Mine closures pose risk to global copper supply – report

The collapse of the copper price and the containment measures taken for the coronavirus pandemic, are posing a significant risk to global copper mine supply and project development, Nick Pickens, research director at Wood Mackenzie said in a note this week.

Day-by-day, mining companies are announcing revised plans to comply with new restrictions.

“For now, temporary closures will be absorbed by our mine disruption allowance,” Pickens said. 

“In a scenario where there are wholesale closures of mines in Peru and Chile for 15 days, we would see 1.5% wiped from global annual supply. It would take 45 days to reach our full-year mine disruption allowance.”

“In a scenario where there are wholesale closures of mines in Peru and Chile for 15 days, we would see 1.5% wiped from global annual supply”

Nick Pickens, research director, Wood Mackenzie

“At this stage, we are not assuming mine supply from these countries will stop in its entirety. However, we believe there is a significant risk that disruptions will escalate, and breach 5% this year.”

Low prices could hamper mine restarts and new projects. The copper price is currently trading below the 90th centile of the industry cost curve (223 c/lb). Temporary closures and construction deferrals have accelerated due to virus containment. However, a sustained period of lower prices could make these more permanent.

Cost deflation will help to ease margins, Pickens said.

“Our mark-to market analysis suggests that at current market oil prices and exchange rates, the 90th centile of the C1 plus capex cost curve will fall by nearly 25 c/lb when compared to 2019. Furthermore, a prolonged period of lower average oil prices will have a more extensive deflationary influence for other raw material costs, and the impact could be more significant.”

Supply disruptions, directly relating to coronavirus

In recent days, the reach of coronavirus has rapidly expanded from key regions of copper demand – China and Europe, to key regions of supply – the Americas. Peru has enforced widespread quarantine, and some mines are now thought to be on temporary care and maintenance.

“In Chile, a state of catastrophe has been declared. We have also seen temporary cutbacks and risks to suspensions in Canada, the DR Congo and Australia,” Pickens said.

In Peru, the government has taken measures to prevent the spread of the pandemic throughout the mining industry. Mining companies have been asked to only mobilise critical employees to mine sites, to implement an emergency plan adapted to the circumstances, and to ensure health protection for a 15-day period, from 19 March.

Critical employees might comprise those who work in environmental or safety functions such as water treatment plants, ground stability, tailings monitoring, underground ventilation and security, Pickens said.

This would mean that mining operations would effectively go under care and maintenance for 15 days. Large operations that have followed this measure include Cerro Verde and Constancia.

Some mining companies, such as Buenaventura, have implemented these measures at all operations. However, other companies, due to their remote location and capabilities to ensure the health of their employee, have decided to just keep slow down production.

Chile has also stepped up its response. The government declared a “state of catastrophe” starting March 19, as the confirmed cases of coronavirus continued to rise.

“This measure gives the government the capability to control the food and medical supply chains and distribution, border protection, and to enforce curfews and restrict social gatherings,” Pickens said.

“Immediately after the announcement, Codelco said it would maintain “operational continuity” for 15 days in all is units. Meanwhile, we understand Spence and Escondida’s union has asked BHP to implement stricter measures to ensure the health of its employees or shutdown,” he added.

What does this mean for global supply?

The most noteworthy announcements to date, in terms of significance to the global copper market, have been from authorities in Chile and Peru, who are both pointing to a 15-day disruption. All out closures in Peru and Chile for 15 days, would see 1.5% wiped from global annual supply, Pickens asserted.

The containment of coronavirus is also affecting construction of new projects, with several major producers announcing they are slowing or temporarily stopping development

“While this is significant, it would be absorbed by our disruption allowance. It is also not likely to be long enough to trigger force majeure on shipments.”

“In our opinion, the restrictions will need to be in place longer than 15 days. It would take 45 days to disrupt 5% of supply from these countries, equivalent to our full-year disruption allowance of just over 1.0 Mt,” Pickens said.

“At this stage, we are not assuming mine supply from these countries will stop in its entirety. The early indications are that some major companies in Peru and Chile are managing to produce under the restrictions.” 

“However, there is a worse-case scenario to consider. If the need for containment leads to wholesale lockdown of mine sites, and this Latin America disruption is replicated in Africa, North America and Australia, this would have catastrophic consequences for global copper mine supply,” Pickens said.  

“This is not currently, our base case assumption, but as we publish this Insight, there are clear signs that measures to contain the virus are likely to intensify over the coming days and weeks.”

Mine supply beyond 2020: Project delays put future supply growth at risk 

The containment of coronavirus is also affecting construction of new projects, with several major producers announcing they are slowing or temporarily stopping development.

A third of mine supply growth over the next three years will be from Peru (Quellaveco and Mina Justa) and Chile (Quebrada Blanca Phase 2 “QB2” and Spence). Elsewhere, greenfield and brownfield projects in Indonesia (Grasberg Block Cave), Mongolia (Oyu Tolgoi underground) and DR Congo (Kamoa-Kakula) will also contribute significant volumes. 

“However, within the last week, at least three of these projects have either stopped or slowed construction. Anglo American has announced that Quellaveco construction has slowed, under the 15-day national quarantine measures taken in Peru,” Pickens said.

Teck has suspended construction activities at QB2 project in Chile for an initial two-week period. In Mongolia, there are reports that work has slowed at Oyu Tolgoi, due to the restrictions placed by the government. Combined, these projects account for a third of the total net growth expected over the next three years. 

“The current supply-side outlook is analogous to the market in 2008/09. At the start of 2008, there was healthy pipeline of near-term projects, in our probable and highly probable (now included in our base case) categories. But a severe demand shock, brought about by the GFC, triggered project delays. During the 12 months between Q3

2008 and Q3 2009, we estimate the mining industry deferred up to 2.2 Mt/a of new copper supply. While projects eventually hit the market, they were later than expected. This undoubtedly contributed to the tighter market and high prices experienced in 2010 and 2011, once the market recovered,” Pickens said.

Highly probable & probable project deferrals: Q3 2008 project pipeline versus Q3 2009 project pipeline:

 Supply-side response to price:

The LME cash price closed at $4,855/t (220 c/lb) on March 20, falling 15 % in just a week, and 25% since the start of the year. The price decline began on 13 March, just after the World Health Organisation (WHO) declared a global pandemic.

“Since then, hopes that containment in China, followed by government stimulus could be the catalyst for a V-shaped recovery, have faded fast,” Pickens said.

“With demand contracting and prices plummeting, an economic supply response now seems likely. The disruption caused by virus containment has been the catalyst for a quicker reaction than is typical by the mining industry in a downturn,” Pickens said.

“So far, the covid-19 closures are temporary. However, with prices low, the decision to restart will become difficult for some producers. Furthermore, the longer prices stay depressed, marginal mining operations, not currently disrupted by coronavirus, may be forced to cut production regardless. History tells us, these cuts take a little longer to occur, as operators first cut back on non-essential capex.”

“Over the last decade, there have been two periods of price-related mine closures. The first was in 2008/09 demand shock during the GFC. The second was in 2015/16, when strong mine supply growth and weaker demand prompted a significant price decline”

Nick Pickens, Research Director, wood mackenzie

“Over the last decade, there have been two periods of price-related mine closures. The first was in 2008/09 demand shock during the GFC. The second was in 2015/16, when strong mine supply growth and weaker demand prompted a significant price decline,” Pickens said.

In 2008/09 prices crashed below the 90th centile for a period of six months, reaching well into the third quartile for short periods. This resulted in around and 2.2% of price related closures. In 2015/16, the copper price decline was supply driven and longer lasting. Prices were below the 90th centile for 18 months, with 4.2% of annual global supply removed from the market.

“The impact on supply could be less than previous downturns, owing to a lower starting point,” Pickens said. “We expect total refined production to decline this year. This in part due to a decline in mine supply, but also due to the fall in production from scrap and blister units. As a result, we estimate a supply cut of only 200 kt, beyond the normal 5% disruption, would be enough to bring the refined market back to our long-term equilibrium.”

Previous supply-side responses to lower prices:

 “We expect average annual prices will be supported at around $4,850/t (220 c/lb) over  the remainder of the year. This assumes that prices will average out at the 90th centile of the cost curve, which is now significantly lower than the 2019 level on account of a lower oil price and weaker producer currencies,” Pickens said. “However, history also tells us that in a demand shock, prices could drop hit lows as 60-70th centile, below <200 c/lb for short periods.” 

In 2008/09, prices fell below the 90th centile for a period of six months, reaching well into the third quartile for short periods. Meanwhile, in 2015/16 prices were lower for longer (18 months), but did not cut quite as deep, reaching closer to the 80th centile. 

Historic copper price and copper mine cost centiles, C1 plus sustaining capex (2020$)

Fuel prices and exchange rates have reduced costs, and the price floor:

The oil price crashed in early March, driven by weak demand and rapidly increasing supply from Saudi Arabia. The result has been a 50% decrease in Brent oil price to less than US$30/bbl, Pickens reported.

On average, fuel represents 7% of overall mine-site costs. A 50% decline in oil prices, from US$64/bbl (Brent) in 2019 to US$30/bbl in the current market is expected to reduce average minesite costs by around 5 c/lb.

“However, we expect a prolonged period of lower average oil prices will have a more extensive deflationary influence for other raw material costs,” Pickens said.

“Analysis of historical performance between the price of oil and the cost of energy, services and consumables, suggests that these components could impact average costs by a further 5 c/lb. The combined direct and indirect sensitivity is therefore 3 c/lb per $10/bbl of oil.”

But it’s not just the oil price that is reducing costs, he asserted. In most major copper-producing countries, local currency has depreciated against the US dollar, when compared to 2019 averages. The top ten producing countries (along with US output) account for 75% of global copper mine production in 2019 and, on average, currencies in these regions have depreciated by over 10%.

“Our mark-to-market analysis suggests at current market prices, the 90th centile of the C1 plus capex cost curve will fall by nearly 25 c/lb to 223 c/lb. Furthermore, a prolonged period of lower average oil prices will have a more extensive deflationary influence for other raw material costs, and the impact could be more significant,” Pickens said.

Mine closures pose risk to global copper supply – report

The collapse of the copper price and the containment measures taken for the coronavirus pandemic, are posing a significant risk to global copper mine supply and project development, Nick Pickens, research director at Wood Mackenzie said in a note this week.

Day-by-day, mining companies are announcing revised plans to comply with new restrictions.

“For now, temporary closures will be absorbed by our mine disruption allowance,” Pickens said. 

“In a scenario where there are wholesale closures of mines in Peru and Chile for 15 days, we would see 1.5% wiped from global annual supply. It would take 45 days to reach our full-year mine disruption allowance.”

“In a scenario where there are wholesale closures of mines in Peru and Chile for 15 days, we would see 1.5% wiped from global annual supply”

Nick Pickens, research director, Wood Mackenzie

“At this stage, we are not assuming mine supply from these countries will stop in its entirety. However, we believe there is a significant risk that disruptions will escalate, and breach 5% this year.”

Low prices could hamper mine restarts and new projects. The copper price is currently trading below the 90th centile of the industry cost curve (223 c/lb). Temporary closures and construction deferrals have accelerated due to virus containment. However, a sustained period of lower prices could make these more permanent.

Cost deflation will help to ease margins, Pickens said.

“Our mark-to market analysis suggests that at current market oil prices and exchange rates, the 90th centile of the C1 plus capex cost curve will fall by nearly 25 c/lb when compared to 2019. Furthermore, a prolonged period of lower average oil prices will have a more extensive deflationary influence for other raw material costs, and the impact could be more significant.”

Supply disruptions, directly relating to coronavirus

In recent days, the reach of coronavirus has rapidly expanded from key regions of copper demand – China and Europe, to key regions of supply – the Americas. Peru has enforced widespread quarantine, and some mines are now thought to be on temporary care and maintenance.

“In Chile, a state of catastrophe has been declared. We have also seen temporary cutbacks and risks to suspensions in Canada, the DR Congo and Australia,” Pickens said.

In Peru, the government has taken measures to prevent the spread of the pandemic throughout the mining industry. Mining companies have been asked to only mobilise critical employees to mine sites, to implement an emergency plan adapted to the circumstances, and to ensure health protection for a 15-day period, from 19 March.

Critical employees might comprise those who work in environmental or safety functions such as water treatment plants, ground stability, tailings monitoring, underground ventilation and security, Pickens said.

This would mean that mining operations would effectively go under care and maintenance for 15 days. Large operations that have followed this measure include Cerro Verde and Constancia.

Some mining companies, such as Buenaventura, have implemented these measures at all operations. However, other companies, due to their remote location and capabilities to ensure the health of their employee, have decided to just keep slow down production.

Chile has also stepped up its response. The government declared a “state of catastrophe” starting March 19, as the confirmed cases of coronavirus continued to rise.

“This measure gives the government the capability to control the food and medical supply chains and distribution, border protection, and to enforce curfews and restrict social gatherings,” Pickens said.

“Immediately after the announcement, Codelco said it would maintain “operational continuity” for 15 days in all is units. Meanwhile, we understand Spence and Escondida’s union has asked BHP to implement stricter measures to ensure the health of its employees or shutdown,” he added.

What does this mean for global supply?

The most noteworthy announcements to date, in terms of significance to the global copper market, have been from authorities in Chile and Peru, who are both pointing to a 15-day disruption. All out closures in Peru and Chile for 15 days, would see 1.5% wiped from global annual supply, Pickens asserted.

The containment of coronavirus is also affecting construction of new projects, with several major producers announcing they are slowing or temporarily stopping development

“While this is significant, it would be absorbed by our disruption allowance. It is also not likely to be long enough to trigger force majeure on shipments.”

“In our opinion, the restrictions will need to be in place longer than 15 days. It would take 45 days to disrupt 5% of supply from these countries, equivalent to our full-year disruption allowance of just over 1.0 Mt,” Pickens said.

“At this stage, we are not assuming mine supply from these countries will stop in its entirety. The early indications are that some major companies in Peru and Chile are managing to produce under the restrictions.” 

“However, there is a worse-case scenario to consider. If the need for containment leads to wholesale lockdown of mine sites, and this Latin America disruption is replicated in Africa, North America and Australia, this would have catastrophic consequences for global copper mine supply,” Pickens said.  

“This is not currently, our base case assumption, but as we publish this Insight, there are clear signs that measures to contain the virus are likely to intensify over the coming days and weeks.”

Mine supply beyond 2020: Project delays put future supply growth at risk 

The containment of coronavirus is also affecting construction of new projects, with several major producers announcing they are slowing or temporarily stopping development.

A third of mine supply growth over the next three years will be from Peru (Quellaveco and Mina Justa) and Chile (Quebrada Blanca Phase 2 “QB2” and Spence). Elsewhere, greenfield and brownfield projects in Indonesia (Grasberg Block Cave), Mongolia (Oyu Tolgoi underground) and DR Congo (Kamoa-Kakula) will also contribute significant volumes. 

“However, within the last week, at least three of these projects have either stopped or slowed construction. Anglo American has announced that Quellaveco construction has slowed, under the 15-day national quarantine measures taken in Peru,” Pickens said.

Teck has suspended construction activities at QB2 project in Chile for an initial two-week period. In Mongolia, there are reports that work has slowed at Oyu Tolgoi, due to the restrictions placed by the government. Combined, these projects account for a third of the total net growth expected over the next three years. 

“The current supply-side outlook is analogous to the market in 2008/09. At the start of 2008, there was healthy pipeline of near-term projects, in our probable and highly probable (now included in our base case) categories. But a severe demand shock, brought about by the GFC, triggered project delays. During the 12 months between Q3

2008 and Q3 2009, we estimate the mining industry deferred up to 2.2 Mt/a of new copper supply. While projects eventually hit the market, they were later than expected. This undoubtedly contributed to the tighter market and high prices experienced in 2010 and 2011, once the market recovered,” Pickens said.

Highly probable & probable project deferrals: Q3 2008 project pipeline versus Q3 2009 project pipeline:

 Supply-side response to price:

The LME cash price closed at $4,855/t (220 c/lb) on March 20, falling 15 % in just a week, and 25% since the start of the year. The price decline began on 13 March, just after the World Health Organisation (WHO) declared a global pandemic.

“Since then, hopes that containment in China, followed by government stimulus could be the catalyst for a V-shaped recovery, have faded fast,” Pickens said.

“With demand contracting and prices plummeting, an economic supply response now seems likely. The disruption caused by virus containment has been the catalyst for a quicker reaction than is typical by the mining industry in a downturn,” Pickens said.

“So far, the covid-19 closures are temporary. However, with prices low, the decision to restart will become difficult for some producers. Furthermore, the longer prices stay depressed, marginal mining operations, not currently disrupted by coronavirus, may be forced to cut production regardless. History tells us, these cuts take a little longer to occur, as operators first cut back on non-essential capex.”

“Over the last decade, there have been two periods of price-related mine closures. The first was in 2008/09 demand shock during the GFC. The second was in 2015/16, when strong mine supply growth and weaker demand prompted a significant price decline”

Nick Pickens, Research Director, wood mackenzie

“Over the last decade, there have been two periods of price-related mine closures. The first was in 2008/09 demand shock during the GFC. The second was in 2015/16, when strong mine supply growth and weaker demand prompted a significant price decline,” Pickens said.

In 2008/09 prices crashed below the 90th centile for a period of six months, reaching well into the third quartile for short periods. This resulted in around and 2.2% of price related closures. In 2015/16, the copper price decline was supply driven and longer lasting. Prices were below the 90th centile for 18 months, with 4.2% of annual global supply removed from the market.

“The impact on supply could be less than previous downturns, owing to a lower starting point,” Pickens said. “We expect total refined production to decline this year. This in part due to a decline in mine supply, but also due to the fall in production from scrap and blister units. As a result, we estimate a supply cut of only 200 kt, beyond the normal 5% disruption, would be enough to bring the refined market back to our long-term equilibrium.”

Previous supply-side responses to lower prices:

 “We expect average annual prices will be supported at around $4,850/t (220 c/lb) over  the remainder of the year. This assumes that prices will average out at the 90th centile of the cost curve, which is now significantly lower than the 2019 level on account of a lower oil price and weaker producer currencies,” Pickens said. “However, history also tells us that in a demand shock, prices could drop hit lows as 60-70th centile, below <200 c/lb for short periods.” 

In 2008/09, prices fell below the 90th centile for a period of six months, reaching well into the third quartile for short periods. Meanwhile, in 2015/16 prices were lower for longer (18 months), but did not cut quite as deep, reaching closer to the 80th centile. 

Historic copper price and copper mine cost centiles, C1 plus sustaining capex (2020$)

Fuel prices and exchange rates have reduced costs, and the price floor:

The oil price crashed in early March, driven by weak demand and rapidly increasing supply from Saudi Arabia. The result has been a 50% decrease in Brent oil price to less than US$30/bbl, Pickens reported.

On average, fuel represents 7% of overall mine-site costs. A 50% decline in oil prices, from US$64/bbl (Brent) in 2019 to US$30/bbl in the current market is expected to reduce average minesite costs by around 5 c/lb.

“However, we expect a prolonged period of lower average oil prices will have a more extensive deflationary influence for other raw material costs,” Pickens said.

“Analysis of historical performance between the price of oil and the cost of energy, services and consumables, suggests that these components could impact average costs by a further 5 c/lb. The combined direct and indirect sensitivity is therefore 3 c/lb per $10/bbl of oil.”

But it’s not just the oil price that is reducing costs, he asserted. In most major copper-producing countries, local currency has depreciated against the US dollar, when compared to 2019 averages. The top ten producing countries (along with US output) account for 75% of global copper mine production in 2019 and, on average, currencies in these regions have depreciated by over 10%.

“Our mark-to-market analysis suggests at current market prices, the 90th centile of the C1 plus capex cost curve will fall by nearly 25 c/lb to 223 c/lb. Furthermore, a prolonged period of lower average oil prices will have a more extensive deflationary influence for other raw material costs, and the impact could be more significant,” Pickens said.

Gap between No. 1 and 2 copper miners widens as Codelco output drops 5.3%

Chile’s Codelco, the world’s second largest copper miner, has fallen further behind BHP (ASX: BHP) in the top producers of the metal’s rank, after reporting that its output for 2019 had fallen by 5.3% to 1.588 million tonnes.

BHP, the world’s biggest mining company, churned out last year 1.749 million tonnes of copper and expects to produce between 1.705 million and 1.820 million tonnes in 2020.

The Chilean miner, which hands all its revenue over to the state, attributed the drop in production to unusual bad weather in the first half of the year, strikes at its Chuquicamata mine and operational issues.

Profit for the year fell 17% compared to 2018 to $1.34 billion, while direct cash costs increased 1.8%.

Codelco said the poor financial results were a combination lower gross margins, the downward tendency of copper prices, a reduction in physical sales of the metal and molybdenum and weak results obtained from associated investments,

Colin Hamilton, managing director of commodities research at BMO Capital Markets, had anticipated earlier this week that the copper company would soon have to sell non-core assets.

“Any thoughts of shutting unprofitable operations, however, are off the agenda for now given the need to ensure employment,” he wrote in a note to investors.

Hamilton also noted that Codelco was looking increasingly unlikely to be the world’s largest copper miner from this year forward, as depletion and restrictions prove to be headwinds that are too strong.

The escalating number of Chileans infected with the novel coronavirus forced the company on Wednesday to suspend some key projects, including work being carried out to finish transforming Chuquicamata into an underground mine, and early stage projects at Rajo Inca and Traspaso Andina.

The halted projects are part of a 10-year, $40 billion ongoing plan to upgrade its aging mines and keep up production rates. The scheme, however, could further jeopardized by the effects of the measures taken to deal with the global pandemic crisis.

“Although the country’s government has taken proactive measures to contain the economic and health impacts of the covid-19, the ripple effects of a copper supply shock remain to be seen,” Mariano Pablo Machado, senior Americas analyst at global risk consultancy Verisk Maplecroft, said this week.

Codelco operates seven mines and four smelters, all in Chile. Its assets account for 10% of the world’s known proven and probable reserves and about 11% of the global annual copper output.

Global official gold reserves represent 17% of world’s stock

Around the world, central banks and supranational organizations such as the International Monetary Fund and the Bank of International Settlements currently hold nearly 34,000 tonnes of gold as reserve assets, the World Gold Council reported in a market primer on Thursday.

The official holdings represent approximately 17% of total above-ground stocks, based on WGC’s calculation that a total of 197,576 tonnes have been mined throughout history.

The Council states that while central banks base their investment strategy on numerous factors, the primary reason for recent gold buying came down to heightened economic and political risks, low negative interest rates and the rebalancing of allocations.

Gold is one of the few assets that is universally permitted by the investment guidelines of the world’s central banks, and the gold market is relatively deeper and more liquid compared with other investment assets.

According to the Council’s estimates, gold has provided reserve managers with an average annual return of nearly 10% (in US dollars) since 1971.

Barrick unveils 10-year plan to become world’s most valued gold miner

Barrick Gold (TSX: ABX) (NYSE: GOLD), the world’s second largest gold miner, has unveiled a 10-year production plan aimed at becoming the most valued bullion company.

The strategy, outlined in its first annual report since its merger with Randgold Resources, includes boosting Barrick’s production to about 5 million ounces of gold a year, with the bulk coming from its North American operations.

President and chief executive officer, Mark Bristow, said Nevada Gold Mines — its recent joint venture with Newmont (NYSE: NEM) — would be the “value foundation” of its business moving forward.

“Already the world’s largest gold mining complex, it holds enormous potential for growth,” he said.

Bristow warned the new guidance might be impacted if operations were disrupted due to efforts to slow the spread of the covid-19.  He called the pandemic “a global disaster which is changing the way we work and live in a radically disruptive process with currently no clear end in sight”.

In the past year, Barrick has been focusing on its tier one assets and has reported strong performance across the group, particularly at Cortez mine in Nevada and Veladero in Argentina.

It has also boosted production at Kibali, Congo’s biggest gold mine, which last year beat its production guidance of 750,000 ounces of gold by a substantial margin, delivering a new record of 814,027 ounces.

Porgera in Papua New Guinea has tier one potential but faces many challenges in the form of legacy issues and an unruly neighbourhood,” Bristow said, adding the mine had exceeded guidance and the company continued to negotiate a 20-year lease extension with the government.

The executive, who took the helm in January 2019, said the work done over the past year had equipped Barrick to move to the next level.

“All in all, I am confident that we are more than capable of delivering on our promise: to build the world’s most valued gold company,” he said. Bristow  noted that Barrick’s definition of value was more wide-ranging and included factors such as economic benefits, the care with which it treated its people, communities and environments, its strategic focus on long-term sustainability and returns for investors.

Worldwide mining disruptions

(This story was updated March 26)

On a global scale, work is grinding to a halt and operations at mines are being temporarily suspended as majors and minors move to enact measures to protect against the spread of covid-19.

With governments from Africa to Latin America issuing lockdown orders, disruptions to operations and supply chains are affecting the outlook for industrial and precious metals. Most of the majors have now announced halts at gold-copper operations.

  • On March 26, Japan’s Sumitomo Corp. became the latest major diversified miner to temporarily suspend operations at some of its mines to prevent the spread of the novel coronavirus. The measure affects the company’s San Cristobal silver-zinc-lead mine in Bolivia and Ambatovy nickel mine in Madagascar, as curfews have been imposed in those countries.
  • On March 26, Trevali Mining (TSX:TV) temporarily stopped production at its Caribou zinc-lead-silver mine in Canada’s New Brunswick province as challenges presented by the spread of covid-19 have added to woes posed by weak conditions in the zinc market.
  • Glencore on Thursday March 26 halted a number of smaller mines due to government restrictions to curb the spread of the coronavirus but added its larger operations were not materially impacted.
  • After announcing a temporary suspension of operations until at least March 31 at its 49%-owned San José mine in Argentina late last week, on March 26, McEwen Mining reported it will also be suspending production at its Black Fox mine in Ontario and Gold Bar in Nevada.
  • On Wednesday, March 25 Codelco, the world’s largest copper miner, said it will temporarily suspend construction on some projects. Codelco said the 15-day suspension applied to remaining work being carried out to make Chuquicamata an underground mine, and projects at an early stage at Rajo Inca and Traspaso Andina.
  • Sibanye-Stillwater announced on Wednesday that it has begun implementing measures to place its South African gold and PGM operations under temporary care and maintenance, in accordance with the nation-wide lockdown for 21 days, effective midnight on Thursday.
  • Miners in Ecuador are now temporarily halting all activity in the country, following the government’s call to stay home.
  • In response to the country’s lockdown effort to slow the spread of covid-19, AngloGold Ashanti announced Tuesday it will temporarily suspend production from its South Africa operations for three weeks as of midnight on March 26.
  • OceanaGold announced March 24 that the Waihi gold operation in the North Island of New Zealand will go on temporary care and maintenance for four weeks in response to measures put in place by the New Zealand government.
  • On Tuesday, Yamana Gold (TSX:YRI, NYSE:AUY) announced that it will scale back operations at its Canadian Malartic mine, Canada’s largest gold mine.
  • Rio Tinto’s Richards Bay Minerals in South Africa will halt production by midnight Thursday. The company will put furnaces on care and maintenance. Rio Tinto will also slow activities at aluminum assets in Canada.
  • Vale’s Voisey’s Bay mine in Canada will be on care and maintenance for four weeks, copper-concentrate production at Long Harbour will be reduced proportionally to the period of the stoppage.
  • Egypt-focused gold miner Centamin said on Wednesday that operations at its Sukari gold mine remained unaffected by covid-19, adding it had stockpiled enough critical supplies to last until the end of June.

Last week, producers across South America, where the bulk of the world’s copper is produced, halted or cut back operations and slowed construction.

  • Hong Kong-listed MMG said last Thursday that operations at its Las Bambas mine, with expected production in the 360kt range for this year had been reduced temporarily after Peru declared a state of emergency on March 16.  
  • Anglo American said it will slow the building of its $5 billion Quellaveco project in Peru and on Thursday the miner said it is scaling down operations at its Los Bronces copper mine in Chile. The company will also reschedule work at mines in countries such as Chile.
  • Teck Resources said on Wednesday it is temporarily suspending construction activities at its Quebrada Blanca Phase 2 (QB2) copper project in Chile. The project is expected to have an initial mine life of 28 years, producing 316,000 tonnes of copper equivalent annually.
  • The world’s no 2 copper producer, Chile’s state-owned Codelco, said on Wednesday it planned to reduce its operations but sales, shipments of copper are not yet hit by coronavirus.
  • BHP said on March 19 that so far the pandemic has not affected its material operations, a day after Reuters reports unionized workers at the Escondida mine in Chile operated by BHP requested a halt to operations unless management begins to implement stricter health and safety measures. Escondida is the largest copper mine in the world by a wide measure and was projected to produce some 1.2 million tonnes this year.
  • Freeport-McMoRan said March 17 that it is suspending operations at its 350kt per year Cerro Verde mine in Peru for at least 15 days.
  • Antofagasta PLC said on Friday it would put parts of its Los Pelambres expansion project on care and maintenance as the Chilean miner reduced the number of staff to reduce risk of coronavirus infection. Los Pelambres had production of 357,800 tonnes in 2018.
  • Glencore’s Mopani copper mines unit in Zambia said on Friday it would review all parts of its business due to the increasing economic uncertainty.

Coronavirus to prompt Codelco lose world’s top copper miner spot

Chile’s copper miner Codelco is set to lose its position as the world’s top producer of the metal this year, as delays in upgrades and expansion projects caused by measures to stop the spread of the novel coronavirus add to the impact of low prices, lack of funding.

The miner, which hands all its revenue to the state, was in the midst of implementing a $40 billion, 10-year modernization of its mines, aimed at maintaining output despite rapidly falling ore grades.

A sustained drop in copper prices — down 22% so far this year — and the lack of readily available government funding while the country deals with ongoing unrest, has cast doubts on Codelco’s ability to keep up production rates.

The impact of the current pandemic will negatively tip the scale, experts say.

Colin Hamilton, managing director of commodities research at BMO Capital Markets, anticipates the miner will have to sell non-core assets. “Any thoughts of shutting unprofitable operations, however, are off the agenda for now given the need to ensure employment,” he notes.

The analyst also sees potential delays at the key El Teniente mine’s new level, which is expected to boost mine’s production to 500,000 tonnes a year, positioning it among the world’s five largest copper operations.

“While operationally the company continues to surprise on the upside, Codelco is looking increasingly unlikely to be the world’s largest copper miner from this year forward, as depletion and restrictions prove to be headwinds that are too strong,” Hamilton says, adding that the impact of the current pandemic will negatively tip the scale.

With the electoral calendar likely being pushed back into the last quarter of the year — including April’s highly-anticipated constitutional referendum — and bleak prospects for short-term economic recovery, Chile’s position as a leading investment destination will face yet another critical test, says Mariano Pablo Machado, senior Americas analyst at global risk consultancy Verisk Maplecroft.

Although the country’s government  has taken proactive measures to contain the economic and health impacts of the covid-19, the ripple effects of a copper supply shock remain to be seen, Machado says.

“Disruption in mining will cascades throughout the scarcely diversified economy and it can have a long-lasting impact if the state’s policies fail to deliver the intended stimulus,” the expert says.

According to BMO’s figures, the implications of the current quarantine-led restrictions in top copper producing nations, particularly in Chile and Peru, remain manageable.

“If we take total Chilean and Peruvian production of ~8mtpa copper contained, the current two-week quarantine would affect ~310kt of copper,” Hamilton estimates. “Currently, we are taking these losses within our disruption allowance, which at 1.4mt is roughly 50% higher than we would run in a ‘normal’ year, to account for the risk to supply chains this year.”

Codelco operates seven mines and four smelters, all located in Chile. Its assets account for 10% of the world’s known proven and probable reserves and about 11% of the global annual copper output with 1.8 million tonnes of production.

Systemic shocks will lead to a loss of trust in Central Banking – Ronald-Peter Stöeferle

The senior advisor to Erste Group Ronald-Peter Stöeferle discussed the upcoming annual report “In Gold we Trust” on Palisade Radio and how last year’s report had a focus on the coming breakdown of trust in society.

According to Ronald-Peter, there are a lot of economic experiments occurring right now.

Synopsis

We saw equity markets and real estate markets at all-time highs just a month ago. We’ve seen massive price inflation in assets, and now we have a gigantic deflationary reaction. Multiple shocks are in progress including, a global demand crisis, deflationary reactions in assets, a global supply crisis, an oil collapse, a rising U.S. dollar, and a credit shock.

Politicians and central bankers are in a state of action but also helplessness. Measures taken recently with proposed helicopter money shows that we are moving into a new era.

This crisis will mean less globalization, higher inflation rates, and increasing fiscal stimulus. We should expect additional central bank actions like MMT and helicopter money before this market bottoms, which could lead to stagflation.

Commodities have only been lower twice in history. Worldwide currency shocks are ongoing, and U.S. dollar strength is resulting in weak commodities, but that trend will eventually reverse.

Trump would prefer a lower dollar, but that may be difficult to achieve.

Silver is a bargain relative to gold, along with many of the positive cash-flow producers like Newmont, who can only do even better with low oil prices.

Ronald feels there are some excellent opportunities right now. The worst may be priced into the market, and as a result, things could quickly become positive again after Easter.

Time Stamp References:
0:40 – Trust breakdown in society.
3:00 – Unorthodox solutions being discussed.
7:30 – Recessions and opportunity.
8:55 – Outlook for gold, silver and energy.
13:10 – Mining stocks and silver.
15:30 – Producer Fundamentals
16:50 – Opportunities in down markets.
19:30 – Highlights from the coming gold report.
21:40 – Optimism toward gold and bitcoin.

Talking Points From This Week’s Episode
• A possible breakdown in public trust for central banking.
• Multiple shocks are affecting global markets.
• Bankers and politicians are helpless and trying numerous actions.
• Additional central bank actions are coming.
• Markets could turn positive after Easter.

Ronald-Peter Stöeferle is a Chartered Market Technician and a Certified Financial Technician. During his studies in business administration and finance at the Vienna University of Economics and the University of Illinois at Urbana-Champaign, he worked for Raiffeisen Zentralbank in the field of Fixed Income/Credit Investments. After graduating from university, Stoeferle joined Vienna based Erste Group Bank, covering International Equities, especially Asia. In 2006 he began writing reports on gold and gained media attention when he expected the price of gold to rise to USD 2,300/ounce when the current price was only at USD 500. His six benchmark reports, called “In Gold We Trust,” drew international coverage on CNBC, Bloomberg, the Wall Street Journal, Economist, and the Financial Times.

In 2013 he became managing director and partner of Incrementum AG, based in the Principality of Liechtenstein. The company focuses on asset management and wealth management and is one hundred percent owned by its partners. He continues to write the annual “In Gold We Trust” as a senior advisor to Erste Group.

Iron ore price resilience likely won’t last – report

Iron ore price resilience not likely to last – report
File image.

Iron ore prices gained on Tuesday trading at $83.97 a tonne according to Fastmarkets MB making up some lost ground after a sharp retreat at the start of the week.

The steelmaking raw material has shown surprising resilience – averaging above $90 for 62% Fe fines imported into China so far this year – in the wake of the covid-19 outbreak that began in the central part of the country at the end of last year.

Iron ore prices have been underpinned by hopes that China, responsible for more than 70% of the world’s seaborne iron ore trade, will spend massively on infrastructure and construction to revive an economy devastated by the coronavirus.

In a note Wood Mackenzie research director Paul Gray points out that remarkably, the Q1 iron ore price is still averaging above the commodity specialist consultancy’s pre-crisis forecast of $85/tonne in December 2019.

“We are not yet looking at a glut of seaborne iron ore. But risks are escalating, and the balance is tilting towards a bigger hit to iron ore demand than supply.”

Wood Mackenzie research director Paul Gray

The strength in the price “is largely due to the resilience of Chinese hot metal production coinciding with supply side constraints in Brazil and Australia,” says Gray, but weakness lies ahead:

“We are not yet looking at a glut of seaborne iron ore. But risks are escalating, and the balance is tilting towards a bigger hit to iron ore demand than supply.

“Targeted financial stimulus aimed at steel intensive infrastructure should cushion the fall, but our pre-crisis forecast for an annual average price of $80/tonne CFR is undoubtedly at risk and subject to revision.

“Our analysis shows that prices should gravitate towards $70/tonne during the course of the year.

Woodmac warns however that prices could fall further due to weaker than expected demand and falling production costs and in the instance of acute oversupply prices could fall as low as $50 a tonne.

That’s the lower bound for prices WoodMac believes and at these levels prices “begin to approach the break-even of the major iron ore producers and a supply response becomes inevitable.”

Hatch, Anglo, BHP, and Fortescue form Green Hydrogen consortium

Hatch, Anglo American, BHP, and Fortescue have formed a Green Hydrogen consortium as part of a move to evaluate using green hydrogen to decarbonize their operations.

The consortium will aim to eliminate obstacles around the adoption of green hydrogen technologies and encourage their innovative application.

Its goal is to identify green hydrogen development opportunities for the resource sector, and to allow suppliers and operators to contribute to and engage with these activities.

The companies in the consortium are committed to reducing their greenhouse gas emissions and towards finding collaborative solutions for the emissions associated with their products and supply chains

Some of the proposed activities include research as well as technology and supply chain development, in addition to piloting green hydrogen technologies.

The companies in the consortium are committed to reducing their greenhouse gas emissions and towards finding collaborative solutions for the emissions associated with their products and supply chains.

Green hydrogen is produced through electrolysis powered by renewable energy with electricity splitting water into hydrogen and oxygen.

Hatch, a consulting engineering and project implementation company, has been appointed as the project management and governance facilitator of the consortium.

(This article first appeared in the Canadian Mining Journal)