BHP commits $8-million to support Chile’s battle against COVID-19

Global miner BHP Group (ASX, LON, NYSE: BHP) launched an $8-million plan focused on helping mitigate the spread of COVID-19 in Chile.

BHP operates the Escondida copper mine, which is the world’s largest, and the Pampa Norte mine, which consists of two operations, Spence and Cerro Colorado. Both complexes are in the northern Atacama Desert but Escondida and Spence are located in the Antofagasta region while Cerro Colorado is in the Tarapacá region.

Just a week ago, the company announced that it decided to exclude contractors from its Chilean operations for 15 days, in an effort to curb the spread of coronavirus.

Efforts will be focused on the southeast area of Santiago’s Metropolitan Region, Antofagasta and Tarapacá

But as the number of confirmed cases continues to grow, now reaching 2139 including seven deaths, BHP decided to join efforts with the Medical Faculty at the Catholic University with the goal of raising the testing capacity of family healthcare centres located in the southeast area of Santiago’s Metropolitan Region, as well as in Antofagasta and Tarapacá. 

In a media statement, the miner said the plan involves an early detection program that includes 150.000 rapid tests able to provide results in 24 hours, 10 units for sampling and mobile tents and permanent units; the expansion of laboratory capacity, including the purchasing of new analysis equipment to maximize the speed for processing tests; community surveillance for cases that test positive and their contacts, something that will be done through primary attention centres and telemedicine; and a 24/7 call centre for identifying potential cases. 

“In addition, BHP will implement a program to support communities and high-risk, vulnerable groups in the regions where the company operates, Antofagasta and Tarapacá,” the communiqué reads. “This will allow the delivery of supplies, sanitization of public areas, areas for the isolation of potential cases and support to the state network to increase medical rounds, supplies and treatment for high-risk people.”

Corriente Resources’ mining camp in Ecuador set on fire

The Esperanza camp, which is part of the San Carlos Panantza mining complex in Ecuador, was intentionally set on fire and destroyed this weekend, according to information made public by the Ministry of  Energy and Natural Non-Renewable Resources.

The copper project, located in the southeastern province of Morona Santiago, is operated by Explorcobres S.A.(EXSA), a subsidiary of Chinese-owned, Canada-based Corriente Resources.

According to the ministry, the arsonists also stole valuable objects from the camp.

San Carlos Panantza has seen its fair share of conflict since the early 2000s, as it is opposed by the Shuar First Nation, in whose ancestral territory the project sits

“We reject these acts of vandalism and the destruction of the property that belongs to the San Carlos Panantza mining project,” the department said in a statement. “We also reject the fact that the decree of state of emergency was violated.”

Two weeks ago, Ecuador declared a state of emergency to deal with the growing number of COVID-19 infections. As of Sunday, the country had registered 1,835 confirmed cases and 48 deaths.

Besides pointing out the fact that the vandals violated the mandatory curfew that goes from 2 p.m. to 5 a.m., the Ministry of Energy also insinuated that police didn’t do their job as they are mandated to guarantee the safety of mining operations.

“We demand that authorities investigate this incident so that those responsible for the fire can be held accountable,” the communiqué reads.

San Carlos Panantza is an advanced-stage project whose reserves have been estimated at 6.6 million tonnes of copper. The 41.760- hectare property is set to host an open-pit operation expected to be active for at least 25 years. 

Tiny electronics can still rely on gold

A research paper published in Physical Review Letters reveals that gold can stand up to the strain of the next-generation data processing in electronic devices.

The study was carried out because engineers were starting to worry about the possibility of the tiny gold wires that are used in electronics behaving more like a liquid than a solid as circuits shrink to the nanoscale. 

To run this experiment, the researchers figured out how to pressurize gold particles just 4 nanometers in length — the smallest particles ever measured

Thus, a research team at Stanford University, Korea Advanced Institute of Science and Technology and Trinity College conducted an experiment in which they used a device known as a diamond anvil cell, normally employed to compress gold. The idea was to put tiny gold particles under extreme pressure, while simultaneously measuring how much that pressure damaged gold’s atomic structure.

The anvil’s pressure dislodged some atoms from the crystal and created tiny defects in the gold. According to the study’s lead scientist, Wendy Gu, such a reaction was expected because a nanoparticle of gold is built like a skyscraper with atoms forming a crystalline lattice of neat rows and columns.

Since the gold particles were only four nanometers in length, to detect the defects Gu and her team shined X-rays through the diamond onto the gold. Defects in the crystal caused the X-rays to reflect at different angles than they would on uncompressed gold.

By measuring variations in the angles at which the X-rays bounced off the particles before and after pressure was applied, the team was able to tell whether the particles retained the deformations or reverted to their original state when pressure was lifted.

“The defects remain after pressure was removed, which told us that gold behaves like a solid even at such scales,” Gu said in a media statement. “For the foreseeable future, gold’s luster will not fade.” 

In summary, the findings mean that chipmakers can know with certainty that they’ll be able to design stable nanodevices using gold for years to come.

Mistango to become one of the largest landowners in Kirkland Lake

Hinterland Metals entered into a mining property acquisition agreement with Mistango River Resources (CSE: MIS) to sell its non-core asset, the Teck property, located in the Kirkland Lake Gold Camp in Ontario, Canada.

According to Hinterland, the 2,105-hectare property has been inactive for several years.

The expanded land package is contiguous to Kirkland Lake Gold’s Macassa mine, one of the worlds highest-grade gold mines, and gives Mistango one of the largest land positions in the Kirkland Lake district

The deal entails that Mistango has to pay C$15,000 as well as issue 1,500,000 common shares to Hinterland in exchange for the transfer of 47 mining claims, 22 mining patents, and two mining licenses of occupation, all situated in the Eby, Teck and Grenfell Townships, together with all exploration data and technical information associated with claims.

The additional claims bring Mistango’s adjacent Eby-Baldwin property to a total of 4,300 hectares, which makes the Toronto-based miner one of the largest landowners in the Kirkland Lake camp.

“This acquisition establishes Mistango as a major landholder in Kirkland Lake, particularly along with the western extension of the Amalgamated and Main breaks which hosts excellent geology but has seen substantially less exploration due to its fragmented ownership,” Mistango’s director, Stephen Stewart, said in a media statement. “This Teck-Kirkland acquisition gives us additional coverage along the intersections of the major breaks in the area including the Amalgamated, Main, Cadillac and Kirana faults. The focus of our exploration going forward will be where these major structures crosscut.”

Seabridge reports net loss for 2019

Seabridge Gold (TSX: SEA)(NYSE: SA) posted a net loss of $11.6 million ($0.19 per share) in 2019 compared to a loss of $19.9 million ($0.34 per share) in the previous year, the company stated in its year-end financial release on Friday.

During 2019, Seabridge invested $30 million in mineral interests, primarily at its KSM project, compared to $37 million in 2018. The company’s working capital as of December 31, 2019, was $12.5 million, down from $18 million at December 31, 2018.

Subsequent to year-end, the company issued 382,807 common shares under its at-the-market offering program (ATM) at an average price of $17.96 for net proceeds of $6.7 million.

Previously in Q4 2019, Seabridge entered into an agreement with two securities dealers for an ATM program that entitled the company, at its discretion and from time to time, to sell up to $40 million worth of common shares. The ATM came into effect in December 2019 and is effective until June 2021.

Seabridge is currently focused on developing several gold assets across North America. Its two principal assets KSM and Iskut are both located in British Columbia.

The KSM project is considered one of the world’s largest undeveloped gold projects in terms of reserves. A recent preliminary feasibility study (PFS) estimates proven and probable reserves total 38.8 million ounces of gold and 10.2 billion pounds of copper.

Shares of Seabridge Gold were down 7.8% at Friday’s market close. Its current market capitalization sits at C$865 million.

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.

Polyus to launch covid-19 response fund in Russia

Polyus announced that, in cooperation with the Far East Development Fund (“FEDF”), it will co-found a fund to finance activities aimed at preventing the spread of covid-19 in the Russian Far East.

The size of the fund is expected to reach RUB 1 billion (about $12 million) reflecting donations from different parties.

FEDF and Polyus will donate a total of RUB 250 million under the first tranche which will be used to finance initiatives to help prevent the spread of the virus, the companies said in a media release.

A portion of the first tranche will be allocated to the Magadan region and Yakutia, Polyus’ principal regions of operations in the Russian Far East, and will be used for the procurement of personal protective devices and medical equipment for local hospitals.

The remaining portion of the first tranche will be directed to all other regions of the Far Eastern Federal District.

Polyus is the largest gold producer in Russia.

Sprott increases stake in Orefinders

Orefinders Resources (TSXV: ORX) has closed the flow-through portion of its previously announced private placement for aggregate proceeds of approximately C$619,000.

Upon closing of the offering, the company issued around 8.84 million units at a price of C$0.07 per unit, where each unit consists of one common share and one-half of one common share purchase warrant. Each whole warrant will entitle the holder to purchase one additional common share of the company at a price of C$0.08 for a period of 24 months from the date of issuance.

Mining investor Eric Sprott acquired 7.14 million of those units, increasing his ownership in the company’s capital to just over 20 million common shares and 10 million warrants, representing approximately 11.89% of those outstanding on a non-diluted basis and 16.84% on a partially diluted basis.

Sprott recently became a shareholder of Orefinders when he participated in the company’s C$1.49 million private placement in February, acquiring 8.07% of the company’s outstanding stock on a non-diluted basis and 11.64% on a partially diluted basis.

Orefinders is currently developing gold assets in Ontario’s Abitibi Greenstone Belt, including the McGarry, Knight and Mirado projects.

Covid-19 pandemic hits Caterpillar supply chain

Caterpillar (NYSE: CAT) announced this week that the continued spread of the covid-19 is starting to impact its supply chain.

Caterpillar said it is continuing to run the majority of its US domestic operations and plans to continue operations in other parts of the world but is temporarily suspending operations at some facilities in affected areas.

In February, Caterpillar said its machine sales dropped 11% on a rolling three-month period. Isolating the Asia-Pacific region, sales fell 17% – the largest drop in four years.

“The company is monitoring the situation closely and supply chain teams have been executing business continuity plans, which include, but are not limited to, being alert to potential short supply situations, and, if necessary, utilizing alternative sources and/or air freight, redirecting orders to other distribution centers, and prioritizing the redistribution of the most impactful parts,” Caterpillar said in a media release.

Caterpillar said its financial position remains strong. On a consolidated basis, the company ended 2019 with $8.3 billion cash and available global credit facilities of $10.5 billion.