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Copper miners eye complex jurisdictions as energy transition buoys prices: Kainantu

Highlights

ESG factors delay development of some resources

Papua New Guinea seeks to develop mines sector

Copper prices expected to stay firm on deficit

Global miners are starting to look at complex jurisdictions for copper for the energy transition, as headgrades decline in traditional mining areas and prices stay high, a junior miner said in an interview with S&P Global Platts.

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"We're now seeing opportunities for developing countries to unlock their resources," said Matthew Salthouse, CEO of Kainantu Resources, an Asia-Pacific-focused gold mining company. Kainantu recently completed a field study at a copper/gold deposit in Papua New Guinea, where Salthouse says the government is keen to open up sources of mineral supply, as is also occurring in other parts of Southeast Asia. "It's worth the risk... in early-stage exploration companies listed in London, Australia and Canada we're now seeing a dearth of Asia-Pacific focus," he said.

PNG, one of the top 15 locations for gold production, also has substantial copper, nickel and cobalt resources. Mining and petroleum contributes 26% to GDP, says the Chamber of Mines website, describing the exploration sector as "vibrant". Existing operators include Barrick Gold, Zijin and Harmony Gold Mining.

Major undeveloped resources

Kainantu mid-June entered an agreement to acquire control of PNG's May River copper porphyry project from Australia's Niuminco Group and Asia Pacific company Hardrock.

May River is alongside the major Frieda Island deposit, being developed mainly by Chinese operators, and classed as the world's tenth biggest undeveloped copper resource, with an estimated 12 million mt copper-bearing ore and 90 million oz gold.

Community or government opposition prevents development of some of the world's largest undeveloped copper resources, located in ecologically-sensitive areas with indigenous populations. These include Rio Tinto and BHP's Resolution Copper project in Arizona and Pebble in Alaska, where rights are held by Northern Dynasty Minerals. Pakistan's Reko Diq, held by Tethyan Copper, a Barrick Gold and Antofagasta joint venture, has been held up by legal disputes for years.

The Udokan project in Russia's Far East, the world's third largest copper deposit, is however progressing. Developer Udokan Copper is testing equipment and plans to start up a concentrator plant mid-2022.

Global trader Trafigura's CEO Jeremy Weir said at the FT Global Commodities Summit in June that copper supply may need to increase by 10 million mt by the end of the decade in what could potentially then be a 30 million mt market, as demand grows for the red metal for electrification projects, including electric vehicles' charging infrastructure, wind power and solar energy installations. So far, only 5 million mt extra capacity is expected to come on stream, indicating a significant deficit, he said.

'Robust' price scenario

The market has been "very robust" for some time now as headgrades are coming down in many established copper-producing jurisdictions and there are few new discoveries of any size, Salthouse said.

Copper prices have soared amid a "green recovery" from COVID-19, spurred by concerns over the speed of climate change, which is encouraging governments to seek ways of locking up future supplies of metals including copper, considered "strategic" by many, he noted.

LME copper cash prices more than doubled from $4,617/mt on March 23, 2020, at the depths of the COVID-19 crisis to $9,527/m Aug. 13. Prices have firmed on recent strike action as trade unions in major producing nations strive to spread the benefits of high prices.

A strike at Vale's Sudbury operations in Canada was called off early August after nine weeks. In Chile, one was averted Aug. 12 at BHP's Escondida, the world's largest copper mine, accounting for 4-5% of global supply. Also in Chile in the week to Aug. 13, workers at both state-owned Codelco's Andina mine and JX Nippon Mining & Metals' Caserones copper mines, as well as Albemarle's lithium operations, walked out on strike after pay talks failed.

Not only unions but also governments seek profit from the bonanza. In Chile, a new law bill proposes to raise the base rate royalty on copper by 3% and new laws are also mooted in Peru. "Chile currently accounts for 28% of the world's copper but declining ore grades and ageing projects have seen this market share dramatically reduce over the last decade," said broker SP Angel in an Aug. 5 report. Peru accounts for an estimated 12% of the world's copper supplies.

All of which may make more attractive new jurisdictions for copper mining, including PNG where the government may take partnerships or streaming rights to support development and where royalties may be negotiable, according to Salthouse.

"The world is going to have to take a closer look at jurisdictions like PNG," the executive said, noting that the Chinese government is very active in infrastructure development in the island nation. While some consider PNG a challenging jurisdiction, the country's close ties with Australia and the Commonwealth help ensure its legal frameworks are easy to navigate, Salthouse said.

May River

Kainantu's May River field survey is now being finalized pending completion of sampling and petrology. "Preliminary analysis is extremely encouraging, particularly at the Mountain Gate prospect, evidencing in KRL's project a continuation of the mineralization observed at the key deposits in the Frieda River project," Salthouse said.

After the deal is finalized, the company may look for a joint venture partner or seek to raise funds for May River's development, he said.