Goldman has been one of the world’s most noteworthy copper bulls in recent times, suggesting demand for the red metal to cater for the electrification of everything from cars and buses to off-grid electricity will blow supply out of the water by the end of the decade.
In one fantastical swoop, commodities strategist Nicholas Snowdon even suggested prices of US$100,000/t, something that would eclipse last year’s US$10,724/t record nearly 10 times over.
Goldman has not gone that far in a recent note outlining the prospects for the world’s top 50 developing copper projects.
But they have said prices above US$13,000/t would be needed to incentivise the 8Mt of additional annual production needed by 2030 to cater for demand from renewables, power infrastructure and EVs — around eight times that of the world’s biggest copper mine Escondida.
According to Goldman, US$9000/t is the new marginal incentive price for a copper mine today, up 30% on 2018.
At current prices of US$7867/t, which have pulled back in 2022 due to weak near-term Chinese demand amid its property sector’s struggles and Covid lockdowns, 60% of projects are not economically viable.
That could push prices even higher when the world really needs its copper fix.
“This, in our view, could disincentivize/delay decisions on new investment projects, thus exacerbating the deficit in the second half of the decade forecast by our commodities team,” GS says.
According to Goldman, 50% of supply from the world’s top-50 development ready projects will come in unconventional jurisdictions like the Democratic Republic of the Congo, PNG, Botswana, Panama, Zambia and Mongolia.
These projects have higher reserve grades, but are located in jurisdictions with difficult permitting regimes, endemic government corruption and/or a dearth of mining know-how.
“This leads to higher returns/copper prices being required and indicates possible delays in project sanctioning/execution,” Goldman analysts suggest.
All up, an extraordinary US$150 billion of capex needs to be sunk into the ground by 2030 to bring on this 8Mt wave of new supply.
Given miners who burned their shareholders with failed projects and bad M & A decisions in the boom are trying to make good by converting their cash piles into dividends for shareholders right now, that is easier said than done.
“We estimate next 5Y (five years) growth capex to be 40% lower vs 2010-21 in real terms.”
And since Goldman’s last update in 2018, 50% of the projects on its list have seen their start dates pushed out by an average of three years, caused by increasing jurisdictional risks, ESG concerns from communities and governments (cf. Chile’s tax policies and environmental crackdowns) and investor caution on large capex blowouts.
While copper scrap supply has been extremely elastic to higher prices, higher prices have done little to incentivise new mined copper supply.
Ouch.
