The copper market faces potential supply constraints as the number of new copper projects being sanctioned has significantly declined, according to a recent report by Jefferies.
The report highlights that the annual production capacity from newly sanctioned copper projects has fallen by 40% over the past five years, which has caused production to drop to approximately 900,000 tonnes per annum (ktpa) from nearly 1.5 million tonnes in the previous five-year period (2009-2013).
The slowdown in new project approvals is raising concerns about the future availability of copper.
The findings underscore growing concerns about the copper supply pipeline and the potential for future price increases if demand rebounds while supply growth remains constrained.
Adding to the challenge, recent greenfield copper projects—those developed from scratch—have been notably smaller in scale. Jefferies notes that only a few projects sanctioned between 2017 and 2023 exceed 50 ktpa of copper production, with less than 30% of the aggregate annual production from greenfield projects approved after 2020, despite a favorable copper price environment.
Jefferies analysts attribute the underinvestment in new copper projects to various factors, including technical and geopolitical risks, permitting issues, capital expenditure inflation, labor shortages, and a focus on generating large capital returns.
Jefferies also points out that the incentive price required to justify building large greenfield mines remains significantly above the current spot copper price.
While there are risks to copper demand if the global economy slows, Jefferies anticipates that any downturn would likely be followed by a recovery that could outpace mine supply growth, potentially leading to significantly higher copper prices in the future.
The report also suggests that if the US economy avoids a severe recession and Chinese demand stabilizes, the copper market could be entering a new up-cycle.
News from the field
- Antofagasta PLC (LSE:ANTO) cut its interim dividend a third despite increasing profits and cash flow in the first half of the year thanks to higher copper prices. Revenue from the Chilean copper mining giant rose 2.3% to just under $3 billion and underlying profit (EBITDA) up 4.8% to $1.4 billion. Cash flow from operations swelled 14.5% to $1.5 billion.
- Robust demand for gold and copper has resulted in a record $422 million in annual profit for Evolution Mining Ltd (ASX:EVN), promoting the company to more than double its final dividend and provide an optimistic outlook for the year ahead. Evolution’s underlying and net profits both surpassed expectations, increasing by 10% and 15% respectively.
- Falcon Gold Corp (TSX-V:FG, OTC:FGLDF) said it is nearly ready to commence operations at our 100%-owned Great Burnt copper project in Newfoundland. After high water levels in the spring caused delays in accessing the property, the company applied for additional permits to build 8 kilometers of additional road to access the drill site.
- Recent infill drilling results at McEwen Mining Inc (TSX:MUX, NYSE:MUX)’s Los Azules copper project reinforced the project's resource potential. Highlights include a 217-meter intercept grading 1.11% copper, with a higher-grade section of 1.32% copper over 100 meters. Delivering ‘green copper’ to Argentina and the world “will contribute to the clean energy transition and electrification of transportation and energy industries,” said Kirill Klip, CEO of TNR Gold Corp (TSX-V:TNR, OTC:TRRXF), which holds a 0.4% net smelter returns royalty (NSR) on the project.
- BHP Group Ltd (LSE:BHP, ASX:BHP) and Lundin Mining Corporation (TSX:LUN) recently announced a deal to acquire Filo Mining Corp (OTCQX:FLMMF, TSX-V:FIL), a South American copper miner with the Filo del Sol copper project in Chile. The C$4.5 billion acquisition is not just about expanding BHP and Lundin's asset base but also about positioning themselves strategically within the copper market.