Global copper mine production will experience steady growth over the next few years, supported by markets with low operating costs and improving copper prices says BMI Research.
BMI Research is a unit of the Fitch Group.
We forecast global copper production to increase by an average annual rate of 3.6% over 2018 – 2027 as a number of major projects come online.
In terms of volume, we expect global output to climb from 20.4 Mt in 2018 to 28 Mt by 2027.
Following a modest contraction in 2017 due to operational disruptions, elevated prices will incentivise project development, particularly in key countries such as Australia and Peru.
Chile’s production will return to growth in 2018, following a 4% contraction in 2017 due to strikes and operational disruptions.
We forecast the country’s output to increase from 5.4 Mt in 2018 to 6.6 Mt by 2027, averaging 2.3% annual growth.
In Q417, state-owned miner Codelco registered the highest production since 2012, totalling 520 kt.
In January, the firm received environmental approval for the expansion project at El Teniente and submitted an environmental impact assessment for a US$250 million expansion at Andina mine.
In addition, BHP Billiton’s approval of a $2.5 billion expansion at the Spence mine, including a conventional large-scale sulphide concentrator and a new 1 000 litre per second desalination plant, will extend the lifespan of the mine and increase production capacity.
Despite the return to growth strategies, labour will remain a point of cost savings for miners, especially as rising prices increase tension between unions looking for higher wages and cost-conscious companies.
Over 2017, Chile’s mining sector layoffs averaged 23 250 people per month, in line with the same period of the previous year, despite the significant recovery in prices .
China’s production growth will lag compared to previous years over our forecast period to 2027, as low copper ore grades render a number of mines unprofitable and smelters turn to ore imports.
We forecast China’s production to increase from 1.8 Mt in 2018 to 2.2 Mt by 2027, registering an average annual growth rate of 2.1%.
This represents a significant slowdown from the average growth rate of 6.9% over the previous 10-year period.
Chinese firms will continue to prioritise overseas copper investments in low-cost markets to secure ore supply.
For instance, in January, Hong Kong -based Sinomine Fuhai purchased several copper assets in the DRC from beleaguered Australian miner Tiger Resources for $250 million.
In December 2017, Moly Mines, a subsidiary of Hanlong Mining, purchased the White Range copper project in Australia from Queensland Mining Corp for AU$45 million and subsequently acquired the company.
Peru’s copper sector will see steady production growth over the coming years, supported by a strong project pipeline, competitive operating costs and rising copper prices.
We forecast the country’s copper output to increase from 2.5 Mt in 2018 to 3.7 Mt by 2027, averaging 4.4% annual growth.
In 2017, MMG Ltd’s Las Bambas mine produced 454 kt of copper in its first full year of production, however the firm expects production in 2018 to be between 410 – 430 kt due to lower ore grades as the mine is developed.
Nonetheless, the mine will remain cost-competitive, expected to average cash costs of US$1-1.1/lb in 2018.
Rising copper prices will prompt firms to continue developing projects in Peru. For instance, in February, Southern Copper won the public bid for the Michiquillay copper project with a proposal of US$400 million.
The firm plans to spend US$2.5 billion developing the project and expects production to begin in 2025.
Southern Copper is also progressing the Toquepala expansion, which is on track to begin operating in July 2018, and the US$1.4 billion Tia Maria copper project.
US copper production will return to modest growth in 2018 as rising prices encourage project development, following a steep decline in 2017 on the back of declining ore grades.
We forecast US copper production to climb higher over the coming decade, from 1.3 Mt in 2018 to 1.6 Mt by 2027, on the back of rising copper prices and a solid project pipeline.
In 2017, Freeport McMoRan reported a 17.1% y-o-y decline in copper output to 689 kt at North American operations due to lower ore grades and stalled operations.
The firm will US$850 million to develop the Lone Star project, near its Safford mine, with annual production of approximately 90.7 kt expected by 2020.
Copper projects will progress, as rising prices and deregulation at the federal level prompts development. For instance, in January 2018, Hudbay Minerals provided an update on the Rosemont project, noting the firm is positioned to begin construction pending a final permitting step in 2018.
In September 2017, Taseko Mines announced the Environmental Appeals Board of the Environmental Protection Agency upheld the firm’s permit for the Florence copper project and the firm will begin construction.
The Democratic Republic of Congo (DRC)
The DRC’s production will maintain solid growth over the coming years, supported by continued investment, high-grade reserves and improving copper prices.
Following the 10.8% decline in output in 2016 due to Glencore’s suspension of the Katanga mine, we forecast the DRC’s production to increase from 1 Mt in 2018 to 1.9 Mt by 2027.
In February 2017, Glencore announced a US$960 million deal to increase its shares in two of the mining-cum-trading company’s copper and cobalt operations in the DRC.
After the deal, Glencore will have 100% interest in Mutanda and 8 6% of Katanga.
While the DRC’s sector outlook remains positive, revisions to the country’s mining charter passed in January pose downside risks.
Namely, the changes increase the royalty rates on copper and cobalt from 2% to 3.5% or possibly 5% if they are deemed a ‘strategic’ metal.
We do not expect this change to have a major impact on investment as the proposed increase in royalties would only bring the country in line with rates found in other jurisdictions in the region, however the decision could weigh on foreign mining investment.