Copper was the only major base metal that closed 1990 up in price over its 1989 year-end quote. It was only a penny or two but still impressive compared with other metals. For 1990 as a whole, however, it averaged US$1.21 per lb., or a 6% drop over its US$1.30 value in 1989. Overall it was a vintage year for copper. The year 1990 will not go into history as the year of spectacular demand but rather the period of lack of regular supplies because of a multitude of problems at many producing centres.
Consumption, overall, kept up reasonably well, specifically in the far East but the production side was not up to par at all in Africa and in Latin America. The economic slowdown had become evident to the copper markets by late 1990 and prices drifted to the $1.12-1.15 range from a high of about $1.50 that it had reached in the third quarter.
London Metal Exchange (LME) copper inventories stood at about 180,000 tonnes at the beginning of 1991, below the Oct. 18, 1990, figure of 197,500 tonnes, which was the highest in five years. Combined stocks at the LME and the Commodity Exchange of New York (Comex) more than tripled through the course of the year, a fairly disturbing trend but still a relatively low tonnage in historical terms.
Interestingly, the best price of copper in 1990 was seen in the third quarter at the time of the biggest accumulation in the inventories on the exchanges. LME inventories increased by 128,000 tonnes during that time.
By early 1991, exchange stocks of both LME and Comex were virtually unchanged since October, 1990, at about 200,000 tonnes. The last time this mark was reached was in the second quarter of 1987. There is no question inventories will climb further in 1991 barring surprises like the ones that prevailed during 1990.
The high copper prices of the past few years have led to an increase in exploration for new deposits, the re-evaluation of known deposits and increases in interest of existing areas of mineralization.
In North America, there are greenfield projects that can add a capacity of about 300,000 tonnes per year during the next five years. The most exciting one among these is the Windy Craggy deposit in northwestern British Columbia owned by Geddes Resources (TSE), with a 22% net profit royalty held by Falconbridge Ltd. The reserves there exceed 118 million tonnes of 1.9% copper and the annual output may be between 120,000 tonnes per year and 180,000 tpy, depending on the daily operating rate.
Beyond the prohibitive level of capital costs needed (about $400 million) for Windy Craggy, the environmental issues are also quite sensitive given the pristine and rugged area the orebody is near.
There are other greenfield projects in the world, the majority of them in Chile. Cominco (TSE) and its affiliated Cominco Resources International (TSE) intend to bring Quebrada Blanca into production at 75,000 tonnes with a solvent extraction electrowinning plant in the next few years at a cost of some $200 million. Among the others, about one-half of the 600,000 tpy additional capacity in Chile will be brought on by Codelco at the Chugui Norte and El Abra projects.
The Chilean figures exclude La Escondida which has been in production since late 1990 for an annualized output of 315,000 tpy of copper in concentrate which will be achieved by 1992. Escondida is one of the last in its size class to come into production. The reserves cover an area of 4.5 km by 1 km down to a depth of 500 meters. At a 0.7% cutoff, the reserves are estimated to be 1.8 billion tonnes with 1.59% copper. In comparison, B.C.’s Highland Valley Copper, owned by Cominco, Rio Algom (TSE) and Teck (TSE), has a cutoff of slightly in excess of 0.2%.
Escondida, originally, was supposed to come into production in August, 1991, but it started in December, 1990, and shipments were also scheduled in that month. Based on the feasibility, the minable reserves of 662 million tonnes of ore grading 2.12% copper will last for more than 50 years.
The initial daily tonnage of 35,000 tonnes may be exceeded and will turn in 760,000 tonnes of concentrate grading a high 42% copper. The mine grade for the first 10 years will average 2.85%, with payable gold and silver content.
Another major start up in 1990 was the Grasberg deposit of Freeport-McMoRan (NYSE) in Indonesia. The reserves of 118 million tonnes grading 1.52% copper and 1.49 grams of gold per tonne at a cutoff of 0.7% are developed in two phases of a pit.
The Ertsberg mill was expanded from 20,000 tonnes to 32,000 tonnes in mid-1990; further expansion should push capacity to 52,000 tonnes by early 1992. At the peak output the annual tonnage will be 523,000 tonnes of concentrate grading 33% copper and 23 grams gold, or about 172,000 tonnes copper in concentrate.
Other greenfield plans of consideration involve North Broken Hill in Australia, Cayeli in Turkey and Far Southeast Gold in the Philippines, totaling about 80,000 tonnes per year of copper or only 1% of the Western world’s output.
If all of these greenfield projects come on stream, they will boost world mine capacity by about 15% over the next five years, excluding Escondida which represents approximately 4.5% of the world’s present mine output.
In Canada, two other copper deposits came near decision in 1990, Louvicourt in northwestern Quebec and Mt. Milligan in British Columbia. They both lack final feasibility studies but Aur Resources (TSE) and Societe Miniere Louvem (TSE) settled their dispute of control for Louvicourt and a resource base of about 33 million tonnes was announced.
Placer Dome (TSE) took over Continental Gold, which had a major stake in Mt. Milligan, and acquired Rio Algom’s shares of the Mt. Milligan property, and has gotten closer to final feasibility of this 300-million-tonne resource base. Mt. Milligan is essentially a gold deposit but has significant copper byproduct values capable of as much as 45,000 tpy of copper in concentrate.
Some of these greenfield projects will move through feasibility in 1991 when conditions will remain uncertain. But that is the nature of copper markets; they are full of surprises. And one should not forget Bougainville in Papua New Guinea, shut down since mid-May, 1989, because of the native land claims on the island. That mine is capable of producing 165,000 tonnes of copper in concentrate per year. This is a good example how things change in the copper business.005 0000,0606 Terence Ortslan is a senior mining analyst and vice-president with securities firm Merill Lynch U.S.A. QUARTERLY TREND IN LME INVENTORIES & PRICES 0106,0706,0600,0900,0000,0000, Change in LME HG LME Stocks (tonnes) Price (US$/lb.) 1988 QI +4,000 1.11 II +33,000 1.10 III +10,000 1.03 IV –35,000 1.49 YEAR +12,000 1.19 1989 QI +32,000 1.48 II –15,000 1.27 III +23,000 1.25 IV +4,000 1.19 YEAR +43,000 1.30 1990 QI –49,000 1.11 II No change 1.21 III +128,000 1.34 IV –9,000 1.18 YEAR +70,000 1.21
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