RE: Lets hope SAV get more copper14 Feb 2018 16:56
part 2
meters down to blast and burrow out huge caves to acquire the ore. The time from investment decision to production is measured in decades, assuming the environmental permitting problems can be overcome. This assumes the mining engineers and skilled workers can be found.
In the past few weeks miners have found out more implications of what going to Africa can mean. The Democratic Republic of Congo has announced its intention to impose retroactive increases in royalties and taxes, despite its apparent contractual commitments.
The companies have protested, and there will be long negotiations and litigation. The ores in the DRC and elsewhere in Africa are an order of magnitude richer than can be found in more predictable places. They have just too much political risk, though, to attract more money.
The real fun in the copper world this year, however, will be in Chile, the source for about 6m tonnes of the world�s 20m tonnes of annual production. There are labour disputes at mines comprising more than three-quarters of Chile�s capacity. If just a fraction of those 6m tonnes � say 1m tonnes � were to be taken offline because of strikes, the resulting price movement would be very educational.
Chilean miners, not to mention their union leadership, know all about the lack of spare capacity in the world. There would be no obvious way to make up for such a production shortfall quickly.
There is a lack of awareness of how copper-intensive a shift away from fossil fuel energy will be. Transmission grids need more copper for renewable generation. Electric vehicles require more copper than diesel or gas vehicles.
Factory and office workers in hot countries need air conditioning to work efficiently, which also requires more copper. All the myriad little electric motors we take for granted need copper. Ammunition for war uses a lot of copper.
Yet copper has not been a political or financial issue in recent years. Metal mining is dirty and distant. The technology can be improved and capital added, but slowly. The smart people who might have done that went into software engineering or media studies.
The first reaction of consumers, manufacturers and politicians will be to accept the copper price increases that will be created by the tight supply conditions.
It will take a lot of demand destruction to match a stagnant, choppy and depleting supply. That will happen later in the cycle than rises in rates and declines in equity prices. Copper and copper companies are cheap and interesting.
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