The world will need an estimated 5mt of additional mined copper by 2025
Copper demand has grown 3.2% each year since the end of WWII. However, we estimate that this growth rate will drop over the next 15 years to be below trend at 3%. This takes into account our GDP expectations, ongoing industrialisation of the emerging market economies and further substitution.
Despite the strong growth in copper demand in China over the past decade (2000-2010, near 15% CAGR), global copper demand was a more muted 2.4% The high price environment of 2005-2008 led to demand destruction of around 2.2mtpa, with widespread substitution.
Taking into account increased secondary supply (+3% pa), mine depletion from falling grades (see Figure 29) and supply additions already underway, we estimate the world will need an additional 5Mtpa of mined copper by 2025, or around 500kt each year. This is more than a Collahuasi-sized mine each year (445kt in 2014) or two Andina-sized mines (232kt in 2014).
Time to first production is now at least 12 years
As shown here, for a typical Greenfield copper mine, the time to first production is at least 12 years. For diamond mines, the time frame has extended to an average of 22 years. For gold mines, the average time frame for the mines currently producing in Cote d’Ivoire was 15 years to get to first production (see Figure 32).
Most major known deposits are currently exploited across Chile, Australia, North American, Russia and China. As shown earlier (in Figure 1 on page 4), Africa has a wealth of mineral resources, hosting 95% of the world’s known platinum, 65% of its manganese, 50% of its diamonds and cobalt, 40% of its gold, 30% of the world’s bauxite, and approximately 10% of the world’s known copper sits in the Central African Copperbelt. Yet today, Africa supplies only 11% and 12% of the world’s copper and gold respectively, plus just 9% of its thermal coal.
Here is a link to the full report.
This report carries a very interesting graphic illustrating the number of conflicts that occurred in the 1990s compared with the last decade. Relative peace has broken out across the continent despite some high profile trouble spots grabbing attention. The question then is to what extent higher commodity prices contributed to this easing of tensions?
In an environment characterised by a dearth of capital, the potential for armed conflict increases as access to basic resources such as food, energy and shelter is inhibited. The commodity bull market meant revenues increased and reduced the incentive for conflict. The question now is how many of the gains achieved in the last decade can be held onto and improved upon. Standards of governance are integral to this question because without improvement the potential for a number of major African countries to miss out on development over the next decade increases.
The development of African economies is a major consideration for the mining sector because the region could become a source of demand for raw materials as well as a producer. This would additionally feed through into the expansion of manufacturing, infrastructure and services sectors on the continent.
As the above passages highlight copper prices have held onto more of their last bull market gains because the market is generally tighter than for other metals. A process of mean reversion is currently underway but a sustained move above 200-day MA will be required to break the medium-term downtrend.