Is Your Investment Portfolio Plugged in to This Critical Metal?

• Copper demand is projected to increase by 20-30% to support the energy transition and electrification
• New mines and processing capacity are needed, but face geopolitical, permitting, and environmental challenges
• Innovations in leaching, recycling, and mineral processing could help boost production from existing assets
• Copper price appreciation seems likely long-term given supply constraints and growing demand
• Government policies and industry partnerships are needed to drive investment in the copper supply chain

Why Investors Should Consider Copper for the Long-Term

As the world progresses through an energy transition focused on electrification and renewable power, demand for copper is set to surge. The red metal is a critical component in EVs, charging infrastructure, wind and solar energy systems, and power grids. However, meeting this growing demand will be challenging due to a lack of new mine development, geopolitical risks, and ESG considerations. For investors with a long-term horizon, the fundamentals for copper appear highly favorable as increasing demand collides with constrained supply.

Demand Boom on the Horizon

Most projections indicate that copper demand could increase 20-30% by 2030 and continue growing to support decarbonization goals. "Usually the projections are we're going to need 20 to 30% more copper production worldwide than what we would normally increase," explained Michael Moats, a professor of metallurgical engineering at Missouri University of Science and Technology. "20 30% would be about five to six million tons of refined copper each year."

This step-change in demand will be driven by the push to electrify transportation and adopt renewable energy.

Each EV contains 3-4x more copper than an internal combustion engine vehicle. Charging stations and associated infrastructure also require substantial amounts of copper. In the power sector, solar and wind facilities are 5-10x more copper-intensive than conventional power generation. Transmission lines to connect renewable power will further boost copper needs.

Mining and Processing Bottlenecks

Identifying adequate copper resources to satisfy demand is only part of the challenge. Developing new mines has become increasingly difficult due to declining ore grades, permitting challenges, and geopolitical risks.

In mature-producing regions like Chile, average copper grades have fallen below 1%, meaning more ore needs to be processed to produce the same amount of metal. Chile's state copper commission Cochilco recently forecast production growth of only 1.7% annually over the next decade, a sluggish pace compared to projected demand growth.

Much of the world's undeveloped copper resources are located in riskier jurisdictions like the Democratic Republic of Congo (DRC). "That is a geopolitical issue if you were a Western investor because you had got into conflicts and child labor and working with the government and graft and so forth," noted Moats. "The question is how does the Western world play in the DRC if that's the new frontier of copper mining.

Even in the U.S., which has substantial untapped copper potential, gaining approval for a new mine is a lengthy and uncertain process. "In the United States we have permitting issues like it takes 20-30 years to permit a new mine," said Moats. "The land is often on tribal religious lands or it's at the head of a beautiful salmon stream or river watershed.

ESG concerns add to the challenges. Moats explained, "We're very happy to export mining to areas that have lower standards. And then we get upset when they don't adhere to our standards." Navigating community concerns will be critical for miners hoping to develop new copper supply.

A related issue is the limited smelting and refining capacity in the U.S. and other Western countries. "Opening new mines is not going to solve the problem if we just take the mineral concentrate and ship it to the smelters that predominantly reside in China," stated Moats. China now accounts for over 50% of global copper smelting capacity.

Innovations Needed

To meet demand, the copper industry will need to find innovative ways to maximize production from existing assets while working to bring new capacity online.

On the mining side, technologies for leaching low-grade ores could unlock significant production. "We see companies like Jetti Resources that have developed a technology to use a leaching aid to go back through the big piles of rock and maybe extract more copper from material leftover from previous mining," said Moats. Adapting mineral processing for lower grades through increasing throughput is also key.

Expanding the use of recycled copper and waste streams like electronic scrap will be important. Moats highlighted research in the EU on "How to put more scrap into the copper stream and still make high-purity copper without inferring too much cost." More secondary copper smelting capacity is also needed, with projects like Aurubis' new smelter in Georgia helping fill the gap.

Policy and Partnerships

Scaling copper production to the levels needed will require greater coordination between government and industry. Policies that provide incentives for copper projects, accelerate permitting, and encourage recycling would send a positive signal to the market.

Public-private partnerships to fund key projects and share risk could help spur development. Moats pointed to the example of Nyrstar, which is seeking $150M to produce critical minerals like gallium and germanium from its existing zinc refinery in Tennessee. "Why would we not just give them the $150 million?" asked Moats. "Where are the banks or federal government lined up for something with such a big impact?

Downstream copper consumers like automakers and power companies may also need to take a more active role in supporting upstream production, similar to recent investments by Tesla and other EV makers in lithium projects. The model of relying on annual contracts may prove inadequate for securing long-term supply.

Reasons for Optimism

While the copper industry faces obstacles, there are encouraging signs that a structural deficit may be averted. Governments and major industrial players are waking up to the challenges. "Ten years ago we would not be talking about mineral and metal production," observed Moats. "The world just didn't care."

The Biden administration has highlighted critical minerals supply chains as important to economic and national security. New funds from legislation like the Inflation Reduction Act could support copper projects if directed properly. Discussions around "friend-shoring" supply chains could also lead to more U.S. investment in key copper-producing allies like Chile, Peru, and Australia.

Higher sustained copper prices would also incentivize production growth. Moats believes that "if the price of copper goes high enough, we will do things like substitution or new production. People inherently are smart and they're going to go where they need to go to make money.

For investors, the copper market appears poised for a period of structural undersupply, creating opportunities for well-positioned miners and countries that can successfully develop new production. Identifying companies with quality assets, innovative approaches, and strong ESG practices will be key to capturing value. While near-term volatility is likely, the long-term demand outlook for copper is robust as the world charges towards an electric future.

The Investment Thesis for Copper

• Demand for copper to grow 20-30% by 2030 driven by electrification and renewable energy
• New mine supply constrained by lower ore grades, geopolitical risks, and permitting challenges
• Investment needed in leaching, recycling, and mineral processing to optimize production
• Government policies and industry partnerships required to incentivize copper supply development
• Long-term investors can look for high-quality copper miners with strong assets and ESG profiles

The energy transition is set to drive a 20-30% increase in copper demand by 2030, but supply will struggle to keep pace due to multiple challenges. Innovations in mining and processing, coupled with smart government policies and industry partnerships, will be essential to bridge the gap. For investors, the long-term fundamentals for copper look attractive, although near-term volatility is likely. A focus on miners with quality assets and strong ESG practices is warranted.