LONDON (Commodity Online): The world copper miners are facing a strange situation now. The world miners are experiencing increasingly tighter supply of copper, thanks to many leading mines across the globe developed over two decades ago yielding ore with less and less metal content.

Most mine projects will exploit the highest ore grades possible in their earlier years of production to facilitate rapid payback of capital. The trade-off then becomes sharply falling grades as mining progresses.

Ageing mines and therefore, ore grades falling universally will be working to the advantage of companies which are now on a mission to commission new mining capacity.

One of such companies is India’s government-owned Hindustan Copper (HCL). In the last one decade the average copper content in ore globally is down over one percentage point forcing miners to remove more and more earth to produce the same amount of concentrate, the smelter feedstock.

So to the extent there is ongoing deterioration in world ore quality, HCL’s disadvantage of owning relatively inferior deposits gets diminished. The bottomline for HCL is it must dig earth a lot more efficiently than now and by doing so it will always earn more by selling concentrate than running old smelters.

The shift in HCL emphasis from being a producer of refined copper using smelters which have little to recommend for themselves in terms of technology, energy use and capacity to a miner of copper ore and producer of concentrate is what is going to underwrite the viability of the company in the long run. Not very long in the past, the company was adrift for a flawed business strategy.

Starting June, three-month copper gained $1,400 to $7,400 a tonne and then lost some ground. But operators must react to the disturbing news about the fall in factory index in the US and also rise in claims for jobless benefits. The US is the world’s second largest user of copper after China.

If the experts are still of the opinion that the red metal will first climb to $9,000 a tonne within a year and then progressively approach $10,000 a tonne, it is because the fundamentals like copper production targets are missed regularly and stocks with both London Metal Exchange and Shanghai Exchange falling are supportive of copper. The copper ore quality may be falling, warehouse stocks declining and the underlying demand remaining strong despite hiccups in the world economy, but because of the inordinately long time taken in opening new mines, there is no way supply can be stepped up quickly.

No doubt supply side would have been in better shape had not weak copper prices in the past discouraged investment in new mines development.

Brazil’s Vale, often described as a one trick pony for its overdependence on iron ore, is to make an investment of over $400 million in African Rainbow Minerals to develop a new copper mine in Zambia. Also in pursuit of its ‘medium term strategic objective of becoming one of the main copper producers in the world,’ Vale will be commissioning a 100,000 tonnes smelter in Carajas in Brazil in 2011 and a smaller 18,000 tonnes smelter at Tres Valles in Chile this year.

Vale, which now owns 300,000 tonnes of smelting capacity will perforce be looking beyond Latin America for raising its copper profile as the best opportunities there are already usurped. The urge of Hindalco and Vedanta to buy copper mines abroad is easily understandable.
(Source: Business Standard)

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