Panama Mine Shutdown Casts Shadow over Copper Market Balance

• Mine in Panama owned by First Quantum Minerals was shut down by the government, taking 350,000 tons of copper off-line.
• Demand for copper is expected to remain strong in the short-to-medium term due to global development and electrification.
• New exploration results released by several copper companies, with promising but very early-stage discoveries.
• Caution is urged regarding the use of "copper equivalent" metrics in assessing exploration results.
• Supply constraints and rising demand could support higher copper prices.

The Closure of a Major Copper Mine

The recent closure of Cobre Panamá, a copper mine owned by First Quantum Minerals and representing 6% of Panama’s GDP, has sent shockwaves through the copper industry. It's going to push companies back into less risky jurisdictions" and remove 350,000 tons of copper from the market “for the foreseeable future." With the case likely headed into a lengthy international arbitration, the mine could be offline for an extremely long time.

While the government cited environmental concerns, these objections lack factual basis. Coverage has been biased, failing to convey that on every single level, it's a tragedy that this mine has closed down. The closure will directly impact 7,000 employees and have ripple effects across Panama's economy. It's devastating for the employees and the economy of Panama. It's also terrible for the environment and water.

Rising Demand for Copper

While the loss of a major copper asset is undoubtedly impactful, developments on the demand side seem poised to offset the supply reduction. The interviewee discusses a new report from investors Goehring & Rozencwajg making the case that despite recurring predictions of peaks, global demand for copper and other commodities continues to rise thanks to socioeconomic advancement in the developing world.

Urbanization and rising living standards across Africa, Asia, and South America look set to drive copper usage higher, especially for electrification, appliances, autos, and consumer products. With the global population expanding, there will be tailwinds for commodity demand even as China slows marginally. And that is the time when there is very strong energy demand and there's very strong raw and basic material demand.

Caution on Hyped Technologies

On a more skeptical note, several vaunted copper exploration and processing innovations. Ivanhoe Mines has touted new technologies to find deposits through geophysics and mineral processing advances to tap formerly unworkable copper ores.

However, we caution that electrical pulse disaggregation for deposit identification requires major energy inputs, while hyped hydrometallurgical techniques have mostly not panned out beyond the lab scale. Adjust investment strategies accordingly or recognise the risk profile when making your investment decisions.

For example, Lifezone Metals are doing pressure oxidation and roasting hydrochloric acid and sulfuric acid, but they haven't gone through to industrial scale.

Company News

First Quantum Minerals

• Canadian mining and metals company that owned the now-closed Minera Panama copper mine, representing 350,000 tons of annual copper supply in Panama (6% of the country’s GDP). Mine was shut down by the Panama government over environmental concerns; the company will enter lengthy legal arbitration but mine likely offline for an extended period. Significant implications for global copper supply and First Quantum's business. Scores a 6/10 on our ratings.

Filo Mining

• Exploration company focused on the Filo del Sol project in Argentina's Andes mountains. Recently drilled over 1km of copper/gold mineralization, extending known deposit. Grades look promising but concerns over the use of the “copper equivalent” metric in exploring the sulfide portion of orebody where more metallurgical work is needed. High potential but geological complexity and early stage mean significant risk is still prevalent. Scores a 7/10 on our ratings.

C3 Metals

• Junior explorer focused on highly prospective copper/gold targets in Jamaica. Has about 30km potential mineralized strike length and is still at an early stage. Recent drill holes returned highlighted intervals of 281m at 3% copper and 21 g/t gold. Results indicate they could be onto a significant discovery but very early and country risk could be an issue. Scores a /10 on our ratings.

Ivanhoe Mines

• Leading mine developer behind the world-class Kamoa-Kakula copper mining complex in DRC. Recently made a new "Koko" discovery hole with 11.6% copper over 5m. Proven exploration team with tier-one assets already in the development pipeline. Political risk in DRC is a substantial concern but the company is well-positioned to be a major copper supplier. Scores an 8/10 on our ratings.

Copper Road Resources

• Junior exploration company with early-stage copper projects in Australia. Recently completed a small 1,250m drill program at its JR zone, intersecting copper mineralization but fairly low grades. Relies heavily on copper equivalents in news releases which can obscure actual copper values. With a tiny $3 million market cap and limited exploration activity, unlikely to be a significant player though could potentially have discoveries.

Northisle Copper & Gold

• Developing copper-gold project on Vancouver Island in Canada. Reported strong recent drill results but on review grades driven more by the gold component than the copper. The market may be getting tired of explorers reporting low % copper intercepts focused more on byproduct metals. Questions about whether a primarily gold development is optimal for the asset. Scores a 6/10 on our ratings, but has the ability to do more.

Avrupa Minerals

• Tiny exploration company with little market interest based on share trading and $2 million market cap. Put out a very tedious, technical news release reporting a narrow copper intersection. Has failed to attract investor interest and is unlikely to do so without major discovery given poor communications and a general lack of excitement. Scores a 3/10 on our ratings.

Key Takeaways for Investors

With a major copper asset offline indefinitely and persistent upward pressures on demand, copper markets appear headed into deficit. New mine supply will struggle to offset demand growth as developing countries industrialize. While hype abounds regarding exploration and processing, most technologies have proven challenging to scale commercially.

With buffers eroding, supply constraints seem supportive of stronger copper pricing. Investors should focus on companies with quality, scalable assets rather than early-stage explorers or those utilizing exotic processing methods. Firms exposed to rising copper prices through leverage to in-ground reserves may offer particular upside.

The Investment Thesis for Copper

• Global copper demand expanding due to electric vehicle usage, renewable energy systems, appliances and consumer technology. Supply growth challenged.
• Closure of 350,000 ton per annum Panama mine tightens market, removes 6% of country’s GDP.
• Caution is warranted on explorers utilizing copper equivalents or exotic, unproven mineral processing technologies.
• Quality developers and producers with leverage to higher prices are best positioned.
• Long-term secular tailwinds from electrification and developing world urbanization underpin the multi-year bull thesis.

With persistent supply constraints and rising global usage, copper markets appear headed for growing deficits absent a global growth implosion. While mineral processing innovations may eventually boost mine output if scalable, copper prices likely need to rise further in the medium term to ration demand and incentivize adequate investment in new capacity. Companies already controlling quality copper assets with upside exposure to higher prices are best positioned in this environment.