The copper mining landscape

The copper mining landscape

The outlook for copper is strong over the long-term. Copper is an enabling commodity that supports renewable energy generation, is essential for the transmission of energy from sources of supply to locations of demand, and is experiencing an increase in the intensity-of-use in plant and equipment where energy is consumed and released.

The electrification of the whole energy supply chain will underpin both the diversification of where copper is used and the intensity of its use. The copper mining industry will need to consider how it responds to this rapidly changing landscape and what measures need to be adopted to ensure sustainability and growth. The industry is aware of the need for integrity in the whole of value chain emissions commitment from the copper mine to an end use such as the electric vehicle.

The role of copper in modern society

Copper is one of the world’s most versatile and useful metals, playing a prominent role for modernisation. It enjoys both uniqueness and versatility in its end use, based on its inherent physical and chemical properties. Best known for its conductive efficiency, copper is tough, malleable, ductile, corrosion-resistant, and recyclable.1 In 2020 global annual copper mine production was 20,761kt, and as the world continues to modernise, copper consumption is projected to grow 5% to 23,238kt in 2022 from 2018 levels and 3% to 24,771kt in 2026 from 2018 levels. (Note that “kt” is thousands of tonnes or kilo-tonnes and “Mt”is millions of tonnes.) Use indicators suggest that the global demand for copper is expected to outpace supply in the foreseeable future.

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The highly conductive properties of copper make it favourable for power generation, electricity transmission, and heat exchange. Both flexible and recyclable, copper is widely used in a variety of end use products including electronic devices, electrical wiring, plumbing, building construction, infrastructure, manufacturing, transport, consumer and health products.

Copper is a metal at the forefront of green innovation, used by industries seeking to reduce their environmental impact. Hybrid and electric vehicles rely on increasing copper usage in the manufacturing and production process, as do renewable energy sources such as solar photovoltaics, wind farms, solar thermal, hydroelectricity and associated grid infrastructure. Constructing renewable energy systems demands significantly more copper than traditional systems.3

As the world transitions to low-carbon technologies, it is recognised that this transition will require increasing volumes of minerals, including copper to meet the growing demand under a ‘2-degree scenario’ (2DS)4 as shown in Figure 2. For example, the copper intensity required to produce a wind turbine can range from 2.54 - 6.75 tonnes per MW of installed capacity.5 It is predicted by the World Bank (2019) that while 550Mt of copper has been produced over the past 5,000 years, that same amount will be required in the next 25 years to meet global demand for the metal.

Figure 2 - 2050 Copper demand as a percentage by energytechnology type under a 2DS model 5

Copper also plays an essential role to modern life as an integral component in household goods, construction and infrastructure, smartphones, and electronics, as shown in Figure 3.6 Copper upholds a unique position as an input to modernisation but also plays an important role in the transition of society to a zero-carbon future.

Figure 3 - 2019 Copper uses by end use sector 7

As the move towards EVs accelerates through 2050, the global EV market is expected to reach 700 million units. Residential vehicles are estimated to account to 92% of all EVs, with commercial units such as electric buses and light trucks anticipated to account for 8% of EVs.8

When considering the amount of copper used in each EV category (Figure 4), the total copper required to meet a battery powered EV market to 2050 is estimated to be 73.5Mt, which is equivalent to approximately 3 to 4 years of total annual copper production at current rates.

Figure 4 - Amount of copper used in vehicles (kg’s per vehicle) 9

While the electric vehicle market for residential vehicles represents 92% of the units produced, 27% of copper will be required to meet the demands of commercial buses and light trucks, shown in Figure 5. These numbers do not take into account heavy industry vehicles such as mining equipment, nor do they consider the copper demand required to install the infrastructure required to enable charging of vehicles.

Figure 5 - Residential and commercial EV units as compared to copper volume required in each category

Around half of the world’s refined copper is used in China, with remaining key markets in the US, Europe, Japan and South Korea. Major copper consumer markets are outlined in Figure 6.10

Figure 6 - Key Copper Consumer Markets (kt) 11

Historically and over the long term, copper use has had a strong positive correlation to global real gross domestic product. The influence of short-term factors such as matters of international trade and industrial activity dynamics will continue to cause fluctuations in copper demand. However, looking forward, the importance of copper and its broad role modern society indicate ongoing demand growth well beyond the short-term.12

The current and future copper mining landscape – demand

The world used more than 24.5Mt of copper in 2019. This is a compounded annual growth rate of 3.4% per year over the past 100 years. As the world’s leading economies continue to urbanise and industrialise, copper use is expected to increase to approximately 26Mt in 2021 using historical growth rates.

There is an increasing number of foundational demand side drivers that support these projections, including:

• Asia’s urbanisation, e.g., China’s city population grew from 19.4% in 1980 to 59.2% in 2018.13

• Renewed decarbonisation agenda: In 2021, the USA pledged a 50% reduction in carbon emissions by 2030 on 2005 baseline and a net zero carbon economy by 2050. 14 China seeks to achieve carbon neutrality by 2060, the European Union by 2050.

• Growth of mobile laptop computers and smart phone units per capita since the iPhone release in 2007.

• Low-cost electrical goods and appliances – televisions, white goods.

• Roll out and expansion of copper-based data infrastructure networks, including associated benefits with US President Biden’s infrastructure plan which seeks to support the delivery 500,000 EV chargers by 2030. 15

• Technology drivers facilitating automation, data recording and storage.

• Shift to electrical vehicle (EV) production and supporting infrastructure.

• Structural changes towards renewable energy generation.

These demand drivers are in part offset in the short term by:

• International trade disputes;

• Impacts to copper end use supply chains through global ‘black swan’ events;

• Gross copper stockpile inventory and movements; and

• Real versus apparent use in from China, the world’s largest copper consumer.

Base metals including copper, silver, aluminium, nickel, zinc, and possibly platinum, among others, are expected to benefit from these drivers, particularly the evolution to a low carbon energy transition. It is clear that meeting the long-term Paris Agreement goal of keeping global temperature increases to well below 2°C will require:

• a change in the supply energy matrix;

• a sustained supply of the metals required to enable the clean energy shift;

• increased efficiency in the mineral intensity required to manufacturer clean energy infrastructure; and

• supply side industry advancements to decrease reliance on fossil-fuel-based energy sources to facilitate the extraction and production of these key base metals. 16

To achieve carbon neutrality, a structural shift will need to take place that focuses on the development of non-fossil fuel energy supply capabilities. This is highlighted when comparing the current and future energy mix of China as shown in Figure 7.

Figure 7 - China’s shift in energy mix from 2020 to 2050 17

For such changes to be realised, the demand for copper will be heightened over the long term. This long-term demand will be driven by a broad range of industries that will need to expand networks and infrastructure in addition to new industries and facilities requiring development in order to meet the challenge of delivering these objectives. The quantum of copper required will also be linked to carbon reduction targets based on the modelling countries have adopted, albeit 2DS (2 Degree Scenario, a global 2°C temperature rise) or other similar scenarios.

The current and future copper mining landscape – supply

2020 global mine production of copper declined slightly to an estimated 20Mt in 2020 from 20.4Mt in 2019, owing primarily to COVID-19 lockdowns between April and May 2020. These disruptions significantly affected output in Peru, the second-ranked mine producer of copper, where production through July 2020 fell by nearly 250,000 tonnes (23%) from the same period of 2019.18

Global refined copper production increased slightly to an estimated 25 million tonnes in 2020 from 24.5 million tonnes in 2019, when output in multiple countries was affected by temporary smelter shutdowns for maintenance and upgrades.19

Australia is one of the world’s major copper producing countries, behind Chile, Peru, China, the Democratic Republic of Congo and the United States. Chile alone represents more than one-quarter of global mined copper output, and the broader Latin American region accounts for nearly 40% of global copper production as indicated in Figure 8.20

Figure 8 - Copper production by country as a % of global production– (Source: USGS)

Copper is primarily produced as either:

• an intermediary product known as a ‘concentrate’, or

• as finished plated product known as a ‘cathode’ from a combined solvent extraction and electrowinning (“SX-EW”) process, or via electrorefining.

Copper concentrates comprise the largest form of copper production, with the relative amount of copper produced via these two methods as indicated in Figure 9. 21

Figure 9 - World copper mine production by type 22

To meet future demand drivers, the copper producing industry needs to consider a number of factors including ore grade decline (as indicated in Figure 10), resource depletion, fixed and variable input costs, cost of capital (debt and equity), availability of energy and water, permitting requirements, social support, and the availability of high-quality future development opportunities. 23

Figure 10 - Average copper ore grades for mill plants, for Heap Leach/SX/EW processes and for Chile copper production versus cumulative production from 2001 to 2015 24

These factors underline the complexity in investment decisions to launch new project development and also the multi-year lead time to bring such project to completion. These diverse considerations will also be contributing factors toward identifying the most feasible prospective pipeline of new projects, where the next lowest cost marginal tonne of primary copper will originate.

The production costs of both SX-EW or concentrate sources of copper are unlikely to decline over the long term without structural changes to the operational activities that contribute to the total cost of production.

As noted by Northey et al. (2014)25 and further discussed in report section 11.7, there tends to be an inverse exponential relationship between copper ore grade and energy intensity per tonne of Cu produced, as shown in Figure 11 below.

Figure 11 - Energy intensity of different processing pathways for copper mining26

It can be seen the rate of change in energy intensity increases at an increasing rate when copper grades are lower than 1%, with energy intensity almost doubling from 1% to 0.5%. This relationship needs to be factored into future sources of supply when comparing the world’s global resources of copper by country with the copper grade of those resources, as shown below in Figure 12 and Figure 13.

Figure 12 - Copper reserves by country and years of production RHS 27

Figure 13 - A comparison of number of countries with known copper resource by resource grade

The majority of countries with known copper resources exhibit copper grades that range between 0.25% and 1% falling within the range where changes in energy intensity significantly increase at an increasing rate.

The majority of copper resources within the countries identified in Figure 12 have copper grades that fall between 0.25% and 0.5%. Hence the observed decreasing trend in copper ore grade poses the challenge of the exploitation and further discovery of economically viable reserves.

Of concern for future copper supply will be the conversion of resource copper grades to reserves. The prioritisation of high head grade reserve extraction more rapidly depletes the copper contained within a deposit. The depletion of these reserves is often being replaced with larger resources volumes of lower grade. Hence while the copper industry continues to observe large global quantities of copper resource, these reserves are being reported at lower cut off grades, as shown in Figure 14.

Figure 14 - Average grade of reported copper reserve 28

The declining trend of copper reserve grades places additional pressure on the supply dynamics of copper.

In addition to declining copper grades, both energy intensity and water consumption are anticipated to influence the cost structure of copper production as the transition between sulphide and oxide resource types seek to meet the growth in copper supply. With sulphide deposits requiring flotation as the alternate processing stage to oxide deposits, the need for additional water supply used in copper processing will be necessary to support the growing portion of copper produced from sulphide deposits as compared to oxide deposits.

These supply side pressures present an opportunity for meaningful optimisation to occur to the cost structure of copper supply. This challenge opens a pathway for innovation to facilitate that change so as to ensure the continuous and uninterrupted supply of copper to meet the demands of a decarbonised economy.

Where is copper production likely to originate?

The current total global copper reserves are estimated to consist of 871 million tonnes (see Figure 15), representing approximately 43 years of production at the forecasted 2020 production rates. When this is framed against countries signing up to reach carbon neutrality, such as China’s pledge to achieve carbon neutrality by 2060, 29 then copper production becomes an essential component in supporting these objectives.

Long-term sustained demand presents an opportunity for those countries with economic reserves and identified resources to meet these supply requirements. New supply will need to consider economic and social factors as well as the time required to permit and bring supply into production. In addition, there will be a need to upgrade resources into economically viable reserves as well as find new copper deposits. Over the long-term copper reserves have been equivalent to 38 years 30 of copper production, indicating that copper will not be a depleted resource. It does however indicate that challenges to extract copper are ever-present and ever-changing.

Figure 15 - An analysis of copper reserves by country and comparison to grade 31

Currently the number of years of production remaining based on identified reserves as compared to the global average, provides opportunities for countries like Australia, Russia, Mexico and Poland to meet production demands by increasing supply. Increased production planning, of course, needs to factor in the economics of these deposits.

The metrics below indicate that Latin America will continue to be a dominant source of supply over the long term, with other countries adjusting their supply to balance copper demand.