Strategic Trade Relationships: Key to Maximize Copper Reserves for the Energy Transition

• Copper demand is projected to soar 70-100% by 2050, driven by electrification, energy transition technologies, and decarbonization goals.
• The U.S. has abundant copper reserves but long mine development times, necessitating an "all-of-the-above" approach including domestic mining, recycling, and trade partnerships.
• China's copper concentrate supply could tighten in Q4 2024 as smelting capacity expands and imports from Indonesia decline.
• Tariffs proposed by President Trump after his 2024 election win are expected to erode copper demand and weigh on prices near-term.
• BHP expects $250 billion in copper investments will be needed over the next decade to meet demand, likely driving further industry consolidation.

As the world undergoes a transformative shift towards cleaner energy and electrification, one metal is emerging as absolutely critical to enabling this transition: copper. Demand for the versatile, highly conductive metal is projected to soar in the coming decades as copper-intensive technologies like electric vehicles, renewable power generation, energy storage and transmission proliferate. Despite near-term headwinds, the long-term investment case for copper appears compelling.

Skyrocketing Copper Demand on the Horizon

Global mining giant BHP estimates that copper consumption will increase by an additional 1 million metric tons annually until 2035, doubling the growth rate of the past 15 years:

"As the energy transition unfolds, we anticipate the roll-out of EVs to lift the transport sector's share of total copper demand from around 11% in 2021, to over 20% by 2040"^[1]

Looking further out to 2050, BHP forecasts that copper demand could increase by a staggering 70-100% to reach 50 million tons per year. BHP projects copper demand from data centers to surge sixfold by 2050 as global data and power consumption soars.^[1]

America's Untapped Copper Potential

The U.S. is endowed with over 275 million tons of copper reserves and resources - enough to meet the nation's projected demand for generations, according to a report by S&P Global. However, developing these reserves domestically faces challenges. New U.S. mining projects currently take an average of 29 years to begin production.

"With approximately 275 million metric tons of copper reserves and resources in U.S. soil, America is well positioned to be self-reliant in meeting copper demand for generations to come," said Adam Estelle, CEO of the Copper Development Association. "However, we must be strategic to ensure our copper endowment can be accessed and supplemented. This requires an all-of-the-above approach that combines increased domestic mining and refining, increased recycling, and continued trade with reliable partners."^[2]

Currently, 44% of U.S. refined copper demand is met through imports, mostly from free trade partners Chile, Canada, Peru and Mexico. However, with production from these countries forecast to increase only 6% by 2035, the U.S. will need to tap more of its own copper resources to enhance supply security. Streamlining mine permitting and encouraging investment could help bring more U.S. copper online.

China's Evolving Copper Dynamics

As the world's largest copper consumer and importer, China's supply and demand trends reverberate globally. In the near-term, China's copper concentrate supply could tighten in Q4 2024 as smelting capacity expands and imports from Indonesia decline due to new smelters ramping up there.

Jinchuan Nonferrous' two new smelters in Gansu and Guangxi added 600,000 tons per year of capacity in September, while Yunnan Copper commissioned a 550,000 ton per year plant. Meanwhile, Indonesia is expected to export less concentrate in Q4 as Freeport-McMoRan and Amman Mineral Nusa Tenggara ramp up new smelters with 700,000 tons of combined capacity.^[4]

Longer-term, while China's copper demand growth may slow from its previous rapid pace, its consumption is still expected to rise as the country continues to develop. India is also poised to see copper demand increase fivefold in the coming decades as electrification expands.

Recycling and Strategic Trade as Key

In addition to mining, other pieces of the "all-of-the-above" copper strategy for the U.S. include recycling and maintaining strategic trade relationships. Currently, over 32% of U.S. copper supply comes from recycled sources. While there is room for this to increase, the durability of copper products means supply available for recycling is limited in the near-term.

Imports will also continue to play an important role. "Nearly all U.S. refined copper imports come from four countries with Free Trade Agreements: Chile, Canada, Peru, and Mexico," the S&P report notes. "These partnerships are crucial, but these countries' production is forecast to increase only 6% by 2035, and China is a much larger customer."^[2][3]

Geopolitical tensions, trade disruptions, and global competition for critical minerals all pose risks to the U.S. copper import picture that must be managed going forward.

Near-Term Policy Risks

In the near-term, recently re-elected U.S. president Donald Trump's plans for new tariffs could dent copper demand and prices. Trump has proposed tariffs ranging from 10% to 60% on imports from China and other countries. Analysts expect these to slow global growth and erode metal demand if implemented.

"The risk of China tariffs and attempts to kill the [Inflation Reduction Act are] likely to weigh on prices, especially copper," said Ole Hansen, head of commodity strategy at Saxo Bank.^[5]

The copper price slumped over 4% immediately following Trump's election win. However, some believe the impact could be short-lived.

"We expect copper prices to rebound after the sharp move on Nov. 6, given that any new tariffs may take many months to come," Hansen added.^[5]

Huge Investments Needed to Fill Supply Gap

As copper demand takes off in the coming years, massive investments will be required to scale up supply to meet it. BHP estimates $250 billion will need to be invested in the copper industry over the next decade to help fill the supply deficit.^[1]

On the supply side, declining ore grades and rising costs pose challenges. BHP estimates the average copper mine grade has decreased 40% since 1991 and expects one-third to one-half of global supply to face grade and aging challenges in the next decade.

The huge capital requirements are expected to drive further consolidation in the copper mining sector as companies strive for scale.

"New deposits in certain key or critical minerals are becoming harder to find, more expensive to develop and requiring more by way of capability to manage risk and technical capability," said BHP CEO Mike Henry in an interview. "That suggests an aggregation to scale over time and companies who are of scale, who have strong balance sheets like BHP and who have deep technical capability. Those will be the companies that will win in the decades ahead."

Pan Global Resources

Pan Global's Escacena Project in the prolific Iberian Pyrite Belt of Spain aligns well with the bullish long-term copper outlook presented in the article. The company's expanding La Romana discovery, with its near-surface, high-grade copper mineralization and promising metallurgy, makes it an attractive potential future source of copper concentrate as demand soars. Pan Global's extensive land package and multiple untested exploration targets provide further upside in a region known for large-scale copper deposits. The project's location in a mining-friendly jurisdiction with access to modern infrastructure enhances its appeal.

Marimaca Copper

Marimaca Copper's acquisition of the Pampa Medina project in Chile strengthens the company's copper growth pipeline in a country that is a global leader in copper production. Pampa Medina's historical oxide copper resource and proximity to Marimaca's flagship MOD development could allow for synergies and mine life extension. This aligns with the article's emphasis on the need for expanded copper supply to meet projected demand growth.

Marimaca's strategy to increase its leachable copper resource base to support larger production scale mirrors the industry trend toward growing output to capitalize on rising copper consumption driven by electrification and clean energy. Chile's status as a major copper jurisdiction with an established mining sector makes it an attractive location for copper-focused investors.

American Eagle Gold

American Eagle Gold's (TSXV:AE) NAK copper-gold porphyry project in British Columbia aligns well with the copper article's emphasis on the growing importance of new, large-scale copper discoveries in stable jurisdictions. The project's multi-billion ton potential, significant investments from major mining companies South32 and Tech, and aggressive drilling plans to expand the resource. The company's impressive 30X return in two years and potential for further gains on drilling success mirrors the article's bullish outlook for copper explorers and developers positioned to fill the impending supply gap.

With ample funding, a tightly held share structure, and leverage to rising copper prices, American Eagle offers speculative exposure to an emerging copper-gold discovery in a mining-friendly region.

Chakana Copper's decision to relinquish part of its Peruvian copper project highlights the challenges facing some copper explorers and developers in the current market environment, despite the positive long-term demand outlook described in the article. Chakana's move to prioritize its most promising targets and manage costs reflects the reality that not all copper projects may advance, even in a bullish macro scenario. However, the remaining areas of Chakana's project, especially the southern targets, still offer exposure to potential copper discoveries in Peru, a world-class copper jurisdiction.

GT Resources focuses on exploring for large-scale magmatic nickel-copper-PGE deposits in Canada's Yukon and Ontario aligns well with the rising demand for critical metals driven by the global energy transition highlighted in the copper-focused article. While GT's primary targets are nickel and PGE-rich, the presence of significant copper in these systems provides additional exposure and optionality for the company.

As the world electrifies and decarbonizes, demand for copper, nickel and more critical metals are forecasted to surge in lockstep for applications like electric vehicles and renewable energy. By exploring for multi-metal deposits that can supply both markets, Pan Global, Marimaca Copper, Chakana Copper and GT Resources create value as the hunt for future critical mineral supplies accelerates.

The Investment Thesis for Copper

• Explosive demand growth of 70-100% projected through 2050 driven by global electrification and energy transition
• Essential for technologies like EVs, renewables, energy storage and transmission that are key to decarbonization
• Massive supply investments of $250 billion needed over next decade to meet demand
• Long-term supply challenges from declining ore grades and rising costs
• Huge Chinese and Indian copper demand growth still ahead as living standards rise
• U.S. has large untapped copper reserves that can provide supply security with the right policies
• Further consolidation likely in copper mining sector as scale becomes increasingly important
• Current price weakness on temporary trade concerns creates potential opportunity for long-term investors

Investor Takeaways

The long-term investment case for copper appears robust despite near-term volatility stemming from trade tensions. With demand projected to nearly double by 2050 and huge investments required to scale up supply, the outlook for copper prices and producers with quality assets seems bright.

Policy support for domestic mining, recycling and processing can help the U.S. make the most of its vast copper resources and reduce import dependence. Maintaining strategic trade relationships will also be key.

In the near-term, nimble investors may find opportunities to build positions on copper price pullbacks stemming from trade uncertainty. However, a long-term perspective is warranted. The energy transition is a multigenerational undertaking and copper's crucial role in it is only set to grow in the years and decades ahead.

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_References:

1. _{Farell, S., Whitton, L. (September 2024). BHP Insights. How Copper Will Shape Our Future}
2. _{Copper Development Association Press Release (September 2024). New Report Highlights Need for "All-of-the-Above" Strategy to Meet U.S. Copper Demand Amidst Clean Energy Transition}
3. _{Bonakdarpour, M., Hoffman, F., Rajan, K. (August 2024). S&P Global. Copper in the US: Opportunities and challenges (Copper mining, recycling and trade in the US)}
4. _{Han, Lu. (October 2024). S&P Global. TRADE REVIEW: China Q4 copper concs supply could tighten as smelting capacity expands}
5. _{Keen, Kip. (November 2024). S&P Global. US Elections: Trump win, tariff plans weigh on copper prices}