The copper market has entered record territory this year as supply chains double down on its importance in the clean energy revolution. Nickolas Zakharia writes.
Zero-emission technologies are hailed for their place in a decarbonised and sustainable future.
But it’s equally important for supply chains to focus on sustainable sourcing of the resources required to create electric vehicles (EVs) and energy storage solutions to appease the demands of investors.
Copper has long been recognised as a key part of the world’s clean energy revolution and mining companies have this year started to see what these market conditions will look like with prices at new heights.
At the same time, copper mining and exploration activity is increasing in Australia, which ranks third in the world for copper reserves, according to US Geological Survey data.
Copper exports from Australia brought in record revenues of $10.4 billion last year and forecasts point to that figure rising in the coming years.
The dawn of EV production continues to ramp up much to the delight of copper miners, as the base metal is an important ingredient for EV motors, batteries, inverters, wiring and charging stations.
Copper wire and cable account for around half of global copper production, according to Geoscience Australia.
Bloomberg New Energy Finance’s Electric Vehicle Outlook 2021 report forecasts that EV sales will erupt from 3.1 million in 2020 to 14 million in 2025.
The anticipation of a green frenzy was reflected by copper reaching a record high of $US10,724.50 ($14,528) per tonne on the London Metal Exchange (LME) in May.
While prices have simmered to around $US9000 per tonne (at the time of writing), they remain significantly higher than the initial decline witnessed in the wake of the COVID-19 pandemic.
South Australia is an essential jurisdiction for Australia’s copper output with major operations including BHP’s Olympic Dam and OZ Minerals’ Carrapateena mines.
The state hosts more than half of Australia’s copper resources, with a bevy of junior explorers searching for its next deposits.
Hillgrove Resources, which previously operated the currently under care and maintenance Kanmantoo copper-gold open pit mine, is one of these juniors.
The company last year shifted its focus to exploration as it advances a strategy to expand Kamantoo, with attention shifting to a new underground prospect at the site.
Coda Minerals, another junior operating in the state, this year enjoyed what it described as a transformational June quarter following ramp up of exploration at the Elizabeth Creek copper project in South Australia, alongside joint venture partner Torrens Mining.
To support the state’s copper developments, the Government of South Australia’s Copper to the World Conference gives stakeholders further insight into the local and global copper industry.
Bloomberg Intelligence senior analyst of metals and mining Yi Zhu says a super cycle for metals, including copper, has not yet occurred. However, market conditions remain positive.
“We do think there is a bullish market for all metals, but there may not be a super cycle equally for the metals,” Zhu, speaking at this year’s Copper to the World, says. “On the demand side, metals lack post-China super cycle drivers, and no other country can take the torch from China yet.
“Countries are ramping up supply after disruptions caused by COVID. We think the low to negative interest rate environment and expanding global money supply has been one of the key reasons for driving up metals prices. (This) will continue to support metal prices until the inflation reaches an alarming level and prompts central banks to tighten – then metal prices could cool.
“Carbon neutrality, which has been widely accepted, and in turn has provided a very strong incremental demand for certain metals and carbon emissions, is also on the agenda for many exchanges.”
The last metals super cycle, which took place from 2000 to 2014, was driven by China’s urbanisation and industrialisation growth.
According to Zhu, China’s annual demand for the world’s metals increased to 50 per cent from 15 to 20 per cent in 2000.
“As China’s growth model shifts from investment centre to consumption driven, the demand growth for metals will slow down and the intensity of metals use will ultimately decline,” she says.
Yet the rise of green technology is expected to sustain future copper supply.
The vulnerability and possible decline of crude oil in the EV revolution could see copper consumption simultaneously increase.
“We think doctor copper can get capital boost at oil’s expense, as crude oil is vulnerable to EVs,” Zhu says. “Fuel demand may head for a structural decline while copper consumption could surge as battery power infrastructure develops.
“Capital could switch from oil-related assets to copper-related assets. The copper-oil ratio has traded above the average resistance level before the pandemic, which implies investor anticipation of a possible post-pandemic shift in both commodities’ price patterns.”
Zhu explains that a lack of new copper mine developments has also stalled supply for the red metal due to a focus on shareholder returns rather than new capacity.
“Investment in new mines by the top 40 miners globally dropped to a record low in 2016 and hasn’t recovered significantly,” she says.
“Even though capex will pick up this year and going forward, greenfield projects may ease copper deficits in 2022 to 2025 and our analysis shows increasing technical complexity and approval delays could lead to … shovel ready projects in 2025 to 2030.
“Rising demand for new power generation capacity which may be wind and solar along with EVs, should spur more intensive consumption of copper and we estimate copper demand in clean energy technologies may double in 2030 versus 2020 levels.”
Mastering an ESG-influenced future
Mounting environmental, social and governance (ESG) pressure has also made mining companies rethink their approach to operational strategies.
Outside of increasing demand for copper, ESG compliance has become a necessity for mining companies to abide by to maintain strong investor interest.
ESG requirements factor in non-financial factors, including how companies respond to climate change, worker treatment, innovation and supply chain management.
This is making mining companies rethink their operating methodology to satisfy stakeholders through their supply chains.
OZ Minerals, one of Australia’s largest copper miners, has adopted a business model that creates value for multiple stakeholder groups, including shareholders.
A key part of its ESG strategy is its focus on decarbonising operations through the trial of mining EVs.
“Value creation is personified for us through employees, communities, government, shareholders (and) suppliers,” OZ Minerals general manager transformation and readiness Katie Hulmes, presenting at Copper to the World, explains.
“There are people out there that expect something of the mining sector of copper producers, large producers and small producers, explorers, big business, small business – it doesn’t matter we’re all in this together we need to consider what those expectations are of us as we make our choices.”
OZ Minerals aims to phase out scope one greenhouse gas emissions from its mining operations as part of transition to net-zero emissions by 2050.
The company has encouraged industry collaboration to push mining innovation in areas including decarbonisation, after signing an agreement in April to trial Safescape’s electric vehicles at the Prominent Hill copper-gold mine.
“When you look along the technology development spectrum, you will see there are many different actors and many different roles for people to play,” Hulmes says.
“To find a way to seamlessly bring those together and leverage the knowledge for each other is something we’re striving to do, but boy are we learning how hard that truly is.
“An example for us around how we seek perspective and collaborate is when we’re working on a material piece of work, we look to create diverse teams called stakeholder teams and we encourage our people to put representatives from outside of our organisations onto those teams to bring perspective and multiple lenses to what we deliver.
“We want to access innovation, foster deep collaboration and drive change.”
The next generation of deposits
BHP, which has already adopted autonomous haulage options at its coal and iron ore operations, is now considering converting its Escondida and Spence copper mines to the technology.
Zero-emissions technology is only one pillar of a miner’s ESG requirements, with growing incentive to deliver positive outcomes for communities.
BHP is also consulting with Traditional Owners before proceeding with its Western Australian mine approvals, to build stronger community relations.
The company reached an agreement with First Nations Heritage Protection Alliance to enhance the voices of First Nations peoples regarding industry heritage protection reforms.
With focus on both copper development and ESG factors, BHP aims to develop its Oak Dam copper project in South Australia in the coming years.
Oak Dam is an iron oxide-copper-gold mineral system 65 kilometres from the Olympic Dam operation, which is the largest copper producing mine in Australia.
BHP is confident it will find a new copper deposit in the region, with initial drilling first undertaken by Western Mining in 1976.
BHP manager, Oak Dam Sam Hewitt says the project has a dual focus, including delivering the next phase of resource definition drilling.
The company will also look to make magnitude, technical and economic discoveries, which will help it understand the value of Oak Dam’s copper deposit.
“We recommenced deep directional drilling in May this year (and) our strategy is to execute a staged ramp up for what will become a significant drilling program,” Hewitt, speaking at Copper to the World, says.
“The underlying intent (is) to bring forward resource knowledge that can have a next phase strategy and investment decision (made) sooner rather than later.”
In 2018, BHP intersected mineralisation at Oak Dam of 3 per cent copper at 4225 metres, a return that represents the potential of the asset.
More than 41,000 metres of core have been drilled since, which confirms iron-oxide-copper-gold-ore deposits.
“This is why we’re so excited the methodology applied by the metals exploration team to discover a copper deposit of such significance,” Hewitt says.
“On the premise of ongoing positive results, current phase drilling objectives are centred on testing mineralisation continuity and true width of the high-grade zone.”
For the market to grasp complete value from Oak Dam, BHP will need to deliver strongly on its ESG requirements.
“There is potential for us to develop and deliver a modern mining operation from the outset that is an example of BHP’s values of leading sustainability, being environmentally responsible and supporting our communities, leveraging technology that improves safety outcomes, reducing waste and delivering material productivity uplift,” Hewitt says.
Responsible copper investment
The LME is also pushing for responsible and sustainable copper supply in response to demands trickling down the supply chain.
LME chief sustainability officer Georgina Hallett says this has been amplified with the LME’s push for responsible sourcing requirements.
“(We) need to make sure that the industry remains fit for the future and that we are ready to meet new challenges as they arise, and for us at the LME a huge amount of focus on that topic has been around the sustainability space,” Hallett says.
“Consumers were beginning to get concerned that at some point in the future they were going to have to say to their traders that they couldn’t trade copper and metal more broadly if they couldn’t provide evidence it was sourced responsibly.”
The LME operates as a seller’s market, which means investors do not choose which piece of metal they receive. It is instead randomly allocated through the LME’s clearing process.
This, in turn, makes the LME responsible to ensure the brand meets globally accepted standards for responsible sourcing and sustainable production.
Hallet says the shift to net zero emissions would require a large intake of metals, including copper, but weak ESG standards could mar this goal.
“There’s a hugely fantastic narrative for copper here, we just need to make sure it is sourced sustainably to ensure that value isn’t undermined,” she says.
“We are conscious that there is always more than one way to achieve a certain (objective) and we wanted to provide as many ways as possible and as many tools, platforms, contracts and so on, so that the market could choose the route that works (best).”
EV manufacturers are also being pressured by ESG requirements to ensure they have a responsible supply chain, which coincides with the platforms the LME is pushing.
This is making it necessary for downstream companies to be transparent in how their raw materials are sourced.
“The regulations, requirements and strategy of these car companies is moving to incorporate climate change and ESG performance as a fundamental part of how they do business,” RCS Global Group founder and chief executive officer for business strategy Harrison Mitchell says.
“The obligations are going to the downstream companies and that in turn is obviously going to be pushed down the supply chain because that is what the regulations are requiring.”
According to Mitchell, the Organisation for Economic Co-operation and Development (OECD)’s due diligence guidance encourages responsible production and underpins responsibly sourced copper.
The OECD is an international organisation that creates policies alongside governments, policy makers and citizens.
“It does form the basis of, for example, the LME responsible sourcing requirements,” Mitchell says.
“(Companies) tend to underestimate the requirements taking to actually develop these procedures or management systems … if you’re starting to think about this now or needing to adopt standards for certain regulations, I would start sooner rather than later.”
The Copper Mark provides another major assurance framework that promotes responsible production practices specifically for the red metal.
Its criteria focus on issues including legal compliance, child labour, forced labour, greenhouse gas emissions, environmental risk management and energy consumption.
“It’s not just regulators that are you know placing pressure on these companies. There is going to be a report later this year by Amnesty International (highlighting) companies in the battery supply chain and the EV supply chain on their performance in sustainability,” Mitchell continues.
“That’s something which will likely create significant pressure on the industry to shore up there our performance their strategy towards ESG performance.”
This story also appears in the October issue of Australian Resources & Investment.