Ground Breakers: Keep faith in copper, say miners, as price volatility bites

Copper miners think prices will rise as supplies for the red metal fall short
OZ Minerals boss says prices strong despite bear run on Chinese demand concerns and recession fears
OZ facing questions on whether inflation will cause it to defer decision of West Musgrave nickel-copper mine

Copper and nickel, two base metals strapped tight into the wild ride that is the global economy’s mission to decarbonise, have been knocked down in the past couple months on demand concerns in China and rate rises prompting recession fears elsewhere.

Copper, which traded above US$9000/t for most of the past 15 months, is now paying US$7453/t, while nickel spent much of the first half above US$30,000/t amid a short squeeze on LME held metal prices and is now buying US$22,122/t.

But is it all sentiment?

That seems to be how copper miners feel. The CEO of US giant Freeport-McMoran Richard Adkerson said as much on a conference call last week announcing the Grasberg mine owner’s second quarter results.

“There has been, to date, no significant impact in physical demand (for copper). Today’s market is tight,” he told analysts.

His broader thoughts on the copper market are even more stark.

“Supplies for new copper are challenged. There is no clear line of sight for mine development to meet future demand,” he said.

“The result is, there has to be more scrap recovery, has to be conservation of substitution, more mines and expansions, more mines to develop expansions.

“But all of this takes years to execute, as you can see from our company. The results will be higher copper prices. The current price for copper is unsustainable. Absent a global long-term economic collapse, that is simply inevitable.”

Over in OZ

Over in Australia OZ Minerals (ASX:OZL) boss Andrew Cole is running a similar line.

OZ saw its costs rise sharply as production fell due to weather, Covid absenteeism and damage to a material handling system belt at the Carrapateena mine in SA.

The copper and gold miner produced 27,423t of copper, its weakest performance in the past 12 months, along with 51,184oz of gold at all in sustaining costs of US$2.10/lb, up from US$1.744/lb in the March quarter and just US$1.067/lb in the September quarter of 2021.

But inflationary pressures across the market have raised new concerns about OZ’s potential investment decision on the $1.1 billion West Musgrave nickel-copper project in remote Western Australia, which is due this year.

OZ have said industry-wide cost pressures could add 10-15% to the cost of delivering the project, though a formal DFS is due later this year.

OZ MD Andrew Cole says the company will only look to further projects in the bottom half of the cost curve, but says the copper price is stronger today than many people think.

“If commodity prices come down, our job is to make sure our costs come down commensurately,” he said.

“I do think we need to remember that the commodity prices where they’re at today are pretty good still and the medium to long term price forecasts for commodities like copper and nickel are pretty robust.

“It’ll be highly volatile but people also need to remember that.”

OZ executives say their copper price forecasts are likely conservative.