The copper price has bounced off recent lows as miners cut production forecasts. The move signals that the market expects supply to tighten in the coming years, as mining companies continue to reduce their output while demand forecasts continue to increase. This could create opportunities for explorers and developers to unlock additional value transacting on large, high-grade inventories.
Projects with large mineral resource estimates and ongoing growth, such as Solaris Resources’ Warintza Project in southeastern Ecuador, are well-positioned to take advantage of this potential market dynamic. With a broad cluster of outcropping copper porphyry deposits anchored by a large 1.5 billion t, high-grade open pit resource inventory, in addition to a robust pipeline of exploration drilling offering major growth potential, analysts have noted Warintza is a multi-billion-t plus deposit and an attractive M&A target.
The most recent large mining firm to cut output was Antofagasta, which reduced its full-year output goal to a range of 640 000 – 660 000 t from 660 000 – 690 000 t previously, owing to a leak in an underground pipeline at its Los Pelambres operation in Chile and potential water scarcity issues.
A statement released by Antofagasta noted:
“The drought has continued a Los Pelambres during the period, although there has been heavier precipitation in July. The revised guidance range incorporates a low probability negative outlook for water availability for the rest of the year."
In addition, rising costs can also be attributed to higher diesel prices and other inputs that are necessary to the company’s operations.
Copper prices have risen again, even though they continue to experience resistance due to concerns over supply. Low copper supply has been an ongoing issue, with many miners cutting their output forecasts. Forecasts for a supply and demand imbalance have kept prices elevated for some time and are expected to push the benchmark copper price several times higher in the coming decade.
This demand is attributed to current and expected growth in several key industries, such as: electric vehicles, renewable energy storage, and grid infrastructure. The rise in electric vehicle production is one of the primary drivers of this demand growth, as copper is a key metal used in batteries and electrical components. This increase in demand has been compounded by issues with supply, such as: declining grades at mines, water scarcity impacting operations, and social and geopolitical risks.
Current risks have affected commodity prices more than usual, such as the conflict in Ukraine, a global supply chain that is struggling to return to normal as it fails to predict long-term demand, and the risks of China’s zero-COVID policies – which risk further lockdowns in the country.
One of the ways miners are hedging their bets against production issues is by acquiring projects. A difficult investment environment has made expanding production difficult. The factors affecting lower production cannot be easily mitigated and placing increased value in the acquisition of projects with highly prospective deposits.
Major miners will often begin looking at projects during the development stage to avoid the cost and time associated with earlier-stage projects. This is an important part of the business cycle for many mining companies, and one that is often used to increase production without having to go through the more risky and costly process of exploration.
This strategy has been successful for some miners, but it's not without its challenges. The most notable challenge is that many of the best projects have already been acquired, making it difficult to find quality assets. Another issue is that these types of acquisitions are often expensive and can be highly dilutive to shareholders if not done correctly.
Despite the challenges, this is still a viable option for miners looking to increase production. With the right team in place and a disciplined approach to acquisitions, miners can add high-quality projects to their portfolios that will provide value for years to come.
This is an important time for the mining industry as companies adjust their strategies to account for the new normal. The copper price will continue to be volatile in the short term, but the long-term outlook remains positive. Miners that are able to weather the current storm and emerge with a strong portfolio of assets will be well-positioned for the future.
Read the article online at: https://www.globalminingreview.com/mining/03102022/copper-pricing-bounces-off-recent-lows/
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