Why copper is needed to keep Australia’s lights on now and increasingly in the future
Australia’s east coast has a wealth of energy sources, but a poverty of electricity being generated. The current energy crisis highlights the need for significantly more efficient power grids and supporting transmission infrastructure as the trend towards renewables continues to accelerate globally.
The NSW government acknowledged this last week with a $1.2 billion transmission investment that will unlock $14 billion of private sector projects. This trend is expected to significantly accelerate, meaning a lot more demand for copper, both now and in the upcoming decades.
The finger pointing over the last couple of weeks is understandable given the rising price of power and risk of the lights going off in parts of the east coast. This current scenario is a combination of several factors, many of which are a long time in the making but all of which will require significant amounts of new investment, a much more efficient electricity network and materially more copper demand to be resolved.
“The failure to invest in renewable energy and a modern power grid is why we’re facing the problems we are facing right now,” Deputy Prime Minister Richard Marles summed up last week.
Prime Minister Anthony Albanese has stated his ambition to significantly address the former, with a new target announced last week for 82% of Australia’s National Energy Market to come from renewable sources by the end of the decade (from the current ratio of 32%).
This on its own will require significant amounts of new copper. “Green” sourced power is estimated to be seven to 37 times more copper intensive than “traditional” electricity but will only work with significant upgrades and new investment into the national grid and transmission networks, which will require even more significant amounts of new copper.
To help illustrate the need for the latter, the NSW government last week announced a $1.2 billion facility for renewable energy infrastructure, the single largest investment in clean energy in the state’s history.
The investment is designed to fast-track the construction of transmission infrastructure projects that are forecast to unlock at least $14 billion in private transmission projects that are currently under development in NSW, which will help to deliver more than 50 large-scale renewable energy projects that boast a combined capacity of 16GW.
“Getting transmission right is crucial to providing developers with the certainty they need to begin making the considerable investments in renewable energy and storage required to decarbonise our electricity system,” Clean Energy Council director of external affairs Arron Wood said.
This is supported by Tamatha Smith, acting CEO of Energy Networks Australia, who says “the recent energy shortages and huge wholesale price increases have highlighted the importance of a more connected energy grid that can deliver more power to meet demand.”
This trend is not only occurring in Australia but in most developed market economies, particularly in Europe, in part, with the Russia-Ukraine war and dislocation of traditional energy sources being a further catalyst.
For example, the German cabinet is currently drafting laws aimed at accelerating its energy transition, detailing new rules for using a minimum of 2% of the country’s surface area for wind turbines. By 2035, all electricity generated in Germany is to come from renewable sources, mainly from wind and solar PV.
As such, the case for more big copper mines gets stronger by the day, with yet another industry expert outlining why the red metal is “at the centre” of demand for electrification and the “green technologies”.
Michael Huggins, director and head of Australia and New Zealand for global management consultancy Partners in Performance, says copper is a key metal used in all electrification technologies and the majority of green technologies, with demand predicted to grow 24-40% by 2040.
There is a 9-million-tonne copper deficit expected by 2030, with electric vehicles alone requiring nearly 4 million tonnes of copper each year by 2040 – an important point recently made by industry legend and Ivanhoe Mines founder Robert Friedland.
Each electric vehicle requires 500,000 pounds of raw materials and that includes copper, with demand for its use in EVs set to increase tenfold by 2030.
While each normal internal combustion engine vehicle requires 20kg of copper, over 5x that amount is needed for a fully electric, plug-in vehicle, and that is before factoring in how the power is generated and then connected to charge the vehicle.
To provide a couple of examples, solar and wind power generation are said to be seven to 37 times more copper intensive than traditional electricity generating technologies, and to build a 100km transmission line is estimated to require about $125 million worth of copper.
The shift to green power, and upgrades to the national grids to facilitate this, in Australia alone show the implications for copper demand.
But where exactly is that new copper – all 700 million tonnes over the next 22 years – going to come from?
Huggins emphasised the massive underinvestment in copper exploration which is putting pressure on supply amid rapidly rising demand.
“The current shortage isn’t about there not being enough copper – it is about the world’s copper mines not producing enough supply,” he said in recent Australian Mining Review article.
“The shortage is so severe that electric car manufacturers may need to vertically integrate and buy a copper mine as part of their operations. It may seem extreme, but Tesla has already become a technical partner in a nickel mine in New Caledonia to ensure its nickel supply.”
Such trends in investment are expected to be geared towards Tier 1 jurisdictions. From this perspective, Australia is well placed with the world’s second largest reserves of copper.
There are a few different copper deposit types but there is an increasing focus on porphyry deposits in particular.
“Given porphyry systems supply approximately 60% of the world’s current copper, there will be a clear emphasis on these projects, as many other systems will not really move the needle,” Sam Spring, former Goldman Sachs analyst and CEO of ASX-listed copper explorer Kincora Copper (ASX:KCC) said.
There are three clear Tier 1 copper provinces in Australia – Mt Isa in Queensland, the Gawler Craton (Olympic Dam) in South Australia and the Macquarie Arc in NSW – the latter being the foremost porphyry province, according to Spring, and best known for Newcrest Mining’s (ASX:NCM) flagship operation, the Cadia mine (which is also the largest gold mine in Australia and one of the lowest cost operations globally).
Kincora’s advanced and brownfield Trundle Project sits in the Macquarie Arc – in the same mineral system as Northparkes, which is Australia’s second largest porphyry mine behind Cadia.
The Macquarie Arc is particularly attractive because of its location, existing infrastructure and limited depth of cover.
Kincora, which Spring says is the leading pure-play porphyry explorer in the region, made a new discovery earlier this year.
“Further exploration success provides significant leverage to the structural supply side outlook for copper, particularly given the project’s extremely favourable location,” Spring noted.
Recent assays from the Trundle Park prospect further confirmed that Kincora had made a significant discovery along the Southern Extension Zone (SEZ), a new skarn system at the Trundle Project.
Importantly, those assays backed up previous drilling results that indicated the company was close to its primary porphyry target.
Skarn deposits are generally formed on the peripheral to, and mineralising fluids sourced from, porphyry systems. The Northparkes and Cadia mines both host skarn and porphyry resources.
Kincora says it has found the largest skarn system in NSW. While the skarn system is significant, the company’s primary target is a higher-grade and larger copper-gold porphyry system.
Results are pending for a further two completed diamond holes at the SEZ target and 72 air-core holes at seven other prospects across the company’s Trundle and Fairholme Projects.
This article was developed in collaboration with Kincora Copper, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.