Copper producers need to exercise caution before proceeding with the next generation of mines, according to a study by London-based CRU International, a commodities research firm.
A prolonged period of high profitability in the copper industry has given rise to a large number of mines under consideration, yet the study cautions that only five of these are expected to prove profitable. It goes on to suggest that, with the current run of high copper prices likely to be nearing an end, mining companies need to re-examine the viability of their projects under development.
Chief among the five projects ranked as either “outstanding” or “very good” is Inco’s Voisey’s Bay project in Labrador, where copper will be produced as a byproduct.
The second most attractive is the Collahuasi project, held by Falconbridge and Minorco in Chile, which will have an internal rate of return exceeding 15% and a payback period of four years. The calculations are based on a long-term copper price of US90 cents per lb., though Collahuasi would generate a positive return even if the price fell as low as US75 cents.
The picture is not as bright for many other projects, where internal rates of return would fall below 10% with increasing payback periods if copper prices remained weak.
Among the largest and costliest potential mines are Batu Hijau in Indonesia, which is expected to yield 230,000 tonnes per year, and Konkola Deep in Zambia, where annual output is projected at 152,000 tonnes.
Other large projects include La Granja in Peru, Agua Rica in Argentina and Petaquilla in Panama, each of which has an estimated peak output of 260,000 tonnes per year.
The 20 projects evaluated in the study could account for 3 million tonnes per year at a total cost of US$13 billion.
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