Copper Rush

By Simon West

It has been a tough few months for the mining industry in Chile, the world’s No. 1 copper-producing nation.

Covid-related supply chain disruptions, a congressional bid to raise royalties on copper sales and the threat in August of strike action at Escondida, the largest copper mine on the planet, have jeopardized operations and output.

One executive at a Santiago-based forwarder told Breakbulk that mining-related projects in Chile are “pretty much on hold.”

Others are more bullish, pointing to the industry’s resilience during the pandemic.

“The copper industry has never really diminished its activity that much,” said Rodrigo Izquierdo, deputy general manager at logistics firm Integral Chile.

“At some points during Covid, it slowed down a bit. But during the worst phases, it maintained its operational status. Copper is really important to the Chilean economy, so the government has done everything in its power to keep the industry going.”

Its significance for project cargo as well cannot be overstated. Chile and its neighbor Peru produce about 40 percent of global mined copper supplies, providing breakbulk movers with a steady stream of cargo-carrying opportunities.

Upgrades and expansions at industrial-scale copper mines, typically sprawling developments spanning dozens of square kilometers, depend on specialist logistics support to transport heavy and oversized cargo, from smelting plants to hulking dump trucks.


Project Logistics Support

A few hundred kilometers north of Escondida, across the border into Peru, Southern Copper’s open-pit Toquepala mine churns out copper ore locked up in volcanic rock formed high in the Andes Mountains 70 million years ago.

Once dug and collected, the ore is broken up by giant rotating crushers, mixed with water and ground down to a fine powder by rod and ball mills, then sent by conveyor belt to concentrators to recover the ore’s copper and molybdenum in a process called flotation.

The concentrate is transported a few kilometers west by rail to the coastal city of Ilo for processing at Southern Copper’s smelting plant, which has the capacity to manufacture 345,000 tonnes of copper anodes per year.

A nearby solvent extraction and electrowinning, or SX-WE, facility produces grade A copper cathodes, which are then shipped to industrial sectors around the globe.

In July, Toquepala took delivery of some heavy cargo as part of a multimillion-dollar investment package Southern Copper has earmarked for the mine this year. The cargo was shipped from Europe to the Arica Port Terminal in northern Chile, and from there was picked up and transported to Toquepala by Chilean project cargo specialist Ulog.

“In our industry, mining is the most important sector, and the one we focus on most,” said Ulog’s Nicolas Araya.

Other major producing nations include China, the world’s largest copper importer, the U.S., Australia and the Democratic Republic of Congo, Africa’s biggest metals miner and the world’s No. 1 cobalt producer.

Europe’s largest producer is Poland’s KGHM, a state-run mining enterprise that last year produced 710,000 tonnes of copper, mainly from three underground mines at Lubin, Rudna and Polkowice-Sieroszowice.

Development at KGHM’s Deep Glogów copper mine in western Poland, the biggest underground non-ferrous metals mining project in Europe, will enable current extraction levels to be maintained “for the next several decades.”

KGHM also owns stakes in several overseas assets, including the Sierra Gorda open-pit copper and molybdenum mine in Chile’s northern Antofagasta region.

“It is a great challenge to cooperate with such a big and prestigious company,” said Joanna Czuba-Szafranska, owner of JCS Trade and Services, a Poland-based heavy-lift specialist that provides logistics support for KGHM projects. “It is fabulous transporting big and challenging loads like absorbing towers and large filters, or moving special lifts used to replace mining lines.”


Record Demand

Driven by pandemic recovery and a clean energy transition with an insatiable thirst for metals and minerals, copper demand is soaring. Over the next two decades, consumption could rise by 50 percent, according to the International Copper Association, or ICA.

Copper is a highly efficient conductor of electricity and heat, and is widely used in industrial machinery and equipment, communication technologies, construction materials and transport. Fast-expanding industries such as renewable power and electric vehicles are demanding ever-higher quantities of the metal.

Electrical vehicles, for example, use up to three times the amount of copper required in gasoline cars, while in renewables, the largest offshore wind farms can contain 30 tonnes of copper per turbine in their ring generators, the ICA said.

The metal’s recyclability also boosts its popularity among end users. Recycled copper, or secondary copper, is one of the few metals to retain its chemical and physical properties once reprocessed.

Concerns are mounting though over whether enough of the material is being produced to meet this surging demand.

The world is unlikely to run out – the U.S. Geological Survey, or USGS, estimates worldwide reserves of some 870 million tonnes, with yearly demand standing at 28 million tonnes. Resources including undiscovered deposits could top 5 billion tonnes, the USGS said.

But a lack of investment in new projects is pointing towards a supply crunch.

Bank of America said in May that current stocks cover just three weeks of demand, levels not seen for more than 15 years. Low inventories have already pushed London Metal Exchange prices this year to a decade-high US$10,000 per tonne, with the Bank of America warning prices could hit US$13,000 in the coming years.

The shortfall could be as large as 16 million tonnes by 2040 if serious spending on new capacity fails to materialize, according to consultancy Wood Mackenzie.


Investment Hopes

The higher price environment, on paper at least, should spur investment. “The taps cannot be turned back on that quickly, but if prices do remain at sustained levels then inevitably we will start to see increasing numbers of new projects being announced,” said Simon Morris, head of metals at Wood Mackenzie.

“With such spikes in prices, producers will be wary of basing multi-decade investments on potentially short-term blips. As such, they will be assessing whether what we are seeing today is likely to translate into more sustained price uplifts beyond the here and now.”

The readiness of producers to bring new capacity online can rest on factors other than price. Government policy, for one, is hampering the start-up of several world-scale projects.

President Pedro Castillo’s pledge to double the government’s share of mining profits to 70 percent is unsettling the industry in Peru, while in the U.S. the Biden administration has adopted a more rigorous approval process before giving the thumbs up to extraction projects.

In March, the U.S. Department of Agricultural withdrew consent for the proposed Resolution underground copper mine in Arizona, a joint venture between Rio Tinto and BHP, to allow further consultation with environmental and indigenous groups. The project had been rubber-stamped by former President Trump just weeks earlier.

Another factor is geography, and the logistics required to mine valuable deposits, especially those located in remote and hard-to-access places, such as in the Andes, on the Pacific Ocean floor or in the Arctic Circle.

“The more remote the project the more complex it will be to turn it into an operating mine,” Morris said.


Governance Issues Abound

The risks associated with environmental, social and governance, or ESG, criteria may also deter investment. Stakeholder pressure to engage with local communities, fund development projects, preserve water supplies and reduce the environmental impact of operations pushes up costs and lead times for miners, who find themselves increasingly at loggerheads with local conservation and indigenous groups.

“ESG challenges may lead to the postponement or delay of projects, or at least an increase in costs relative to the past,” said Charlie Durant, a copper analyst at metals consultancy firm CRU. “The industry though must not lose sight of the need for future copper supply. This supply will be more technically complex, have higher project capex than in the past and will require a more complete social license to operate.”

Adapting to strict ESG standards, costly perhaps for producers, can translate into opportunities for breakbulk.
BHP has recently finished work on its Escondida water supply expansion project, which has increased the mine’s desalination production capacity to some 3,300 liters per second. The original water supply plant, one of the world’s largest and most complex desalination infrastructure projects, was brought online in 2017 as part of BHP’s transition away from groundwater resources for its mining operations.

The project called for the installation of a twin 42-inch diameter, 180-kilometer pipeline, four high-pressure pumping stations and a reservoir to move water from Chile’s Coloso Port across the Atacama Desert to Escondida.

Another 15 desalination plants for the mining industry are expected to start operations by 2028, adding to the eight plants and three seawater impulsion systems already up and running in Chile, according to the government. Antofagasta Minerals, Teck, Capstone Mining and state-owned Codelco, the largest copper company in the world, are among the producers involved in the construction projects.


Making Substitutions

While supply constraints on copper hinder production, price rises trigger substitution, as end-users opt for cheaper alternatives.

The most to benefit from the switch is aluminum, cheaper and lighter than copper but also possessing lower conductivity and durability. Aluminum, which accounts for about half of copper’s substitution, is commonly used in high and mid-voltage power cables, but less so when end uses are constrained by weight or tighter spaces, such as in car wiring or in small electronic systems.

According to Durant, the pace of substitution has slowed in recent years. Just 1 percent loss of market size though is equivalent to almost 250,000 tonnes per year of copper.

“Many markets have already seen large moves out of copper, and these losses are likely permanent, but these switches can only happen once,” the analyst said. “The copper industry has seen some rapid changes before.
For example, the shift away from the use of copper plumbing tubes in favor of plastics during the early 2000s, or the increasing use of fiber-optic cables and wireless that has resulted in an 85 percent reduction in the previously 1 million tonne per year copper external telecoms cable market. Other changes have been more subtle or geographically focused.”

By far the biggest aluminum producing and consuming nation is China, accounting for some 60 percent of global output.

Disruptive technologies, meanwhile, also threatening to cut into copper’s market share, could provide breakbulk with a potential source of future work.

UK-based Tirupati Graphite for example has developed an aluminum and graphene composite with 95 percent of the conductivity of copper. The lightweight product, while still in testing phase, could eventually replace the metal in thermal, power and propulsion systems.

Graphene is sourced from Tirupati’s Vatomina and Sahamamy graphite extraction projects in Madagascar, with upgrades at the two mines expected to boost capacity to 81,000 tonnes per year by 2024. Graphite is used in more than 150 applications, according to Tirupati, including coatings, thermal management conductivity and rubber tires.

“We are expanding to become a large-scale operation in terms of the graphite market,” said Puruvi Poddar, head of business and corporate development at Tirupati.


Rising to Challenges

Despite the challenges to copper, higher prices have given the industry a shot in the arm. Global copper mining capacity is rising, albeit slowly, slated to reach 29.5 million tonnes by 2024, up by 22 percent on 2019 levels, the ICSG said.

Prices retracted slightly in August on the back of slower demand from China, but analysts speaking to Breakbulk expected a rebound sooner rather than later.

In Chile, project cargo movers remain resolute, despite political developments that are generating uncertainty for the mining industry. Chile’s lower house has already approved a bill that would alter existing tax structures for miners, which could result in levies on pre-tax income exceeding 70 percent. The proposed regime, tagged to copper prices, has been sent to the Senate for scrutiny.

“We are very attentive to what is decided and we will react as quickly as we can,” Integral Chile’s Izquierdo said.   


Colombia-based Simon West is a freelance journalist specializing in energy and biofuels news and market movements in the Americas. 

Image credit: BHP