Even processing breakthroughs won't prevent a mind-blowing 2030 copper deficit

Goldman Sachs’ metals research team has set out its stall on the copper bandwagon, spending much of the post-Covid era how badly we’re boned on supply enough to support the energy transition.

They see a mammoth 5Mt deficit in 2030 — this year’s comparatively small deficit is likely to be in the hundreds of thousands of tonnes and already analysts are calling for a copper breakout in the next 12 months.

With prices briefly touching US$9000/t before a pullback in the past couple trading days, even iron ore titan Andrew Forrest is being asked when he’ll pull the trigger on developing copper projects his digger Fortescue (ASX:FMG) has been exploring in the background for years.

It has taken farm-in positions or stakes in Strategic Energy Resources (ASX:SER) and Magmatic Resources (ASX:MAG) in recent times.

While they and many other analysts are bullish, we’ve been here before, as Ten Bagger expert John Forwood explained in this month’s investment column.

“Some of the smartest people in the room got it wrong on nickel. Could that be the same with copper?” the Lowell Resources Fund CIO said.

“Well sure. 10 years ago everyone was forecasting that within two or three years we’d have a massive deficit of copper.

“Groups like WoodMackenzie etc. And here we are 10 years later and the price hasn’t moved much but the forecast looks very similar.

“The gap got filled by not so much big new projects, and there have been a few, but it’s been smaller projects of ~100,000tpa or less that have come online and expansions of existing projects.

“Can that happen again? Absolutely. Can it happen to keep the price down where it is? You wouldn’t want to bet on it.”

One risk is a new processing technology, and Goldman’s global commodities team has laid its eyes over this externality in a new note.

They think the top 5 copper miners have around 1.3Mt of spare capacity because oxide resources, previously processed via heap leach, have wound down as their mines have aged.

With a technological breakthrough they could deliver 1Mtpa over expected mined supply by the end of the decade.

But the analysts, including Aussie pair Paul Young and Caleb Heiner and commodity research boss Nicholas Snowdon, say that won’t fill the void.

“The potential 1Mt of extra copper from new leaching technologies is insufficient to close our commodities team’s 5Mt deficit in 2030,” they said.

“Our long-run copper price assumption remains ~US$4.5/lb (real $, from 2028). In an environment where a broad range of headwinds face the industry in delivering incremental supply, technological breakthroughs are needed to extract more from the installed resource base.”

Who’s closing on a solution?

GS says there are 10 leaching technologies they are following that could make the grqde.

Four of them are commercially proven, including BHP’s (ASX:BHP) Full SaL chloride technique and Bioleach, Freeport’s bio leach and Jetti Resources’ catalyst based chalcopyrite processing method, now employed at Capstone Copper’s (ASX:CSC) Pinto Valley and Freeport’s El Ebra and Bagdad mines.

BHP has another iron nitrate leach process in testing at Escondida, while Antofagasta, Anglo American, Freeport and Codelco are all working on their own in-house tech.

Rio Tinto (ASX:RIO) meanwhile has backed a start-up called Nuton which it’s hoping to roll out at its Escondida, Kennecott and La Granja sites as well as a host of third party operations.

“Larger-scale trials of new technologies are being conducted at major mines, and within the next 12-18 months we believe the market should have a better sense of the optionality this technology presents,” Goldman’s analysts say.

“Furthermore, this technology (in conjunction with traditional extractive methods via concentrators) could help boost the overall economics of future mine expansions. In fact, with copper at US$4/lb and challenges with water usage and tailings, we believe that new leach technologies may be able to economically compete with proposed new concentrators like those at Escondida and Bagdad.”

Without the introduction of new technologies, cathode production in the Americas could slide from a 2009 peak of 2.8Mt to half that by 2030.

It comes as China rapidly expands refining capacity, a situation which has seen Chinese smelters agree to cut production temporarily this year to arrest losses caused by decade low treatment and refining charges.

“Our commodities team has previously highlighted that improved primary sulphide leaching and new technologies have the potential to unlock ~1.2Mtpa of copper. That said, we remain cognisant of the challenges facing these technologies – most are still in their early stages and need to be demonstrated at commercial scale,” GS’ number-crunchers say.

“There is limited clarity on upfront capex and operating costs as of now, with some of these technology providers structuring the cost as a profit share on cost savings from the technology, which could be a potential disincentive for miners to invest.”