Can LatAm plug the copper supply gap?

Mining companies in Latin America are lining up to fill a looming copper supply gap, driven by booming demand from the electric vehicles (EV) and renewable energy industries.

The region’s 20 largest copper projects, by potential production, have the capacity to fill the bulk of a 5.1Mt supply shortfall forecast for 2030.

But the region's potential copper rush could be hampered by growing challenges to get assets into production, including political risk, tougher environmental permitting and headwinds in community relations.

COPPER GREEN BOOM

Copper consumption is expected to expand significantly in the coming decades due to the metal’s key role in the EV and renewable energy sectors, which are set for sharp growth amid a global push toward a lower carbon economy.

UK-based consultancy CRU forecasts annual copper demand to rise to 28.4Mt by 2030, up from 23.0Mt in 2020.

While rising demand will initially be met by growing global mine output, the situation is expected to change in the next couple of years, CRU director of base metals research and strategy Vanessa Davidson told the World Copper Conference 2022 last week.

“By 2024... we expect to see a deceleration of growth in mine output as the pipeline of committed projects beyond 2023 is thin and the decline in ore grades and resource exhaustion will drag volumes lower at operating mines,” Davidson said.

“The continuation of that trend will see a sizeable supply gap open up by 2030, estimated on our numbers at 5.1Mt, and an even larger gap to emerge by 2035 of 7.6Mt.”

LATAM’S US$142BN PIPELINE

Against this backdrop, mining companies are looking to advance a huge pipeline of copper projects in the region.

The BNamericas project database shows 361 active copper projects in the region (the figure includes assets for which copper is a byproduct, but excludes operating mines).

Of these, capex information is available for 139 projects, totalling US$142bn.

Of the 361 projects, 338 are in the early works stage with 23 under construction and capex for the latter group amounting to US$23.0bn.

GEOGRAPHICAL SPREAD

Chile and Peru – the world’s biggest copper producers – are the location of 118 and 82 copper projects, respectively.

Mexico hosts 53 projects, with 36 in Ecuador, 22 in Argentina and 17 in both Brazil and Colombia.

The remainder are spread between Nicaragua, Panama, the Dominican Republic, Guyana, Bolivia and Jamaica.

TOP 20 LATAM COPPER PROJECTS

The bulk of Latin America's copper projects are at a relatively early stage and lack capex and production estimates.

But the top copper projects by forecast production capacity give an indication of the opportunity for the region’s mining companies to plug the looming supply gap.

The region's top 20 copper projects have the potential to generate 5.05Mt of annual output – almost the same as CRU’s 2030 estimated global production shortfall.

Combined capex of the 20 stands at US$58.9bn.

CONSTRUCTION STAGE

Four of the five top projects are already under construction.

These include Codelco’s US$1.93bn Andes Norte (El Teniente New Mine Level) expansion and Teck Resources’ US$5.2bn Quebrada Blanca phase II (QB2) expansion (pictured), in Chile, which will produce around 410,000t/y and 316,000t/y copper, respectively.

In Peru, Minera Chinalco is advancing its US$1.36bn Toromocho expansion, with Anglo American looking to overcome licensing challenges to kick-start its US$5.5bn Quellaveco asset.

Both projects are expected to deliver around 300,000t/y copper.

EARLIER STAGE ASSETS

Excluding the four projects that are under construction – which will already feature in CRU’s supply calculations – annual potential production of the remaining 16 assets is 3.72Mt, with capex totalling US$44.9bn.

Chile and Peru each account for seven of the top projects, with four in Argentina and one each in Mexico and Ecuador.

The biggest project not in construction is Rio Tinto’s US$5.0bn La Granja in Peru, where copper output is estimated at 500,000t/y, according to information from the country’s energy and mines ministry.

La Granja is followed by Codelco’s US$3.07bn RT Sulphide asset in Chile, which is at the pre-feasibility stage, and Panoro Minerals’ US$1.53bn Cotabambas asset in Peru, where a pre-feasibility study was launched in February.

Both projects are expected to produce around 250,000t/y copper.

Feasibility stage projects include Teck and Newmont’s US$7.200bn NuevaUnión copper-gold asset, Capstone Copper’s US$2.18bn Santo Domingo project and Codelco’s US$3.3bn Andina development project, all in Chile.

Glencore also expects to deliver a feasibility study for its US$3.0bn El Pachón project in Argentina this year, which is forecast to produce around 200,000t/y copper.

The remaining projects are in the environmental and social evaluation, pre-feasibility, advanced exploration and scoping PEA stages.

KEY CHALLENGES

Political risk, including concerns over tax hikes in Peru and Chile, and a possible nationalization of mining operations in the latter, may result in companies delaying decisions at some copper assets, although industry fears have subsided, while Chilean authorities have stated that they are not seeking to damage investment.

And in order for Latin America to fulfill its copper growth potential, miners will need to pass through increasingly tricky regulatory environments to get their projects into operation, particularly for the earlier stage assets.

“Many of the key challenges surrounding the development of copper projects have intensified in recent years, including more onerous environmental permitting, longer community consultations and additional investments for water and energy,” CRU’s Davidson said.