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100 Years of Resource Growth for Copper - Impact of Costs, Grade and Technology

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The presentation outlines the various factors behind the 25-fold increase in the copper resource base over the last hundred years – and shows that the industry is NOT facing a “peak metal” ...

The presentation outlines the various factors behind the 25-fold increase in the copper resource base over the last hundred years – and shows that the industry is NOT facing a “peak metal” situation. It has data on discovery rates, head grades and mining costs from 1900 to 2009.
One provocative observation is that the large decline in copper head grades over the century (from 4% to around 1%) is not necessarily bad news (or an indication that we are running out of ore). Instead it is more to do with the fact that technology and economies of scale have enabled lower grade ore to be economically mined. This allowed companies to lower their cut-off grade – thereby expanding the available resource by a factor of six. The author argues that engineers and geologists acted as equal partners in growing the resource base over the last Century.
Assuming that we continue to explore and innovate, the world will not run out of copper anytime soon.

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100 Years of Resource Growth for Copper - Impact of Costs, Grade and Technology Presentation Transcript

  • 1. The key drivers behind resource growth: an analysis of the copper industry over the last 100 years Richard Schodde Managing Director, MinEx Consulting 2010 MEMS Conference Mineral and Metal Markets over the Long Term Joint Program with the SME annual meeting in Phoenix, March 3 2010MinEx Consulting Strategic advice on mineral economics & exploration
  • 2. Overview 1. What are the key drivers? 2. How much copper has been found and mined 3. Trends in declining ore grade – is it good news or bad? 4. Untangling the effects of discovery, technology, costs and pricesMinEx Consulting Strategic advice on mineral economics & exploration 2
  • 3. Key drivers for resource growth • Exploration success – Trends in copper discovery rates over last century – Growth in world reserves & resources • Changes in costs – Impact on what we define “economic” ore – R&D and Engineers can grow the resource • Changes in prices – Higher prices will expand the pool of economic projectsMinEx Consulting Strategic advice on mineral economics & exploration 3
  • 4. Discovery: Most of the metal found is tied up in a handful of deposits Amount of copper found in deposits >0.1 Mt Cu in the World: 1900-2009 Mt Cu Other & Unspecified Most of the copper 180 found came from Individual Deposits > 1 Mt Cu Chuquicamata a handful of 150 El Teniente giant deposits Andina 120 Olympic Dam Escondida 90 Lubin Grasberg 60 30 Estimate 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Source: MinEx Consulting Feb 2010 Note: Chart include minor adjustment for deposits missing from the databaseMinEx Consulting Strategic advice on mineral economics & exploration 4
  • 5. Until recently, we have been finding it faster than we mine it Amount of copper mined vs copper found in deposits >0.1 Mt Cu in the World: 1900-2009 Mt Cu CAUTION: Not all 180 Discoveries discoveries turn into mines, and not all Production 150 resources get recovered 120 90 60 Estimate 30 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Source: MinEx Consulting Feb 2010 Note: Chart include minor adjustment for deposits missing from the databaseMinEx Consulting Strategic advice on mineral economics & exploration 5
  • 6. Copper reserves continue to grow World Copper Reserves: 1900-2010 Mt Cu 1000 Various Authors Tilton & Lagos (2007) 800 Govett & Govett (1976) Brook Hunt (2007) 600 USGS USGS "Reserve Base" 400 200 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Sources: VariousMinEx Consulting Strategic advice on mineral economics & exploration 6
  • 7. Copper reserves continue to grow World Copper Reserves: 1900-2010 Mt Cu 1000 Various Authors Tilton & Lagos (2007) 800 Govett & Govett (1976) Brook Hunt (2007) 550 mt in USGS 2010 600 USGS "Reserve Base" ESTIMATED RESERVES 400 200 25 mt in 1900 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Sources: Various MinEx Consulting March 2010MinEx Consulting Strategic advice on mineral economics & exploration 7
  • 8. Over the last Century copper endowment has grown 25 fold World Pre-mined Copper Reserves: 1900-2010 Mt Cu 3500 Est Cumulative Mine Losses 3000 Cumulative Production 2500 2000 1500 1000 686 500 577 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Sources: Production data from USGS MinEx Consulting March 2010 Note: Assumes 20mt in cumulative historic production pre-1900 Mining recovers 85% of copper contained in oreMinEx Consulting Strategic advice on mineral economics & exploration 8
  • 9. Over the last Century copper endowment has grown 25 fold World Pre-mined Copper Reserves: 1900-2010 Mt Cu 3500 Estimated Reserves 3000 Est Cumulative Mine Losses 2500 Cumulative Production 2000 1500 1236 mt in 2010 1000 686 500 577 52 mt in 1900 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Sources: Production data from USGS MinEx Consulting March 2010 Note: Assumes 20mt in cumulative historic production pre-1900 Mining recovers 85% of copper contained in oreMinEx Consulting Strategic advice on mineral economics & exploration 9
  • 10. Over the last Century copper endowment has grown 25 fold World Pre-mined Copper Reserves: 1900-2010 Mt Cu 3500 USGS "Reserve Base" 3000 Estimated Reserves Est Cumulative Mine Losses 2500 Cumulative Production 2000 1670 1500 1236 mt in 2010 1000 No data pre 1977 686 500 577 52 mt in 1900 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Sources: Production data from USGS MinEx Consulting March 2010 Note: Assumes 20mt in cumulative historic production pre-1900 Mining recovers 85% of copper contained in oreMinEx Consulting Strategic advice on mineral economics & exploration 10
  • 11. Over the last Century copper endowment has grown 25 fold World Pre-mined Copper Reserves: 1900-2010 Mt Cu MinEx data includes Inferred 3500 Resources and assigns the USGS "Reserve Base" current known resource back 3145 Estimated Reserves to the original discovery date 3000 – and so is larger Est Cumulative Mine Losses Cumulative Production GAP ? 2500 Cumulative Discoveries (MinEx data) 2000 1670 1500 1236 mt in 2010 1000 No data pre 1977 686 500 577 52 mt in 1900 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Sources: Production data from USGS MinEx Consulting March 2010 Note: Assumes 20mt in cumulative historic production pre-1900 Mining recovers 85% of copper contained in oreMinEx Consulting Strategic advice on mineral economics & exploration 11
  • 12. Reserve life has slowly declined over the last 60 years Ratio of Reserves/Production - World: 1900-2010 Years 111 100 91 Assuming continued discoveries, the world isn’t going to run out 80 of copper soon 60 60 50 years in 1900 36 years 40 in 2010 32 20 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Sources: Production data from USGS Reserve data MinEx Consulting March 2010 Note: Chart based on “Estimated Reserves” Peaks in 1921 and 1932 due to sudden drop in productionMinEx Consulting Strategic advice on mineral economics & exploration 12
  • 13. Ore grades mined have declined over time Copper ore grade for World and selected countries: 1900-2008 Copper Grade (%) 6.86% 6% World USA 5% Canada 4.0% in 1900 Australia 4% 3% 2% Estimate 1.07% in 2010 1% 0% 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Sources: USGS, Mudd (2009) Brook Hunt, UBS Note: Rise in ore grade in Australia from 1972 onwards is due to startup of the high-grade Olympic Dam mineMinEx Consulting Strategic advice on mineral economics & exploration 13
  • 14. The average grade for copper discoveries has remained relatively constant. This is dragging down the average ore grade mined Copper ore grade discovered and mined in the World: 1900-2008 Copper Grade (%) 6% Mined Grade 5% Discovery Grade 4% The ore grade mined is converging on the average 3% discovered grade 2% Estimate 1% 0% 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Sources: USGS, Mudd (2009) WARNING: The definition of what is economic ore has changed over time. The estimated Brook Hunt, UBS discovery grade is based on the latest available resource figures – which is much larger (but often lower grade) than that originally reported at the time of discoveryMinEx Consulting Strategic advice on mineral economics & exploration 14
  • 15. QUESTION: Is a declining ore grade bad news or good news ?MinEx Consulting Strategic advice on mineral economics & exploration 15
  • 16. There is a trade-off between tonnes and grade Rio Blanco copper deposit Grade (%Cu-equiv) … lower grades could signify 10% “good” news as … 8% Lowering the cut-off grade grows the resource 6% = MORE METAL 4% 65 mt @ 1.26% Cu 2% = 0.82 mt Cu 1100 mt @ 0.58% Cu = 6.38 mt Cu 0% 1 10 100 1000 10000 Resource (million tonnes) Source: MinEx Consulting March 2010MinEx Consulting Strategic advice on mineral economics & exploration 16
  • 17. There is a trade-off between tonnes and grade Tonnes-Grade data for 48 copper deposits Grade (%Cu-equiv) 10% 8% 6% 4% 2% 0% 1 10 100 1000 10000 Resource (million tonnes) Source: MinEx Consulting March 2010MinEx Consulting Strategic advice on mineral economics & exploration 17
  • 18. There is a trade-off between tonnes and grade NORMALISED Tonnes-Grade data for 48 copper deposits Change in Grade (over Base Case) On average, by adjusting the cut-off grade, it is possible to double or triple 5 the head grade of the ore body, but at the expense of shrinking the ore 4 tonnes by a factor of 10 3 2 1 0 0.01 0.1 1 Change in Resource size (over Base Case) Base Case defined as the maximum reported Source: MinEx Consulting March 2010 resource size for a given depositMinEx Consulting Strategic advice on mineral economics & exploration 18
  • 19. There is a trade-off between tonnes and grade NORMALISED Tonnes-Grade data for 48 copper deposits Change in Grade (over Base Case) On average, by adjusting the cut-off grade, it is possible to double or triple 5 the head grade of the ore body, but at Curve of “Best-Fit” the expense of shrinking the ore 4 tonnes by a factor of 10 3.5 3 2.3 2 1.0 1 0 0.01 0.1 1 Change in Resource size (over Base Case) Base Case defined as the maximum reported Source: MinEx Consulting March 2010 resource size for a given depositMinEx Consulting Strategic advice on mineral economics & exploration 19
  • 20. Most of the huge growth in known resources in the last 70 years can be attributed to a reduction in cut-off grades Change in pre-mined resources for 12 giant porphyry deposits: 1929-2008 Mt Cu Top 12 Porphyry Mines in 1929 Total 378 mt Cu 400 (61,000 mt @ 0.62% Cu) Chuquicamata Braden (El Teniente) In 1929 these 12 mines Morenci accounted for 55% of the Reduction in pre-mined Utah (Bingham Canyon) world’s Cu reserves. In 300 Remaining resource from using Ray 2008 they still accounted Chino Resource higher cut-off grade Miami for 10% of world resources 242 mt Cu Nevada (Ely/Robinson) Inspiration 200 Andes (Potrerillos) New Cornelia Including “speculative” Copper Queen resources increases this to 67 mt Cu Total 60 mt Cu 100 Mined to-date (3880 mt @ 1.55% Cu) Total 47 mt Cu 136 mt Cu (3068 mt @ 1.55% Cu) Pre-Mined Resource at higher cut-off grade Remaining Reserve 37mt Cu 0 Mined to-date 2008 Adjusted 2008 1929 10mt Cu Sources: Parsons (1933) MinEx ConsultingMinEx Consulting Strategic advice on mineral economics & exploration 20
  • 21. Over the last 100 years, the real price and cost of copper has halved Copper price and (estimated) average operating costs for Western World: 1900-2009 2009 $/lb Cu $7 QUESTION: Operating Cost Is price an input or an output ? $6 Copper Price $5 … Prices are set by supply & demand $4 $3 $2 Estimate $1 $0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Sources: USGS, Brook Hunt, CRU MinEx Consulting estimates (for 1900-1974) Includes, transportation, smelting & refining and marketing costsMinEx Consulting Strategic advice on mineral economics & exploration 21
  • 22. Over the same period, unit mining costs have dropped four-fold Estimated average operating costs for copper mines in Western World: 1900-2009 2009 $/tonne ore $160 $140 The lower cost per tonne has more than offset the lower grades $120 mined - leading to lower unit price per lb of copper produced $100 Estimate $80 Key Challenge – In the future will costs continue to fall $60 faster than the grade ? $40 $20 $0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Sources: Brook Hunt, CRU , Historical reports MinEx Consulting estimates (for 1900-1974) Includes, transportation, smelting & refining and marketing costsMinEx Consulting Strategic advice on mineral economics & exploration 22
  • 23. Key Technical Innovations Estimated average operating costs for copper mines in Western World: 1900-2009 Improved 2009 $/tonne ore transportation Development of $160 Computer a good Froth Flotation geological controls , $140 modelling and Airborne model for Porphyries scheduling $120 Bulk mining at geophysics Bingham Canyon & post-WW2 led $100 Chuquicamata … to raft of new SXEW discoveries … which opened $80 up the “Age of Low cost the Giant Better work mines in new $60 Improved Porphyries” practices countries recoveries $40 65% to 85% Better $20 Smelting & Expanding demand led to economies of scale Refining $0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Sources: Brook Hunt, CRU , Historical reports MinEx Consulting estimates (for 1900-1974) Includes, transportation, smelting & refining and marketing costsMinEx Consulting Strategic advice on mineral economics & exploration 23
  • 24. Economies of scale and new technology helped drive down costs Cash operating costs for selected open pit mines in USA and Chile 2009 $/tonne ore $120 1905 Cost savings from 1915 economies of scale 1929 $100 1 to 50 mtpa = 30% 1996 1905 Trend line $80 $80/t 2007 $60/t $60 1915 Cost savings from $40 new technology 1929 1905->2007 = 70% $20 $18/t 1996 & 2007 $0 0 1 10 100 Mining Rate (mtpa ore) Operating costs include transportation, smelting & refining charges Source: MinEx Consulting March 2010 # Bingham Canyon, Ray, Chino, Morenci, Robinson, Toprerillos, Chuquicamata and El TenienteMinEx Consulting Strategic advice on mineral economics & exploration 24
  • 25. SUMMARY • World’s copper resource base grew by x25 over last 100 years Hard to untangle the • Much of this was through discovery partnership between geologists & engineers … say 50: 50 • Technical innovations enabled giant “disseminated” Porphyries to be mined, and then later Cu-oxide deposits 30% 70% • Costs reduced through economies of scale and new technologies • As costs went down, so too did cut-off grades … thereby further growing the resource Halving the ore grade increased ore tonnes by x6 and metal by x3 • Prices are a output – not an input. They are driven by supply & demandMinEx Consulting Strategic advice on mineral economics & exploration 25
  • 26. Contact details Richard Schodde Managing Director MinEx Consulting Melbourne, Australia Email: Richard@MinExConsulting.com QUESTIONS ?MinEx Consulting Strategic advice on mineral economics & exploration 26