Copper Marching to the Beat of its Own Drum
Red metal decoupling from global economic growth
The copper price remains at close to record highs, despite some concerns about global growth.
The copper price reached US$6.63 per pound last week and remains at around US$6.35/lb.
“I think what’s really driving it is growing recognition that copper is really a critical material for a number of very important industries that are related to national security and energy security,” Sprott Asset Management CEO John Ciampaglia told the Bloor Street Capital Virtual Copper Conference.
“And those are everything from AI data centres, which are very copper intensive, to energy infrastructure systems, electric vehicles, other technologies.
“If you think about anything that has to move an electron through cable or wire, it involves copper, so it’s very important.”
Over the past 100 years, copper demand has roughly doubled every 25 years, a pattern which Ciampaglia believes remains on track.
He pointed out that it wasn’t just data centre demand driving copper but traditional electronics like whitegoods.
“People get very excited about electric vehicles, the copper intensity of those AI data centres, but it’s a lot of just very basic things that we take for granted every day, where hundreds of millions of people in the world want to enjoy the privileges of having a washer, dryer, or air conditioner,” he said.
“Those are all very copper intensive.”
The copper price has proved to be resilient in the face of concerns about a global recession.
“People call it Dr Copper, and they use that expression to describe copper as a barometer for the health of the global economy, so if the global economy wasn’t feeling well, for whatever reason, recessions, the price of copper would fall,” Ciampaglia said.
“What you’re starting to see is copper kind of beating to its own drum and decoupling from softer economic growth around the world, and that’s because copper is becoming less important as a traditional industrial metal and more important for these kind of new technologies and new sectors of the economy, so that old relationship I think is starting to fade away.”
Supply remains difficult
Global copper supply has continued to experience disruptions due to the mudslide at Grasberg in Indonesia and seismic activity at Kamoa-Kakula in the Democratic Republic of Congo.
Ciampaglia said a lot of the easy copper had already been mined and newer supply would likely come from more geopolitically or socially challenging places.
“The copper in the ground is just going to take more work and become more expensive to actually extract it, and I think that’s one of the key signals why copper has been very resilient and also has kind of really decoupled from other more historically industrial metals,” he said.
Lead times for large copper mines have blown out to 15-20 years.
“But also, the capital expenditure to build these projects. It’s not a US$1-2 billion endeavour. Some of these projects are US$15-20 billion to build, and you can imagine, as stewards of shareholder capital, management teams at these copper companies are being very disciplined and careful not to bring on capacity, unless they believe demand is going to be there,” Ciampaglia said.
“Obviously the pricing is going to be durable in order to justify these big investments, and that math is starting to happen.
“People talk about copper being at an all-time high – that’s great – but think about it in inflation-adjusted terms.
“Obviously, the copper price is higher than the last cycle, but in inflation-adjusted terms, we’re still at much lower levels, so we think there’s more room to incentivise the new production that we ultimately will need to bring on in order to rebalance the market.”
New player
The newest global copper developer is Ross Beaty’s Lumina Metals Corp (TSX: LMCU), which listed in Toronto last month after a C$421.2 million initial public offering.
The company was formed 15 years ago and has been privately funded, discovering three copper-silver projects in Poland.
“When we came in in 2011, we realised that the country had lots of potential for copper,” Beaty told the conference.
“It was expensive work. We spent about C$150 million discovering the three deposits that we have right now, and we’ve outlined what is actually probably the world’s largest undeveloped silver and copper deposit called Nowa Sól, as well as two other deposits, which have been less explored, so it’s got world-class deposits.”
Nowa Sól has measured and indicated resources of 604 million tonnes at 1.24% copper and 38 grams per tonne silver, as well as an additional 112Mt of inferred resources.
The project contains 8.7Mt of copper and 847 million ounces of silver.
A preliminary economic assessment returned a post-tax net present value (7% discount rate) of US$1.6 billion and an internal rate of return of 10.8%.
Lumina formally kicked off a prefeasibility study last month, led by Fluor Corporation, with a targeted completion date of the second half of next year.
At the start of May, Lumina entered into a letter of intent with Polish state-owned miner KGHM Polska Miedź to establish a framework for discussions regarding possible strategic directions of cooperation and potential supply of copper concentrate from the Nowa Sól project to KGHM’s copper smelters.
Beaty holds 36% of the company, which has a market capitalisation of C$1.1 billion.
“Lumina Metals is going to be my last company, so I hope we go out with a bang,” he said.