copper supply pipeline 2009

7/30/2019 Copper Supply Pipeline 2009

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Metals Economics Group - Strategic Report, July/August 2009 1

COPPER SUPPLY PIPELINE2009

Although copper producers responded to the global economic crisis by cutting back production, delayingexpansions, and postponing new mine development, 2009 data so far indicates that weaker consumption

will result in a significant market surplus and much lower average prices than in 2008. Looking further

ahead, most analysts expect strengthening demand and delayed new production to result in a much tighter

market in 2010 and beyond, which could encourage reactivation of stalled projects.

Economic conditions reduce demand and increase surplus

As illustrated in Figure 1 below, preliminary indications suggest that the copper market will be in

significant surplus in 2009. ICSGs data shows a surplus of 238,000 mt of refined copper in the 2008

market balance, and projects a surplus of at least 345,000 mt for 2009.

Figure 1: Refined Copper Production and Prices, 1989-2009

* MEG and ICSG estimates based on six-month averages.

Data sources: Metals Economics Group, Metals Week.

-1,000

-800

-600

-400

-200

0

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400

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800

1989

1990

1991

1992

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1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009*

CopperSupplyMinusUsage('000

mt)

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

CopperPrice(US$/lb)

LME Copper Price

Copper Supply Surplus

Copper Supply Deficit


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2 Metals Economics Group - Strategic Report, July/August 2009

Copper Supply Pipeline 2009

As economic conditions worsened in late 2008, demand evaporated and exchange inventories piled up,

with LME stocks tripling from historic lows in mid-2008 to 536,670 mt in February 2009. Copper prices

collapsed from historic highs of more than $3.50/lb in mid-2008 to less than $1.50/lb in early 2009.

However, LME copper stocks trended downward from the February high to 265,730 mt in mid-2009.

Likewise, prices rebounded to $2.25/lb or more by midyear, perhaps indicating that the market isrecovering. Some analysts believe that the recent improvements result from Chinese and other

government stimulus spending, and expect a near-term correction before improving demand establishes a

more complete recovery.

This article presents a brief look at the supply side of the copper market, beginning with current company

and mine production and looking ahead at potential new mines and development projects.

Ten largest copper-producing companies produced 55% of world total in 2008

Table 1 lists the ten largest copper-producing companies and their actual 2008 and estimated 2009 copper

mine production. These ten companies produced 8.54 million mt of copper in 2008, more than 55% of

2008 world mine production; based on six months data, their 8.52 million mt of production will account

for slightly less than 55% in 2009.

Chiles state-owned Codelco, the worlds largest copper producer, increased output in the first half of

2009 (including its 49% share of El Abra) to 822,000 mt, compared with 715,000 mt in 2008mostly due

to ramp-up of the Gaby mine, which began production in May 2008, as well as increased throughput and

metal recovery at older operations. If the gains carry through the second half, projected 2009 production

of 1.64 million mt would be Codelcos first production increase since 2003. In 2008, Codelco suffered

production disruptions at Andina, El Teniente, and Chuquicamata, but this year has seen output increase

at all its mines except Freeport-McMoRan-operated El Abra, where Codelcos 49% share of output fell by

2.5% to 39,000 mt in the first half.

Second-largest producer Freeport-McMoRans first-half 2009 production was up by 4% year-on-year to

788,352 mt, although it reduced mining rates at certain of its North American copper mines in response to

global economic conditions. Sales from its four South American copper mines should fall to 635,000 mt

of copper and 100,000 oz of gold from 680,400 mt of copper and 116,000 oz of gold in 2008, because of

lower ore grades at Candelaria. Freeport expects sales from Grasberg in Indonesia to increase to 589,700

mt of copper and 2.3 million oz of gold in 2009, compared with 499,000 mt of copper and 1.2 million ozof gold in 2008, and copper sales from 57.75%-owned Tenke Fungurume in DRC to be about 45,360 mt

in 2009.

The only other company with copper production of more than 1 million mt/y isBHP Billiton, which

produced 1.38 million mt in the year ended June 2008 and 1.2 million mt in fiscal 2009. The decrease

was caused by lower-grade ore and lower production from its 57.5%-owned Escondida mine in Chile, but

was partially offset by ongoing ramp-ups of Spence and the Escondida sulfide leach project in Chile and

improved Olympic Dam output in Australia.


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Table 1: Ten Largest Copper Mining Companies in 2008

Company Principal Location of Mines

2008Copper

Production

(mt)

2008Share of

World

Total

2009Copper

Production

(mt)*

2009Share of

World

Total*

Codelco Chile 1,548,000 10.0% 1,644,000 10.5%

Freeport-McMoRan USA, Indonesia, Latin America 1,513,638 9.8% 1,576,704 10.1%

BHP Billiton Latin America 1,375,500 8.9% 1,207,100 7.7%

Xstrata Latin America, Australia 952,426 6.2% 990,523 6.3%

Rio Tinto Latin America, South Africa 698,500 4.5% 754,380 4.8%

Anglo American Latin America 641,300 4.1% 633,800 4.0%

Southern Copper Latin America 488,932 3.2% 490,000 3.1%

Antofagasta Latin America 477,700 3.1% 436,400 2.8%

KGHM Polska Poland 429,000 2.8% 400,000 2.6%

Norilsk Nickel Russia 419,000 2.7% 392,000 2.5%

Subtotals 8,543,996 55.3% 8,524,907 54.4%

World Totals 15,457,000 15,652,100

*Based on six months data.

Data sources: MEGs MineSearch database, Company reports, ICSG.

Largest copper mines in 2008

Table 2 lists the worlds ten largest copper mines or complexes, based on 2008 production. All are owned

by the largest copper-producing companies, with a few minority interests held by governments and other

companies. In 2008, these ten mines produced 5.1 million mt of copper (33% of world production), down

11% from more than 5.7 million mt produced in 2007.

The worlds largest copper mine is BHP Billitons 57.5%-ownedEscondida mine in Chile (Rio Tinto 30%,

Japanese consortium 10%, IFC 2.5%), which produced almost 1.3 million mt of copper in 2008, a 22%

decline from 2007. Its production fell by a further 28% year-on-year to 520,899 mt in the first half of

2009, due to lower head grades and harder ore that resulted in lower copper recoveries, and problems with

the SAG mill at the Laguna Seca concentrator. BHP Billiton plans to begin exploration in 2010 to extend

Escondida mine life, contingent on improved market conditions. Escondidas reserves and resources at

year-end 2008 totaled 65.9 million mt of contained copper.


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Codelcos Codelco Norte complex was 2008s second-largest producer, with output of 755,258 mt of

copper, a 16% decrease from 2007. The lower production resulted from ongoing efforts to remove waste

rock at the Chuquicamata mine to reach higher-grade mining zones. In January 2009, Codelco was close

Table 2: Ten Largest Copper Mines in 2008

Mine Owner(s) LocationMine

Status

CopperGrade

(%)

Copper inReserves

(mt)

Copper inReserves &Resources

(mt)

2007Copper

Production(mt/y)

2008Copper

Production(mt/y)

Escondida BHP Billiton 57.5%Rio Tinto 30%Japanese consortium 10%IFC 2.5%

Chile PRD 0.664 31,769,000 65,901,336 1,643,900 1,281,400

Codelco Norte Codelco Chile XPN 0.506 17,555,000 93,331,700 896,308 755,258

Grasberg Freeport-McMoRan 91%Govt of Indonesia 9%

Indonesia XPN 0.773 26,853,000 42,538,190 569,400 496,235

Collahuasi Xstrata 44%Anglo American 44%Japanese consortium 12%

Chile PRD 0.799 18,241,000 33,502,709 452,036 464,357

KGHM KGHM Polska Poland PRD 1.97 20,228,000 20,231,900 451,900 402,000

El Teniente Codelco Chile XPN 0.554 16,146,000 106,151,940 404,738 381,224

Antamina BHP Billiton 34%Xstrata 34%

Teck Resources 22%Mitsubishi 10%

Peru PRD 0.873 2,511,000 8,864,442 329,900 343,695

Los Pelambres Antofagasta 60%Japanese consortium 40%

Chile XPN 0.565 9,577,000 25,628,400 289,900 339,200

Taimyr Peninsu la Norilsk Nickel Russia PRD 1.472 8,319,000 32,461,162 338,435 338,511

Morenci Freeport-McMoRan United States PRD 0.26 7,756,000 13,174,200 366,613 334,056

Totals 158,955,000 441,785,979 5,743,130 5,135,936

Data sources: MEGs MineSearch database, Company reports.

to completing a prefeasibility study on underground development at Chuquicamata. Initial capital costs

to convert the open pit operation to an underground mine are estimated at $2 billion, with full production

by 2018. The underground mine would produce 120,000-140,000 mt/d ore, yielding 200,000-340,000

mt/y of copper. Codelco Norte reserves and resources total 93.3 million mt of copper contained in 18.5

billion mt of mineralization grading 0.5% Cu, including 60 million mt of copper in inferred resources.


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The third-largest copper mine is Freeport-McMoRans 91%-owned Grasberg in Indonesia (Government

of Indonesia 9%, Rio Tinto production royalty), which produced 496,235 mt of copper, 1.2 million oz

of gold, and 4.5 million oz of silver in 200813% less copper than in 2007. An expansion of Deep

Ore Zone output to 50,000 mt/d was completed in 2007; an expansion to 80,000 mt/d is under way,

with completion expected by 2010. Security issues remain a concern, following July 2009 deaths of

three employees in a series of attacks, which were either by rebel groups or a result of tensions between

military and local security forces.

Copper production cutbacks reduced potential 2009-10 production capacity by 1.6 million mt/y

As copper demand declined and prices and available funding collapsed in the second half of 2008,

producers and potential producers responded by shutting down mines and curtailing plans for new mines

and expansions of existing mines. As illustrated in Figure 2, most cutbacks52 mines and advanced

projects totaling 1.3 million mt/y in reduced production capacityoccurred between October 2008 andJanuary 2009, as copper prices fell from more than $3/lb in September to less than $1.50/lb. The entire

capacity taken offline (or that will not be coming online) is ascribed to the month it was announced.

Figure 2: Copper Capacity Cutback Announced by Month of Announcement 2008-09

(Total: 1.6 million mt/y)

Data source: MEGs MineSearch database.

0

100,000

200,000

300,000

400,000

500,000

CopperCapacity(mt/y)

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

CopperPrice(US$/lb)

Capacity removed (mt/y) 0 12,800 442,140158,260470,000240,275 92,000 65,100 57,200 17,000 54,050 20,000

Copper price $3.46 $3.17 $2.23 $1.69 $1.39 $1.46 $1.50 $1.70 $2.00 $2.07 $2.27 $2.37

Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09


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The capacity removed in February was significantly less as the price stabilized, but over the next several

months, further reductions were announced as projects requiring higher prices to be viable were put on

hold or shut down. During the 12-month period covered, a reported 72 cutbacks removed 1.6 million mt

of actual and potential copper production capacity from 2009-10 production. In the long term, as demand

recovers these cutbacks will help support higher prices.

Table 3 lists the biggest capacity cutbacks announced from August 2008 to July 2009, accounting for

927,350 mt/y or 57% of the total reduced production capacity for the 2009-10 period. As discussed

previously, the ten largest copper mines produced 607,200 mt (11%) less copper in 2008 than in 2007,

including significant decreases at the three largest mines. However, those declines largely resulted from

declining grades and other unplanned disruptions, rather than as responses to market conditions.

The largest mine announcing a market-related cutback in the past year was Freeport-McMoRans

Morenci mine in Arizona, which produced 334,056 mt in 2008 and 366,613 mt in 2007. To reduce

operating costs, which had reached $1.95/lb, Freeport reduced mining and milling rates at Morenci by

50% during the December 2008 quarter and laid off 402 employees. Freeport also cut production at

several other mines: Chino/Cobre in New Mexico by 100,000 mt/y and Saffordin Arizona by 54,500

mt/y.

In Russia, Russian Copper announced in October 2008 that it would freeze all investment projects for

2009, including a mining and smelting complex at wholly-ownedMiheevskoye that had been expected

to start production in 2009 and produce 70,900 mt/y of blister and 5,000 mt/y of copper cathode. The

company had difficulty arranging financing to cover capital costs, which had increased to $700 million. It

intends to resume development once external funding becomes available.

In January 2009, BHP Billiton placed itsPinto Valleysulfide operation in Arizona on care andmaintenance as it was uneconomic in the prevailing economy, laying off 550 employees and contractors

in the process. In the six months ended December 2008, Pinto Valley produced 28,900 mt of copper in

concentrate and 3,300 mt of copper cathode, plus 129,000 oz of silver and 139 mt of molybdenum.

Three other shuttered projects each had potential production capacity of 60,000 mt/yOceanaGolds

preproduction-stageDidipio project in the Philippines and China Nonferrous MetalsLuanshya and

Muliashi mines in Zambia. Five of the other six projects on the list are producing mines that announced

reductions totaling 260,700 mt/y. Baja Minings 70%-owned preproduction-stage Boleo project (Korea

Resources 30%) in Mexico, which was delayed in October 2008 and is expected to produce 55,750 mt/y

of copper, completes the list. Baja now plans to begin commissioning in 2012 for copper and in 2013 for

cobalt and zinc, rather than in early 2010 as previously planned.


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Table 3: Largest Copper Capacity Cutbacks, August 2008-July 2009

Project Owner(s) Location StatusDate

Announced

ProductionCapacity

(mt/y)

ProductionCutback

(mt/y)

Morenci Freeport-McMoRan 85%Sumitomo 15%

United States PRD Dec-08 370,000 185,000

Chino/Cobre Freeport-McMoRan United States PRD Dec-08 100,000 100,000

Miheevskoye Russian Copper Russia FEA Oct-08 75,900 75,900

Pinto Valley BHP Billiton United States PRD Jan-09 70,000 70,000

Didipio OceanaGold 92%Local interest 8%

Philippines PRE Nov-08 60,000 60,000

Luanshya Division China Nonferrous 75%Govt of Zambia 25%

Zambia PRD Jan-09 60,000 60,000

Muliashi North China Nonferrous 75%Govt of Zambia 25%

Zambia PRE Oct-08 60,000 60,000

Boleo Baja Mining 70%Korea Resources 30%

Mexico PRE Oct-08 55,750 55,750

Safford Freeport-McMoRan United States PRD Dec-08 109,000 54,500

Highland Valley Teck Resources 98%Highmont 2%

Canada PRD Jun-09 170,000 52,200

Mt Gordon Aditya Birla Australia PRD Feb-09 52,000 52,000

Myra Falls Breakwater Resources Canada PRD Oct-08 52,000 52,000

Bwana Mkubwa First Quantum Minerals Zambia PRD Oct-08 50,000 50,000

Totals 1,284,650 927,350


In the past year, 11 new mines added 844,900 mt/y to world product ion capacity

New mines and expansions with financing in place and work committed before the market downturn

could potentially compensate for much of the reduced and delayed production at existing projects. Since

early 2008, 11 new primary copper mines, each capable of producing more than 20,000 mt/y of copper,have begun production. If they all reach capacity, they will add 844,900 mt/y to world production.

The largest is Equinox Mineralss 170,000-mt/yLumwana mine, which produced its first copper

concentrate in early December 2008. However, in July 2009 Equinox reported it would not achieve

its 2009 production forecast, due to a lack of equipment availability and other productivity constraints

exacerbated by what had been considered primary sulfide ore zones yielding transitional ores. Earlier in

2009, when production ramp-up was progressing smoothly, Equinox expected 2009 production to reach


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170,000 mt of copper in concentrate at cash costs of $1.15/lb Cu, and planned for an 18-month expansion

following production ramp-up, to raise the annual processing rate by 20%. Lumwana has reserves and

resources containing a total of 4.9 million mt of copper in 745.7 million mt grading 0.65%.

Three other new mines each have nominal production capacity of more than 100,000 mt/y of copper. Thelargest is Codelcos Gaby mine in Chile, which began producing cathode in May 2008. In November

2008, Codelco began a $202 million expansion at Gaby to increase production from 150,000 mt/y to

170,000 mt/y. In December 2008, Codelco increased its 2009 production forecast to 160,000 mt and its

2010 forecast to 170,000 mt. Reserves and resources total 1.1 billion mt grading 0.37% Cu, containing

4.2 million mt of copper.

Table 4: New Copper Mine Startups s ince April 2008

Mine Owner(s) LocationMineType

StartupDate

CapitalCosts

(US$ mil)

CopperGrade

(%)


(mt)

CopperProductionCapacity

(mt/y)

Lumwana Equinox Minerals Zambia OP 2008 Q4 $814.0 0.65 4,854,507 170,000

Gaby Codelco Chile OP 2008 Q2 $1,268.0 0.37 4,173,750 150,000

Prominent Hill OZ Minerals Australia OP 2009 Q1 $936.0 0.90 2,586,550 117,000

Tenke Fungurume Freeport-McMoRan 57.75%Lundin 24.75%Gecamines 17.5%

DRC OP 2009 Q1 $1,750.0 2.54 12,440,618 115,000

Phu Kham PanAust 90%Govt of Laos 10%

Laos OP 2008 Q2 $241.0 0.66 1,057,770 75,000

Las Cruces Inmet Mining 70%MK Resources 30%

Spain OP 2009 Q2 $783.6 6.20 1,092,750 72,000

Atlas Toledo Atlas Consolidated Philippines UG 2009 Q1 $171.4 0.41 3,582,642 50,000

Boddington Newmont Mining Australia OP 2009 Q3 $2,750.0 0.10 1,381,380 30,000

Wushan China National Gold China OP 2008 Q4 $380.0 0.46 1,267,300 25,900

Yulong Western Mining 41%Zijin 39%Local interests 20%

China UG 2008 Q3 $260.0 0.94 6,619,997 20,000

Diqing Yunnan Copper 75%Local interests 25%

China 2008 Q3 $363.0 0.50 3,000,000 20,000

Totals $9,757.1 42,737,822 844,900



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OZ Minerals commissioned itsProminent Hillmine in Australia in January 2009; capital costs, previously

estimated at $707 million, came in at $936 million. Prominent Hill began producing concentrate in

February 2009, and was expected to ramp up to 85% of nameplate capacity by midyear and full capacity of

117,000 mt/y by the end of 2009 from reserves and resources totaling 289 million mt grading 0.9% Cu. In

April 2009, OZ announced that under amended terms of the Minmetals takeover, Minmetals would acquire

all of OZs properties except Prominent Hill, Martabe, and specific exploration assets in Cambodia and

Thailand.

The fourth new large-capacity producer is Freeport-McMoRans 57.75%-owned Tenke Fungurume

copper-cobalt mine (Lundin 24.75%, Gecamines 17.5%) in DRCs Katanga province. The first copper

cathode was produced in March 2009, and by June 2009 the cobalt plant was being commissioned and

construction at the $1.8 billion project was substantially completed. Startup issues in the copper and cobalt

circuits are being addressed, and Freeport expects to ramp up to full production of 115,000 mt/y of copper

and 8,000 mt/y of cobalt in the second half of 2009. Copper sales are expected to be about 45,360 mt in

2009 from reserves and resources of 12.44 million mt of copper contained in 490 million mt grading 2.5%

Cu and 0.3% Co.

Nine major mine expansions could add 836,700 mt/y to world capacity

Despite delays, cutbacks, and downsizing, several copper mines are moving forward with expansion plans.

The nine largest expansions currently under way are listed in Table 5. If all proceed as planned, they will

add 836,700 mt/y of copper to world production by the end of 2012.

Expansion work has proceeded intermittently since 1994 at Sarcheshmeh and Sungun in Iran, with thelatest reports indicating that construction is currently under way on a concentrator to produce 200,000 mt/y

of concentrate grading 28% Cu to help increase cathode production to 440,000 mt/y by the end of 2011. A

500-MW power plant was also being built. The Sarcheshmeh and Sungun expansions are expected to cost

$29 million. In 2007, Sarcheshmeh produced 203,000 mt of copper cathode.

Anglo American recently reported that the 174,000-mt/yLos Bronces expansion at its Minera Sur Andes

unit in Chile will cost between $2.2 and $2.5 billion. Anglo American began constructing the expansion

in late November 2007, but subsequently delayed commissioning by eight months to the December

2011 quarter due to market conditions, with full production to follow within one year. In July 2009,

Anglo announced a significant new copper prospect named San Enrique Monolito (SEM), adjacent to

Los Bronces. Models of the mineralization at the two projects were combined, and about 1.2 billion

mt (grading 0.4% Cu) of the SEM mineralization was reported as Los Bronces resources in Anglos

2008 annual report. Los Bronces has reserves and resources totaling 6.5 billion mt grading 0.434% Cu,

containing 28.3 million mt of copper.


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Table 5: Major Copper Mine Expansions

Project Owner(s) Location

CapitalCosts

(US$ mil)


(mt)

ScheduledCompletion

Date

CurrentProductionCapacity

(mt/y Cu)

AdditionalCapacity

(mt/y Cu)

Sarcheshmeh/Sungun

NICICO Iran $29.0 8,400,000 2012 200,000 200,000

Los Bronces Anglo American Chile $2,350.0 28,271,194 2011 226,000 174,000

Codelco Norte Codelco Chile $382.0 93,331,700 2010 790,000 160,000

Los Pelambres Antofagasta 60%Japanese 40%

Chile $1,000.0 25,628,400 2009 330,000 90,000

Ernest Henry Xstrata Australia $21.2 1,133,760 2011 100,000 75,000

Big Gossan

(Grasberg)

Freeport-McMoRan 90%

Govt of Indonesia 10%

Indonesia $480.0 42,538,190 2012 500,000 56,700

Dexing Complex Jiangxi Copper China $395.3 5,240,000 2012 120,000 41,000

Andina Phase 1 Codelco Chile $990.0 107,717,400 2010 220,000 20,000

Gaby Codelco Chile $202.0 4,173,750 2011 150,000 20,000

Totals $5,849.5 316,434,394 2,636,000 836,700


Another large expansion is at the Codelco Norte complex in Chile, where Codelco began work on the

Radomiro Tomic sulfide project in August 2008. The $382 million expansion will produce 160,000 mt/y

of copper following startup in 2010. Codelco plans to truck sulfide and oxide ore from Radomiro Tomic

to its Chuquicamata plant to maintain the existing 182,000-mt/d throughput capacity; Radomiro Tomic

will contribute 100,000 mt/d from 2010 to 2012.

Eleven projects with 901,454 mt/y in total capacity are in the preproduction stage

Table 6 lists the 11 new or redeveloping copper or gold-copper mines currently under construction and

scheduled to begin production by 2012. Two mines tentatively scheduled for 2013 startups are not

includedChina Metallurgicals 75%-ownedAynak in Afghanistan (Jiangxi 25%) and KGHMs deep

Glogow Gleboki Przemyslowy deposit in Poland. If all 11 projects reach full capacity, they will add about

901,500 mt/y to world copper production within three years, an increase of 6% over total 2008 mine

production. However, the reduced availability offinancing and weaker market conditions are likely to

delay some projects.

Teck Resourcess and NovaGolds large, expensive Galore Creek project in British Columbia, currently

scheduled for a 2012 startup, can be considered tentative at best. As of April 2009, NovaGold was


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conducting road work to improve access to Galore Creek and reduce construction costs once the project

restarts. A 2008 engineering review projected reduced capital costs and identified potential for expanding

throughput and reducing construction time.

In spite of market conditions, the other most expensive copper projects seem to be going forward. In

August 2009, Newmont produced the first gold and copper concentrate at its $2.75 billion gold-copper

mine at Boddington in Western Australia. The mine is expected to produce 30,000 mt/y of copper and 1

million oz/y of gold from reserves and resources totaling 1.3 billion mt grading 0.1% Cu and 0.688 g/mt

Au.

Figure 3: Potential New Copper Mines, 2009-2012


In May 2009, China Minmetals (60%) and Jiangxi Copper (40%) were proceeding with financing of their

$2.5 billion Galeno mine in Peru, based on a framework contract for the financing signed in November

2008 with China Development Bank and Banco de Credito. Minmetals and Jiangxi acquired Northern

Peru Copper for $450 million in December 2007, and planned to develop El Galeno. Minmetalss 2007

feasibility study projected production of 144,000 mt/y of copper in concentrate over a 20-year mine life,

with production of 200,000 mt/y in the first five years. Galenos reserves and resources total 968 million

mt grading 0.44% Cu, 0.135 g/mt Au, 2.64 g/mt Ag, and 0.013% Mo.

0

100,000

200,000

300,000

400,000

500,000

600,000

2009 2010 2011 2012

NewP

roductionCapacity(mt/y)

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

CapitalCosts(US$mil)


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Table 6: Potential New Copper Mines, 2009-12

Project Owner(s) Location

Mine

Type

CapitalCosts

(US$ mil)


(mt)

PlannedProductionCapacity

(mt/y)

2009 Startups

Mirador Corriente 90%Lowell 10%

Ecuador OP $418.0 4,978,792 62,200

Franke Quadra Mining Chile OP $239.0 608,781 31,300

Boddington Newmont Mining Australia OP $2,750.0 1,381,380 30,000

Chambishi West China Nonferrous 85%ZCCM 15%

Zambia UG $100.0 690,200 18,000

2009 Totals $3,507.0 7,659,153 141,500

2010 Startups

Esperanza Antofagasta 70%Marubeni 30%

Chile OP $2,300.0 4,565,022 191,000

Kolwezi Tailings First Quantum 65%Gecamines 35%

DRC TL $553.0 1,680,759 35,000

2010 Totals $2,853.0 6,245,781 226,000

2011 Startups

Copper Mountain Copper Mountain Mining Canada OP $435.5 1,923,418 39,000

2011 Totals $435.5 1,923,418 39,000

2012 Startups

Galore Creek NovaGold 50%Teck Resources 50%

Canada OP $5,060.0 5,373,980 195,954

Galeno China Minmetals 60%Jiangxi Copper 40%

Peru OP $2,500.0 4,296,743 144,000

Tia Maria Southern Copper Peru OP $948.0 2,488,200 120,000

New Afton New Gold Canada UG $589.5 746,304 35,000

2012 Totals $9,097.5 12,905,227 494,954

2009-12 Grand Totals $15,893.0 28,733,579 901,454



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In June 2009, Antofagasta achieved all conditions precedent to drawdown of a $1.05 billion financing

facility for its 70%-ownedEsperanza project (Marubeni 30%) in Chile, which has 4.6 million mt of

copper in 988.1 million mt of mineralization grading 0.46% Cu and 0.192 g/mt Au. The remainder of the

$2.3 billion capital cost is being funded by Antofagasta and Marubeni on a pro-rata basis. As of March

2009, Esperanza was on target to start production in late 2010 at a rate of 191,000 mt/y of copper, 215,000

oz/y of gold, and 1.1 million oz/y of silver. Molybdenum production would begin in 2015 at 2,000 mt/y.

In 2008, Southern Copper was considering placing its wholly-owned Tia Maria project in Peru on hold

due to market conditions, but as of July 2009 it was reported to be financing the project through internal

cashflows. In April 2009, MinerAndina reported that 120,000-mt/y Tia Maria would begin production in

2012 rather than 2010, and that it would cost about $948 million to complete. In January 2008, Tia Maria

had indicated resources of 638 million mt grading 0.39% Cu.

Copper exploration spending is expected to be less in 2009 than the record spending in 2008

Increased exploration spending over the past few years has led to more copper projects at all stages

of development, from early exploration to minesite. In addition to the new mines and expansions

already discussed, 168 significant projectseach with 500,000 mt or more of copper in reserves and

resources and a total of 587.7 million mt of copper in reserves and resourcesare in advanced stages of

development.

Figure 4 plots exploration spending and copper prices from 1997 to 2009. As prices declined by 31%

from 1997 to 2002, exploration budgets fell by 60%; as prices increased by 355% from 2002 to 2007,

budgets increased by 577%. The spending increases led to reactivation of many previously exploredcopper projects that had been on hold, resulting in record numbers of copper projects under active

exploration. The 2008 economic downturn caused the first copper price decline in six years, by 2% to an

average of $3.15/lb. The decline began suddenly, after midyear, when exploration budgets were already

set and most work was under way.

Even allowing for some optimism due to recent positive signals, there is no doubt that the late-2008

market collapse will severely reduce 2009 exploration spending. Based on 446 comparable companies

that have reported budgets so far in 2009, total copper budgets are down by more than 50%from

almost $1.6 billion in 2008 to $705 million in 2009. If this trend continues, many projects under active

development in late 2008 and early 2009 will stall for lack of funding.


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Figure 4: Copper Exploration Budgets and Prices, 1997-2009

*Estimates based on January-July 2009 data.

Data sources: MEGs Corporate Exploration Strategies, Metals Week.

Table 7: 2008 Copper Exploration Budgets by Company Type

Type Number

Total2008 Budget

(US$ mil)

2008CopperBudget

(US$ mil)

Share ofTotal(%)

Estimated 2009Copper Budget

(US$ mil)

Junior 717 $2,679 $1,046 35% $523

Major 28 $2,731 $1,312 45% $656

Intermediate 44 $1,025 $529 18% $264

Govt/Other 12 $126 $55 2% $28

Total 801 $6,561 $2,941 100% $1,471

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

ExplorationSpending(US$million)

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

CopperPrice(US$/lb)

Explo budg ets (US$ mil) $755 $620 $499 $440 $412 $305 $340 $577 $825 $1,373 $2,064 $2,941

2009 budget* (US$ mil) $1,471

Cu price (US$/lb) $1.03 $0.75 $0.71 $0.82 $0.72 $0.71 $0.81 $1.30 $1.67 $3.05 $3.23 $3.15

2009 price* US$/lb) $1.91

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009*


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Recent copper exploration spending was directed 33%-39% to grassroots, 39%-43% to late-stage,

and 22%-24% to minesite exploration, but the ratios tend to change depending on market conditions.

During the initial downturn of the previous exploration cycle, many majors leaned away from early-

stage exploration, relying instead on juniors to unearth new discoveries, and focused on near-mine

exploration to replace and increase reserves depleted by mining, and to develop new reserves more

quickly and at lower cost by using existing infrastructure. While allocations for both grassroots and

late-stage copper exploration experienced substantial cuts in dollar terms throughout the downward

leg of the recent exploration cycle, late-stage budgets were initially cut more severely as juniors and

intermediates allocated smaller portions of their already reduced budgets to late-stage exploration. The

majors, however, did not cut late-stage copper allocations as drastically, likely recognizing the longer

horizon required for base metals discovery and development, and the importance of maintaining a project

pipeline.

World primary copper resources by development stage

Figure 5 shows the share of world primary copper resources currently being developed by development

stage. The larger later-stage projects have been discussed in previous sections; this section focuses on the

larger feasibility and reserves development-stage projects.

Figure 5: World Primary Copper Resources by Development Stage, 2009

(Total: 1.6 billion mt)


Reserves Development

20%

331.2 million mt

Expanding Mines

29%

468.8 million mt

Producing Mines

35%

560.3 million mt

Feasibility

14%

221.3 million mt

Preproduction

2%

35.2 million mt


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Table 8: World Primary Copper Resources by Development Stage, 2009

Development StageNumber ofProjects

Copper in

Reserves(mt)

Copper inReserves &

Resources(mt)

Actual orEstimatedProduction

Capacity(mt/y Cu)

Average

Capacity(mt/y Cu)

Potential

Years ofProduction

Share of

Reserves &Resources

Producing mines 102 560,344,238 275,379,000 10,852,700 106,399 52 35%

Expanding mines 33 468,828,206 137,836,000 3,828,606 116,018 122 29%

Feasibility 47 221,346,723 69,070,000 5,314,238 113,069 42 14%

Preproduction 12 35,165,579 11,967,000 1,001,454 83,455 35 2%

Subtotals 194 1,285,684,746 494,252,000 20,996,998 108,232 61 80%

Reserves Development 109 331,202,607 29,392,000 4,359,911 20%

Totals 303 1,616,887,353 523,644,000 25,356,909 100%


Fifty deposits each containing 3 milli on mt are in the reserves-development or feasibility stage

Of the 303 projects aggregated in this report, 47 (containing 14% of the copper in total reserves and

resources) are in the feasibility stage and 109 (containing 20% of the copper) are in the reserves-

development stage. Fifty of these26 reserves-development and 24 feasibility projectseach contains

more than 3 million mt of copper.

The largest project in this group is Northern Dynastys 50%-owned reserves development-stagePebble

deposit in Alaska (Anglo American 50%), which contains 32.5 million mt of copper in 9.1 billion mt of

mineralized material grading 0.36% Cu, 0.324 g/mt Au, and 0.024% Mo. In March 2009, the Pebble JV

approved a $59 million budget for 2009 work to complete an environmental study, an engineering program,

and a site investigation for further drilling and support studies. However, in July 2009 an aboriginal group

filed a lawsuit requesting a preliminary injunction prohibiting the state from granting or extending Pebble

permits, in order to prevent development of the Pebble mine; no monetary damages were claimed.

In Mongolia, Ivanhoe cut the workforce at its 66%-owned Oyu Tolgoi project in December 2008 to save

costs, which is likely to delay the project; however, political difficulties with the Mongolian government

over an investment agreement for Oyu Tolgoi since mid-2006 may have recently shifted in favor of

development. In August 2009, the Mongolian parliament approved a provision to cancel a 68% tax on

copper and gold production. Earlier, a revised agreement was endorsed by Mongolias cabinet and national

security council, and the government amended four laws that would facilitate finalization of the Oyu Tolgoi

agreement. The Mongolian government will receive a 34% equity interest in the Ivanhoe subsidiary that


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holds the Oyu Tolgoi mining licenses. Southern Oyu reserves containing 4.7 million mt of copper, plus

Hugo North and South and Southern Oyu resources, total 31.3 million mt of copper and 31.6 million oz of

gold in 3.3 billion mt of mineralized material grading 0.95% Cu and 0.3 g/mt Au.

Table 9: Largest Feasibi lity- and Reserves Development-Stage Copper Projects

(Minimum 3 million mt contained copper)

Project Owner(s) Location StatusTonnage(mil mt)

CopperGrade

(%)


(mil mt)

Pebble Northern Dynasty 50%Anglo American 50%

United States RD 9,064.0 0.36% 32.5

Oyu Tolgoi Ivanhoe Mines 66%

Govt of Mongolia 34%

Mongolia FEA 3,302.2 0.95% 31.3

Reko Diq Antofagasta 37.5%Barrick Gold 37.5%Local interest 25%

Pakistan FEA 4,887.2 0.50% 24.2

Resolution Rio Tinto 55%BHP Billiton 45%

United States RD 1,341.0 1.51% 20.3

Udokanskoe Metalloinvest Russia RD 1,310.8 1.51% 19.8

Toki Cluster Codelco Chile RD 4,411.0 0.43% 19.1

Los Sulfatos Anglo American Chile RD 1,200.0 1.47% 17.6

La Granja Rio Tinto Peru RD 2,770.0 0.51% 14.1

Tampakan Xstrata 63%Indophil 34%

Philippines FEA 2,180.0 0.59% 12.9

San EnriqueMonolito

Anglo American Chile RD 2,100.0 0.58% 12.1

Aynak China Metallurgical 75%Jiangxi Copper 25%

Afghanistan FEA 705.0 1.56% 11.0

Kalumbila Kiwara 75%LM Engineering 25%

Zambia RD 1,380.0 0.78% 10.8

Toromocho Chinalco Peru FEA 2,127.1 0.47% 10.0

Sierra Gorda Quadra Mining Chile RD 2,079.3 0.40% 8.3

Las Bambas Xstrata Peru FEA 900.0 0.91% 8.2

Konkola North Teal Exploration 80%ZCCM 20%

Zambia FEA 297.4 2.57% 7.7

Agua Rica Yamana Gold Argentina FEA 1,761.0 0.42% 7.4


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Table 9: Largest Feasibi lity- and Reserves Development-Stage Copper Projects (contd)



CopperGrade

(%)


(mil mt)

Rio Blanco Monterrico Metals Peru FEA 1,257.0 0.57% 7.1

Salobo Vale Brazil FEA 928.5 0.77% 7.1

Frieda River Xstrata 76%Highlands Pacific 17%OMRD 7%

Papua New Guinea RD 1,183.0 0.58% 6.9

Lookout Hill Ivanhoe Mines 70%Entree Gold 30%

Mongolia RD 972.5 0.71% 6.9

Quellaveco Anglo American 80.5%IFC 19.5%

Peru FEA 1,107.8 0.61% 6.8

Panantza Corriente 90%Lowell 10%

Ecuador RD 1,063.0 0.62% 6.6

Petaquilla Inmet Mining Panama FEA 1,158.2 0.50% 5.8

El Pachon Xstrata Argentina FEA 980.0 0.59% 5.7

Cadia East Newcrest Mining Australia FEA 1,834.0 0.31% 5.6

El Arco Southern Copper Mexico FEA 1,016.0 0.52% 5.3

Kerr-Sulphurets Seabridge Gold Canada RD 2,568.2 0.20% 5.1

Los Azules Minera Andes Argentina RD 922.0 0.55% 5.1

Cobre de Sonora Industrias Penoles Mexico RD 1,036.0 0.44% 4.6

Nokomis Duluth Metals United States RD 733.6 0.63% 4.6

Ak-Sug Golevskaya Mining Russia RD 805.2 0.52% 4.2

Antapaccay Xstrata Peru FEA 720.0 0.57% 4.1

Vizcachitas Los Andes Copper 76%Private interest 24%

Chile RD 1,133.0 0.37% 4.1

Namosi Newcrest Mining 65%Japanese Consortium 35%

Fiji RD 900.0 0.43% 3.9

Caserones Pan Pacific Copper Chile FEA 1,034.0 0.37% 3.8

Michiquillay Anglo American Peru RD 544.0 0.69% 3.8

Cerro Casale Barrick Gold 51%Kinross 49%

Chile FEA 1,665.3 0.21% 3.5


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Table 9: Largest Feasibi lity- and Reserves Development-Stage Copper Projects (contd)



CopperGrade

(%)

Copper in

Reserves &Resources

(mil mt)

Haquira Antares Minerals Peru RD 629.8 0.53% 3.4

Pumpkin Hollow Nevada Copper United States RD 719.6 0.48% 3.4

Yandera Marengo Mining Papua New Guinea FEA 1,293.5 0.26% 3.4

Birch Lake Franconia 82%Beaver Bay 18%

United States RD 581.8 0.56% 3.3

El Morro Xstrata 70%New Gold 30%

Chile FEA 620.7 0.53% 3.3

Rosemont Augusta Resource United States FEA 779.4 0.42% 3.3

Ann Mason Pacmag Metals United States RD 810.0 0.40% 3.2

Kingking Benguet Philippines FEA 1,040.0 0.31% 3.2

Mesaba Teck Resources United States RD 700.0 0.46% 3.2

Relincho Teck Resources Chile RD 684.0 0.47% 3.2

Marcona Copper Chariot 70%Korea Resources 30%

Peru FEA 401.4 0.77% 3.1

Duobaoshan Zijin Mining China FEA 396.0 0.75% 3.0

Totals/Average 74,033.4 0.56% 413.7


In Pakistan, Antofagasta reported in June 2009 that the feasibility study at its 37.5%-ownedReko Diq

project (Barrick Gold 37.5%, local interest 25%) would be completed by the end of 2009. As part of

the study, 146,000 m of drilling was completed during 2008, including 65,000 m of infill. In February,

Barrick announced updated resources of 4.9 billion mt grading 0.5% Cu and 0.28 g/mt Au.

In January 2009, Rio Tinto reported that it would continue the planned $652 million investment in its55%-ownedResolution project (BHP Billiton 45%) in Arizona, but the time frame would be extended due

to the current economic conditions and the 2009 budget cut by an unspecified amount. The startup date

will probably be delayed beyond the original projection of 2020. As of August 2008, Rio Tintos planned

work over the next four years includes dewatering the former mine site, sinking a 2,170-m exploration

shaft, and various studies. In May 2008, Resolution had inferred resources of 1.3 billion mt grading

1.51% Cu and 0.04% Mo.


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In July 2009, Metalloinvest completed the $585 million license payment for its wholly-owned Udokan

copper-silver project in eastern Siberia, and was in discussions about altering the time frame for mine

development. The government indicated that it was willing to adjust the terms of the license for the $3.2

billion (RUB100 billion) project. As of May 2009, Metalloinvest planned to proceed with construction

in 2010 despite lower copper prices, but was drafting new terms for the license agreement in view of the

economic downturn; construction will likely be pushed back. The original plan was for construction to

begin in 2010 and for production to begin in 2014 at a rate of 150,000 mt/y of copper, with full production

of 474,000 mt/y by 2016. In March 2007, it was reported that reserves under the Russian classification

were 1,310.8 million mt grading 1.51% Cu and 9.6 g/mt Ag, containing 19.8 million mt of copper and

404.6 million oz of silver.

The other development-stage project containing more than 19 million mt of copper is Codelcos Toki

Cluster near its Chuquicamata mine in Chile, with a total of 19.1 million mt of copper in 4.4 billion mt

of material grading 0.43% in the Toki, Quetana, Genoveva, and Miranda deposits. In September 2005,

Codelco announced that development of Toki in 2015 would involve building an underground mine to

minimize the impact on the Region II town of Calama, about 1 km away. Toki was tentatively scheduled

to start production in 2018.

copper supply pipeline 2009

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