Major copper investments in 'holding mode' amid recession fears – Freeport CEO

➤ Meeting copper demand growth will be "increasingly complicated" in the coming decade and beyond, given economic turmoil and fraught geopolitics.

➤ Economic bearishness is clouding miner Freeport-McMoRan Inc.'s investment decisions on new copper projects.

➤ A "new era" of copper demand will bring higher prices.

Richard Adkerson, chair and CEO of Freeport-McMoRan. Source: Freeport-McMoRan Inc.

Heightened concerns over an impending recession are holding back decisions over new mine investments, according to Freeport-McMoRan Chair and CEO Richard Adkerson. The economic malaise adds to other pressures including left-leaning politics in South America and cost inflation. These headwinds are exacerbating an already tight copper supply picture as the sector confronts the long-term challenge of meeting growing metal demand, driven by modernizing economies and the energy transition.

Freeport-McMoRan assets include a 48.76% stake in the giant Grasberg copper-gold mine in Indonesia and several mines in the U.S. and South America. It was the second-largest copper mining company in 2021, accounting for about 6.4% of global copper production, according to S&P Global Market Intelligence.

S&P Global Commodity Insights spoke with Adkerson about the copper sector and the energy transition. The following conversation has been edited for clarity and length.

Commodity Insights: Will it be harder for the copper industry to meet demand growth expectations over the next 15 years compared to meeting supercycle demand growth over the past couple of decades?

Richard Adkerson: It's increasingly complicated. It's very rare to find new [top tier] mines. And that's become increasingly challenging. We're going through this global period of economic turmoil right now. And that's doing nothing but adding to the challenge for supply development. Geopolitics are tough and you see the challenges of what's going on in Chile and Peru. And about 40% of [global mined] copper comes from there. Africa is complicated. Places like Mongolia are complicated. Places like the U.S. are complicated for new supply development on greenfield deposits. Every major diversified company over the past 15 years has always had copper at the top of their strategic list. And so, even though it's more complicated today, the lack of success over the past 15 years in developing major new mines is striking.

Exploration expenditures are nowhere near peak spending about a decade ago and, meanwhile, copper discovery rates have slowed. How well is the mining asset lifecycle working, where noncash flowing exploration companies find new deposits and producing miners acquire them?

Go back and see how many mines of significance started with juniors. We have the opportunity to see almost every [discovery] that shows up because bankers are always marketing deals. And we really have problems making a junior's mine stack up with our own internal projects economically. Because if you do acquire something from a junior developer, you've got to pay for it right now. But we're not getting any valuation in Freeport shares for undeveloped resources. So when you think about committing capital, and we know our resources and so forth, we know the returns are much greater [for in-house projects.] We have a long-standing saying around Freeport — that big mines get bigger and small mines get smaller.

A problem right now is that so much of the industry is concentrated in the major companies. To have an impact on companies of these sizes, projects have to be big. It's different than the oil and gas industry where you can piece together oil and gas production properties and aggregate something bigger. You can't do that in the mining industry.

Chileans rejected a left-leaning constitution in a Sept. 4 vote, suggesting to some that the country will take a softer stance on new mining policies, including higher taxes. Miners including Freeport-McMoRan expressed concerns over investing in South America given the region's increasingly leftist politics and policies. What is your thinking on that now?

We did delay committing capital on [developing a large copper sulfide resource at El Abra in Chile] because of these issues related to taxes. We're still in that now. Even though there have been some positive developments with the rejection of the extremist constitutional amendments, and some of the commentary that's coming out is more positive than it once was, it's still uncertain.

But now you're facing this world where global investors are expecting recession. That's created a whole degree of uncertainty. Cost inflation and continued supply chain problems are having a chilling effect on new investments today. There were some projects that were started, that are being completed now and you can see what's going on with their cost as a result of that. Our new projects are certainly in a holding mode until we get clarity, not only on the political scene, but also on the global economic situation.

So we're going to come back to your question. Is the industry going to be able to meet demand?

Does the latest economic bearishness make meeting growing copper demand that much harder?

There's tremendous aspirations globally to improve the climate. It needs to be done. But there's many questions to be answered about how that progresses. Then we run into events, like Ukraine and Russia, and the impacts on energy markets that's having, particularly in Europe.

I think it's undeniable that there's going to be a big push to invest in carbon reduction and that's going to require a lot more copper. This new era of copper demand is coming. And it's going be tough to meet it. It's going to require technological advances on how copper is used. It's going to require substitution, when that's available, and development projects that can be done, although it takes years and years to do even brownfield projects. Greenfield projects are more problematic and it's going to be a real challenge. I'm just convinced that, however it works out, it's going to be in an environment with much higher copper prices.

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