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Next decade is critical for copper markets, experts say

The next decade of investment in copper will be critical for the future world's increasingly electrified needs as a deficit in the metal's production is already beginning to show. However, hope is emerging as majors are taking an active interest in juniors.

In a May 16 presentation to the ResourceStocks conference in Sydney, where many copper stocks were present, financial services firm Martin Place Securities' executive chairman, Barry Dawes, did not emphasize the electric vehicles factor despite the market currently favoring battery metal-related stocks.

Though Dawes believes that electric vehicles will add to copper demand, he told S&P Global Market Intelligence on the conference sidelines that they were "only one little bit" of the overall picture for copper.

More important was the "relentless demand, particularly as the world becomes more and more electrified, as the share of energy going into electricity is rising all the time, through the use of gas, coal and renewable energy," he said.

"That means we're going to need copper, particularly in construction with the uptake of "smart buildings," which means copper consumption is probably growing faster than world GDP because you have this massive growth in population coming," he said. "We have [1.4 billion] people in China, [1.3 billion] in India, and North America is 370 million. Even in the [global financial crisis] the population growth only went sideways, and supply can't catch up, so the [copper] price will rise."

Dawes cited Rio Tinto as saying recently that copper deficits had "already started," adding that the situation would "only get worse over the next 10 years," and with the world's population continuing to grow — by the 2020s there will be another 330 million people in Asia and another 250 million in Africa — copper demand will only accelerate, he said.

More than 68% of the world's copper consumption is in Asia. While Dawes said the supply side is facing many issues, including high mine capacity utilization, fewer new projects, a reliance on many old mines, declining ore grades, a rise in communication costs and geopolitical risks.

He said mined copper production is primarily in the Americas and Africa from porphyry, so the global market is really in concentrates, with Chile producing 5.5 million tonnes of copper per year through smelting and producing refined material, predominately via the solvent extraction electrowinning process. Peru is mainly mine production as opposed to smelting, while China mostly produces smelter and refined copper.

Hope is emerging

Yet with those supply issues, the bigger players appear to be linking up more with the juniors, who take much of the risk in finding the next big ore bodies.

Frazer Tabeart, managing director of PolarX Ltd., formerly Coventry Resources Ltd., told S&P Global Market Intelligence on the conference sidelines that midtier miners of the red metal had only started investing in juniors in the last 12 months.

"To some extent, that reflects how the general equity market isn't yet fully aligned with getting back into exploration," he said, though he added that some battery minerals companies had been able to raise money on projects that were not that impressive.

"It's interesting that the midtiers and major players are prepared to invest, because they often don't have their own exploration teams for organic growth, other than brownfields, as they've moved away from greenfields as it's inefficient."

Tabeart said there were very few companies producing the midlevel range of 100,000 to 150,000 tonnes of copper per year, and just some companies producing either a much larger million tonnes per year or more, or much smaller output of 20,000 tonnes per year. "That reflects the lack of exploration and discoveries in the last 10 years."