Image courtesy of Antofagasta Minerals

On May 21st, copper prices surged to the highest-ever level on the London Metal Exchange, breaching US$11,000/t for the first time on a rally that began in April. Although copper demand continues to increase due to electrification and the green energy transition, recent price shifts are a supply driven story. Following the declaration that First Quantum’s Cobre Panama’s mining concession was unconstitutional, the mine was ordered to shut down in November 2023. Cobre Panama accounted for 1.5% of global copper production.

In addition to the closure of Cobre Panama, production levels in Chile hit a 25-year low, and dropped 2.3%, slumping to 5.33 million metric tons per year (t/y). Production across Anglo American’s operations fell 13.3% and Codelco’s by 8.2%. Ramp up at Quebrada Blanca was slower than anticipated, and copper production across Teck’s operations totaled 296,500 t/y, down from the 320,000- 365,000 t/y range set in production guidance. “Copper supply is subject to the world’s increasingly complicated dynamics. Within a year, the copper deficit increased by 1 million t of refined copper,” said Mario Molina, country manager and vice president of sales, LATAM at CRU.

Despite predictions of a major surplus, according to the International Copper Study Group, the disruptions in Panama and lower-than-predicted production rates in Chile flipped the market to a major deficit. “This cascades down into the copper concentrates treatment and refining charges (TC/RC) market. Smelters do not believe they will have the necessary supply of concentrate, leading to a drop in TC/RCs. The fee has fallen rapidly on the spot market as smelters compete for supply”, said Aurora Davidson, CEO of Amerigo Resources.

In December, China’s Copper Smelter Purchase Team (CSPT) set a buying guidance of US$80/t or 0.8/lb, equivalent to the agreed upon price between Chinese smelters and miners Antofagasta and Freeport McMoRan. This level was already down 16% from CSPT’s guidance for Q4 2023. At the beginning of Q2 2024, TC/RCs hit record lows; the copper market has reached unprecedented tightness. For Chile, this signifies both risk and opportunity. “Chile has seen a reduction in copper output at a time when the market's appetite for it is expanding. This scenario underscores a critical issue but also highlights an opportunity. By reinvigorating production, Chile can capitalize on the copper market's growth,” emphasized Juan Ignacio Guzmán, CEO of GEM Mining Consulting.

Chile: a gap filler
To fill the potential supply gap of 7.7 million t/y by 2034, mining companies will require prices of US$10,000/t, and possibly as high as US$12,000/t, according to Jeremy Weir, CEO of Transfigura, who presented at the World Copper Conference. Chile will play a significant role in meeting this gap said Molina: “Of the 7.7 million t gap, 50% would come from South America, with Central America, especially Panama, also playing a role. Chile is the leader, followed by Peru. Panama remains uncertain due to its recent governmental changes. Chile has the highest number of projects, with 70 in total, covering 51% of the missing tonnage.”
Chile has the potential to be a ‘gap filler’, defined by Santiago Montt, CEO of Los Andes Copper: “Chile is the country with the potential and ambition to have a significant role in closing the gap that the energy transition will create between copper supply and demand.”

Chile holds the world’s largest share of known copper reserves, at 21.3%, according to the United States Geological Survey (USGS) and is home to the world’s three largest copper producers. The long-standing number one producer, Codelco, is forecast to be taken down under by Australian miner BHP, according to Bloomberg Intelligence estimates for 2024. BHP’s production is predicted to reach 1.44 million t, surpassing Codelco’s predicted 1.41 million t. The two are followed by Freeport McMoRan’s 1.34 million t estimate. Codelco has an opportunity for recovery, as its structural projects are projected to boost copper production to 1.7 million t/y by 2030, according to the miner's 3Q23 report.

State-owned Codelco operates eight mines across Chile, responsible for 25-30% of the country’s production. The company has four structural projects—at Chuquicamata, Rajo Inca, Andina and El Teniente— in its pipeline, requiring investments exceeding US$40 billion. "Chuquicamata Underground reached 56.2% progress; in the portfolio of projects at El Teniente, Andes Norte advanced to 81.8%, Diamante to 39.1%, and Andesita reached 42.5%; while Rajo Inca showed a total progress of 76.1% and Traspaso Andina completed its construction on April 2," said Rubén Alvarado Vigar, Codelco's CEO.

Chuquicamata Underground’s project, with a CapEx of US$6.2 billion, includes infrastructure for access, ventilation, conveyor systems, crusher, and areas for production start. The company submitted their environmental assessment in February 2024 and anticipate the mine to reach capacity by 2030. Rajo Inca’s project extends Salvador’s mine life by 47 years through the opening of an open pit mine and performing an overhaul and marginal expansion of the concentrator plant. Operations are set to begin in H1 2024. At Andina, expansion of the pit created the need to relocate the crushing infrastructure, which was built over 50 years ago. The project will allow access to high-grade minerals and pit exploitation for another 40 years. Expansion of El Teniente’s LOM at Andes Norte, Diamante and Andesita, require investments of US$1.93 billion, US$730 million, and US$513 million respectively. Production plunged 32% in April 2024 from a year ago, attributed to the effects of a rock collapse.

Production at BHP’s operations across Chile reached 894,000 t in H2 2023, a 7% increase from the same period in 2022. According to the company’s March 2024 operational review, production at Escondida, Chile largest copper mine, is expected to rise 7%, with a production guidance between 1,08 and 1,18 million t for FY24. Spence production increased by 3% to a nine-month record of 189,000 t, driven by improved concentrator throughput and higher recoveries. FY 2024 production guidance is anticipated between 210,000 and 250,000 t/y. Cerro Colorado was placed on temporary care and maintenance in December 2023. "In Chile," Brandon Craig, president of BHP Americas emphasized: "our copper assets —Pampa Norte and Escondida— represent 26% of the total copper production in the country, and we have projects in evaluation and execution phase in both operations."

At the El Abra operations in Chile, Freeport McMoRan has drilled out and modeled a large sulfide resource and is planning for potential submission of an environmental impact statement by year-end 2025. “This resource, located below and adjacent to our current mining area, offers exciting opportunities for leveraging our existing operation, facilities, and workforce. We have conducted extensive work, including engineering and mine planning. The resource has the potential to add 500-600 million lb/y of copper if developed as a milling project,” said Joshua Olmstead, president and COO Americas at Freeport McMoRan.

At Antofagasta Minerals: “The next stage of our growth story has begun,” said Iván Arriagada the CEO. “In the first quarter of 2024, we started the full construction of the Centinela Second Concentrator project, which will add a further 170,000 t/y of copper-equivalent production. First copper is scheduled for 2027,” Arriagada continued.

Teck Resources sold its entire interest in its steelmaking coal business in Q4 2023. “Teck will focus entirely on providing the metals that matter for global development and the energy transition,” said Johnathan Price, the firm’s president and CEO. “The proceeds of the sale will help to ensure we are well-capitalized to execute on our growth strategy,” he continued.

That growth strategy has gone well. Teck’s Quebrada Blanca (QB) achieved record quarterly copper production during Q4 2023, producing 34,300 t. In December 2023, Quebrada operated at near throughput capacity. “That ramp up has continued in 2024, and we have now completed all major construction at QB, including the port and the molybdenum plant. The ramp up of QB is already being reflected on our operational results for 2024, with total Teck copper production in the first quarter of 99,000 t, which was 74% higher than the same period last year,” highlighted Price.

The Collahuasi joint venture between Glencore, Anglo-American and JX Nippon Mining & Metals produced 573,000 t of fine copper in 2023. “We received approval from the authorities for the expansion project, which will extend the site's life by 20 years, an initiative that also includes a desalination plant,” said Andrés Souper, general manager at Glencore Chile.

On track or off the rails?
The next few years will be a crucial turning point for the industry as demand for copper is forecast to grow 20% by 2035, according to analysis by S&P Global. If Chile cannot meet demand, the world will turn elsewhere. Investment in the mining sector in Peru has grown to US$54.56 billion for 2024, up 2.7% from 2023. “Regulators need to support jurisdictions in their quest for competitiveness, thus attracting more investments and technological advancements. Otherwise, mining companies may seek opportunities elsewhere,” said Augusto Cauti, consultant and strategic advisor at Turner & Townsend.

However, jurisdictions following Chile in terms of reserves, like Peru and the Democratic Republic of Congo, lack the expertise and established, large-scale industry that Chile benefits from. “Chile's high added value lies in its mining culture and legal stability. Despite discussions on royalty percentages, the country consistently supports mining projects. This strong mining culture and stability attract investors, helping to close the gap and advance projects,” emphasized Molina.

Chile’s mining sector is at a crossroads. The global energy transition is well underway, but production has yet to see a significant increase. With reform, investment, and a push for sustainability, the industry has a chance to revitalize production and fill the global copper supply gap. The outlook is positive with Cochilco predicting production to reach 5.51 million t/y in 2024, a 5% increase from 2023. Yet, time is of the essence. As the decarbonization train leaves the station, Chile must act swiftly to remain in the driver’s seat.