water sources, and the displacement of wildlife. To mitigate these impacts, companies must adopt best practices for biodiversity management, such as integrating biodiversity considerations into project planning and restoring disturbed lands.

Engaging with local communities and contributing to their economic development is also critical for maintaining a social license to operate. This involves going beyond traditional corporate social responsibility programs and developing long-term community partnerships based on mutual trust and respect. For example, the Las Bambas copper mine in Peru has established a community development fund that invests in projects identified and prioritized by local communities, such as infrastructure, education, and healthcare.

Investor Considerations

Investors should know the risks and opportunities associated with the copper industry's long-term supply outlook. While the projected supply gap presents significant challenges, it also creates opportunities for companies that can successfully navigate the evolving landscape and capitalize on technological advancements, alternative sources of supply, and sustainable development practices.

In evaluating potential investments in the copper sector, investors should consider several key factors:

1. Project pipeline and reserves: Companies with a robust project pipeline and significant reserves are better positioned to meet the growing demand for copper. Investors should closely examine a company's exploration activities, resource conversion rates, and project development timelines. Companies with a track record of successful exploration and project execution and a diversified portfolio of assets across different geographies and development stages may be more resilient to the industry's risks and uncertainties.
2. Technological capabilities: Companies that invest in innovative mining and processing technologies, such as sulphide leaching, in-situ leaching, and advanced processing methods, may have a competitive advantage in unlocking additional production and reducing environmental impacts. Investors should assess a company's research and development efforts and its ability to adopt new technologies. Companies that can demonstrate a commitment to innovation and a willingness to embrace new technologies may be better positioned to optimize their operations and reduce costs in the long run.
3. Environmental, social, and governance (ESG) performance: As sustainability becomes an increasingly important consideration for investors and stakeholders, companies with strong ESG performance will likely be better positioned for long-term success. Investors should evaluate a company's environmental stewardship, community engagement, and governance practices. Companies that can demonstrate a commitment to sustainable development, transparent reporting, and stakeholder engagement may be more resilient to the industry's social and environmental challenges.
4. Geographic diversification: Companies with a geographically diversified portfolio of assets may be better positioned to mitigate the risks associated with operating in any single jurisdiction. Investors should consider a company's exposure to various geopolitical, regulatory, and social risks across its operating regions. Companies with a balanced portfolio of assets across stable and high-growth jurisdictions may be more resilient to the industry's uncertainties.
5. Financial strength and flexibility: Given the capital-intensive nature of the copper industry, companies with strong balance sheets and access to financing will be better equipped to invest in exploration, project development, and technological advancements. Investors should assess a company's financial health, cash flow generation, and ability to fund growth initiatives. Companies with low debt levels, strong cash flows, and a track record of disciplined capital allocation may be better positioned to weather the industry's cyclical nature and invest in long-term growth opportunities.

Based on current projections, the global copper industry faces a challenging long-term supply outlook, with mine production expected to decline significantly by 2050. Meeting the projected supply gap will require a concerted effort from industry participants, governments, and other stakeholders to address the sector's various geopolitical, environmental, social, and technological challenges.

However, these challenges also present significant opportunities for companies that can adapt to the changing landscape and invest in sustainable, innovative solutions. By focusing on exploration and reserve replacement, technological advancements, alternative sources of supply, recycling and secondary sources, and sustainable development practices, copper miners can position themselves for long-term success.

Investors who can identify companies with strong project pipelines, technological capabilities, ESG performance, geographic diversification, and financial strength will be well-positioned to capitalize on the growing demand for copper in the years ahead. As the world transitions to a low-carbon economy and the need for copper in renewable energy technologies and electric vehicles continues to grow, the copper industry will play a critical role in shaping a sustainable future.

By embracing innovation, collaboration, and responsible stewardship, the copper industry can overcome its challenges and deliver the supply needed to support global economic growth and the transition to a greener future. Investors who align their portfolios with this vision and support companies at the forefront of this transformation will be well-positioned to generate long-term value while contributing to a more sustainable world.

The path ahead for the copper industry is not without its obstacles, but with the right strategies, technologies, and mindset, the industry can rise

Marimaca Copper (TSX: MARI)

Marimca presents a compelling investment opportunity for those seeking exposure to the growing demand for copper. The Company's primary focus is the Marimaca Copper Project, strategically located in Chile's prolific Antofagasta region. This project is highly significant, as it represents the only copper discovery worldwide in the past five years, offering substantial exploration potential with minimal risk.

Marimaca's management team is committed to creating value for shareholders and stakeholders by implementing a two-pronged approach. First, they aim to fully exploit the potential of the flagship Marimaca Copper Project, which has the capacity to become one of the most noteworthy copper-oxide discoveries in recent times. Second, the Company is actively exploring for multiple large-scale targets that mirror the style of the Marimaca Copper Project, including the possibility of discovering a new Iron Oxide Copper Gold (IOCG) district.

The Marimaca Copper Project stands out as one of the most crucial copper deposits discovered in Chile over the last decade. Its unique characteristics challenge traditional exploration wisdom and may unlock new possibilities for discoveries in other parts of the country. Unlike the numerous mantle deposits in the region that are hosted by volcanic rocks, Marimaca is hosted by intrusive rocks, setting it apart geologically.

Given the scarcity of new copper exploration discoveries in Chile, the Marimaca Copper Project has garnered significant attention as a high-profile development project. Its advantageous location in the coastal belt at low elevation, near the cities of Antofagasta and Mejillones, positions the project for potential development as a high-margin copper mine with relatively low capital investment requirements. The presence of top-tier infrastructure and utilities nearby further reduces execution risk and enhances the project's economic viability.

Investors seeking exposure to the copper sector should strongly consider Marimaca Copper Corp. (TSX: MARI) as a potentially lucrative investment opportunity. With its exceptional flagship asset, experienced management team, and strategic location in a world-class copper jurisdiction, Marimaca is well-positioned to capitalize on the growing global demand for copper while delivering significant value to its shareholders.

Hudbay Minerals (TSX:HBM)

Hudbay presents a compelling investment opportunity for those seeking exposure to the growing global demand for copper. With over a century of mining expertise, Hudbay's experienced team is dedicated to creating value for communities, employees, and investors by effectively managing every stage of the mining cycle.

As a copper-focused mining company, Hudbay boasts three long-life operations and an impressive pipeline of copper growth projects located in tier-one, mining-friendly jurisdictions across Canada, Peru, and the United States. This diverse portfolio provides investors with a stable foundation for growth and risk mitigation.

Hudbay's current operating assets include the Constancia mine in Cusco, Peru, the Snow Lake operations in Manitoba, Canada, and the Copper Mountain mine in British Columbia, Canada. While copper is the primary metal produced by the company, Hudbay also generates significant gold production, offering investors additional commodity diversification.

Investors can look forward to Hudbay's robust growth pipeline, which features several exciting projects. These include the Copper World project in Arizona, the Mason project in Nevada, and the Llaguen project in La Libertad, Peru. Additionally, the company is actively pursuing expansion and exploration opportunities near its existing operations, demonstrating a commitment to organic growth and value creation.

Hudbay's purpose statement, "We care about our people, our communities and our planet. Hudbay provides the metals the world needs. We work sustainably, transform lives and create better futures for communities," underscores the company's dedication to sustainable mining practices and positive social impact. By investing in Hudbay, shareholders can align their financial goals with a company that prioritizes environmental stewardship, community engagement, and responsible resource development.

The company's mission to create sustainable value and strong returns by leveraging its core strengths in community relations, focused exploration, mine development, and efficient operations further reinforces Hudbay's position as an attractive investment opportunity. With a proven track record of success and a clear vision for the future, Hudbay is well-positioned to capitalize on the growing demand for copper and deliver long-term value to its shareholders.

Western Copper and Gold Corporation (TSX: WRN)

Western Copper presents a unique investment opportunity for those seeking exposure to a world-class copper-gold mining project in a stable, mining-friendly jurisdiction. The Company's flagship asset, the Casino Project, is located in the Yukon Territory, Canada, and is considered one of the most economically attractive greenfield copper-gold mining projects globally.

The Casino Project boasts a large, well-defined mineral resource with significant exploration potential, positioning Western Copper and Gold as a compelling investment for long-term value creation. As the project progresses through the development stages, investors can anticipate potential share price appreciation and the opportunity to participate in the future success of a major Canadian copper-gold mine.

Western Copper and Gold is committed to responsible mining practices and actively engages with First Nations and local communities to ensure the Casino Project is developed in a collaborative and sustainable manner. By investing in Western Copper and Gold, shareholders can align their financial objectives with a company dedicated to using internationally recognized responsible mining technologies and practices, thereby mitigating environmental and social risks.

With a strong management team, a premier copper-gold asset, and a focus on sustainable development, Western Copper and Gold Corporation represents an attractive investment opportunity for those seeking exposure to the growing global demand for copper and gold.

Hot Chili Ltd (ASX/TSXV: HCH, OTCQX: HHLKF)

Hot Chilli presents an attractive investment opportunity for those seeking exposure to the growing global demand for copper. With a looming structural shortfall in copper supply, the Company is well-positioned to create shareholder value by developing its high-quality Costa Fuego copper project in northern Chile.

The Costa Fuego project, rated by S&P Global Market Intelligence (2022) as one of the top 10 "low risk" undeveloped copper projects globally, boasts substantial mineral resources and significant exploration potential. With an Indicated Resource of 2.8 Mt Copper, 2.6 Moz Gold, and 67 Kt of Molybdenum (within 725Mt), and an Inferred Resource of 0.6 Mt Copper, 0.4 Moz Gold, and 13 Kt Molybdenum (within 202 Mt), Hot Chili offers investors substantial leverage to the copper price.

Hot Chili's recent secondary listings on the TSXV and OTCQX exchanges align the Company with its global copper peer group, increasing exposure to a wider investor base. As the market begins to appreciate the impending structural deficit in copper and the price required to incentivize new production, Hot Chili aims to narrow the valuation gap between large Australian copper developers and their North American listed peers.

The Company's mission is to create a new mining hub on the coastal range of Chile called Costa Fuego by developing its three key copper projects—Cortadera, Productora, and El Fuego—all located in close proximity to one another. This unique project portfolio differentiates Hot Chilli from other junior copper mining companies.

The Costa Fuego Project benefits from its ideal infrastructure location. The planned concentrator is less than 55km from a significant port and seawater pipeline intake, for which Hot Chili has already secured permits. The Project is also just 18km from a major power substation, and both Productora and Cortadera have direct access to the dual-lane Pan American Highway and the significant mining town of Vallenar.

A recently released Preliminary Economic Assessment (PEA) confirmed Costa Fuego's credentials as a low-risk, long-life copper project with low start-up capital requirements and a high annual copper equivalent metal production profile of over 100 kt for a 16-year mine life. During primary production (first 14 years), the project is expected to produce 95 kt copper and 49 koz gold at a C1 Cash Cost of US$1.33/lb (estimated net of by-product credits).

With a strong management team, substantial mineral resources, and a focus on responsible development in a mining-friendly jurisdiction, Hot Chili Ltd represents a compelling investment opportunity for those seeking exposure to the critical copper market.

Pan Global Resources (TSX-V: PGZ, OTCQX: PGZFF)

Pan Global is an attractive investment opportunity for those seeking exposure to the potential discovery of significant copper, tin, and other metal deposits in the mining-friendly jurisdiction of southern Spain. The Company focuses primarily on its flagship Escacena Copper Project, located in the world-renowned Iberian Pyrite Belt near Seville, Andalucia.

The Escacena Project covers an area of approximately 5,800 hectares and is situated in a district known for its volcanic-hosted massive sulphide deposits, which have historically been a major source of copper production. This strategic location enhances the project's potential for discovering substantial copper resources.

In addition to Escacena, Pan Global is actively exploring the Águilas Project near Cordoba in northern Andalucia. Covering an area of approximately 16,000 hectares, Águilas provides the Company with additional opportunities for mineral discoveries and resource expansion.

Pan Global's business strategy involves acquiring additional mineral rights in Spain to further its exploration activities and maximize shareholder value. As the Company continues to explore and develop its projects, investors can anticipate potential share price appreciation driven by positive exploration results and the delineation of mineral resources.

With an experienced management team, a focus on mineral-rich regions of Spain, and a commitment to sustainable exploration practices, Pan Global Resources represents an intriguing investment opportunity for those seeking exposure to the growing global demand for copper and other essential metals.