Best undeveloped copper projects

Thomson Reuters published its GFMS Copper Survey 2016 this week. The survey warned of a fifth straight year of market surplus and an imminent return to weaker prices following the March quarter rally.
Best undeveloped copper projects Best undeveloped copper projects Best undeveloped copper projects Best undeveloped copper projects Best undeveloped copper projects


“In the remainder of 2016, we see potential for fresh weakness to take out earlier multi-year lows and expect prices to average US$4,850 per tonne,” the research stated. “While the worst of the downturn will be over by the end of this year, only modest improvement to $5,100/t is expected in 2017.”

The gloomy outlook jars a little with the unexpected cheer that ended up characterising much of the March quarter – copper was up 9% from the start of the year through to March 18, before losing half those gains by month-end.

Though unwelcome, the forecast is justified and simply reflects basic supply-demand economics: the forecasted surplus this year, while down by almost 60% to 150,000t, is still a surplus. 

GFMS suggests the surplus will not be eroded quickly and rather “copper’s recovery will prove a rather lengthy affair”.

The key culprits, it seems, are miners, which have established a “long line” of copper developments for the market to “digest”. We can read “digest” as either ‘cast aside’ or ‘bring on to replace marginal production’. 

To force a path into the copper space at current price levels, projects have to be special. They have to either be easy to develop and cheap to mine, or so big and so rich they warrant building even at a time when funds are scarce. 

Or perhaps they’re a combination of both. 

Most projects can’t claim to fit these categories and so will simply fail. A selection of others claiming to meet the criteria has been assembled in this feature. 

The standout copper developments within our list covers projects that can claim to be world class in some aspect. All will almost certainly be developed at some future point, however, only the cream will be pushed forward at this low point in the commodities cycle.

The metrics used for selecting these projects and ranking them was fairly simple. 

The size of the resource gives an indication of mine life, but also the likely capital expenditure requirements, the grade indicates the cost, the production profile points to revenues and the location reflects sovereign risk.

A ranking in each of these categories gives a cumulative score and allows us to settle on what we consider the best undeveloped copper project in the world.

There are some caveats to address. The Timok project is let down only by its immaturity, not scoring in several categories that require a technical study at some level. 

That said, its place toward the base of the table is a reasonable reflection of general development risk.

El Espino should sit slightly higher but the lack of cost information holds it back in our ratings. 

We’ve also failed to unearth reliable cost figures for Michiquillay, which would have moved it a place or two higher. A reliable number for cash costs at Resolution eluded us, so we used a conservative ranking as a proxy, though a better number would have unlikely moved that project any higher.

None of these affect life at the pointy end of the table. 

And so we start in Chile. 

12. El Espino

Owner: Sociedad Punta Del Cobre (Pucobre)

Country: Chile

Our South American sources tell us Pucobre is a secretive private group, which makes pulling together information about El Espino challenging.


What we can tell you is in January this year, Pucobre received the regional environmental evaluation commission’s blessing for its $624 million openpit development, which is slated to produce 40,000 tonnes per annum of copper in cathodes (18%) and concentrate (82%) based on a resource of 230.3 million tonnes grading 0.447% Cu and 0.191g/t Au. A concentrator plant will treat 20,000 tonnes per day of sulphide ore and deliver 6,300tpd to a leach and SX-EW plant for an initial 16 years. 

A published 25,000 ounce per annum gold by-product should give the financials a leg-up. 

El Espino scores reasonably well for its copper-friendly address and decent grade, but can’t compete with its peers on resource size and production.

11. Timok

Owner: Lundin Mining 55%; Reservoir Minerals 45%

Country: Serbia

Lundin has just paid $260 million to debt-riddled Freeport-McMoRan for 55% of the Timok joint venture (below), which is focused on developing the Cukaru Peki deposit within the broader Brestovac-Metovnica mineral licence. 


The JV is contemplating a high-grade massive and semi-massive sulphide mine with, conceptually, an underlying deep-seated copper-gold porphyry target. An inferred resource for Cukaru Peki came in at 65.3Mt at 2.6% Cu and 1.5g/t Au, including 6.8Mt at 9.6% Cu and 5.9g/t Au. Processing infrastructure is nearby.

For its stake, Lundin agreed to pay $135 million upfront, $45 million once a build decision was made on the Upper Zone, $50 million at commercial production, and $12.5 million on recouping project expenditures. The last $20 million was to go toward exploration and study work on the Lower Zone – big money in these times.

With industry-best grades to draw on and a resource likely to grow, this project would challenge for much higher honours if polled in 18 months’ time. 

10. Michiquillay

Owner: ProInversion

Country: Peru 

The state-owned Michiquillay project, near Cajamarca, could be back on the block this quarter if the government decides to accept a private initiative from Peruvian-Brazilian base metals miner, Milpo. 


However, though local reports suggest Milpo’s proposal was well-received, controlling body ProInversion would still have to open the process to competing bids, which is unlikely before the presidential election late in the year.

Anglo American, which returned Michiquillay to the government in 2014, originally brushed aside more than 10 rival bidders to win the project in 2007. 

The copper porphyry extends over a 1,206ha surface area, under which Anglo previously estimated was a 544Mt resource grading 0.69% Cu, 0.1-0.5g/t Au and 2-4g/t Ag. 

Previous studies varied in scale, with the government proposing an openpit operation producing 187,000tpa of metal, while Anglo had its eye on an initially more modest 155,000tpa mine potentially expanding by more than 100%. 

Anglo failed essentially because of poor community relations and the state’s heavy involvement may also be a red flag. All other metrics stack up well.

9. King King  

Owner: St Augustine Gold and Copper 60%; NADECOR 40%

Country: The Philippines

The King King development took another step towards development in January this year when the government approved the last remaining permit for the $2 billion copper-gold project in Mindanao. 


This allows partners Nationwide Development Corporation (NADECOR) and St Augustine to get out the big toys and start building as soon as they can find the necessary capital.

St Augustine CEO Paolo Villar rightly recognised the importance of the moment, labelling the permit as the last significant hurdle to be cleared and suggesting it was the company’s “most significant milestone to date”.

That’s a reasonably big call as previous milestone’s included the building of a 1.86Mt copper reserve with a handsome 7.85Moz of gold.

A 2013 PFS determined production in the first five years would be 120,000tpa of copper and 360,000ozpa of gold, the latter holding the key to the development’s negligible production costs when considered as a purely copper operation. 

A feasibility study is pending, as is finance, but the plan is to be heap leaching by 2018 and milling rock the year after.

King King is a balancing act between its massive capex bill plus modest resource size and grade – only in present company – against its exceptional operating cost base and production profile. Tipping the scales among risk-averse investors may be its questionable address. 

8. Productora

Owner: Hot Chili 82.5%; CMP 17.5%

Country: Chile 

Hot Chili is one of the relatively few juniors that has managed to pinch prime Chilean exploration ground off the big guys – and it’s making the most of it. 


Productora delivered a PFS last month that proposed two large sulphide pits and five smaller oxide openpits with ore fed through a conventional processing set-up for 66,000tpa of copper and 25,000ozpa of gold. The operation would cost $725 million to build.

Hot Chili also updated its resource with a higher-grade portion rising to 236.6Mt at 0.48% Cu, 0.1g/t Au and 135ppm Mo. A separately defined lower-grade resource was delivered for 218Mt grading 0.16% Cu, 0.04g/t Au and 58ppm Mo, which might prove challenging at current prices. Reserves were 166.9Mt for 562,900t of copper, 191,900oz of gold and 11,200t of molybdenum metal.  

Exploration success has continued, but largely in lower grade material, which does not help the resource in comparison with more impressive peers. Productora’s coastal location and costs are its strengths. 

7. Casino

Owner: Western Copper & Gold

Country: Canada

This $2.46 billion openpit porphyry project in the Yukon needs an uptick in copper and gold prices to get going – its post-tax internal rate of return at 20.1% was based on a $3/lb copper price and $1,400/oz gold price – but it has sizeable production potential. The reserve comprises more than 2Mt of copper metal and almost 9Moz of gold. 


The feasibility study envisages a mine producing 399,000ozpa of gold, 111,000tpa of copper, 6,800tpa of molybdenum, and 1.8Mozpa of silver over a 22-year mine life, but a large inferred resource (2.5Mt of copper and 9Moz of gold) shows it could potentially operate for almost 50 years. The project has a mill ore reserve of 965Mt at 0.2% Cu and 0.24g/t Au, and a heap-leach reserve of 157Mt at 0.3g/t Au and 0.04% Cu. 

With a significant precious metals contingent and using heap-leach processing for part of the operation, all-in costs after by-product credits come in at negative 0.13/Ib. 

The latest on Casino is its tailings and waste management plan is to be reviewed for potential effects to wildlife, though, given the location, Western Gold and Copper can assume reasonable and equitable treatment.

The project is big, low grade and expensive to build by our reckoning. But its ridiculously sexy operating costs and Canadian locale ensure potential financiers are following closely. 

5. Frieda River

Owner: PanAust 80%; Highlands Pacific 20%

Country: Papua New Guinea

PanAust acquired Glencore’s 80%-stake of Frieda River in Papua New Guinea in 2013 and is due to deliver a feasibility study to the PNG government in the current half.


A previous (2012) feasibility study flagged eye-watering capital costs of $5.6 billion, but PanAust’s smaller start-up mine is expected to have capital costs of $1.5-1.8 billion for a 24Mtpa operation, down from 64Mtpa.

The flagship Horse-Ivaal-Trukai zone has a resource of 2.11Bt at 0.45% Cu, 0.22g/t gold and 0.76g/t Ag, and growing. PanAust expects initial production of 100,000tpa of copper and 160,000ozpa of gold at cash costs of around $1.25/lb.

A massive resource at reasonable grades underpins strong production at reasonable capex and opex, given the production profile. 

Question marks hover over Papua New Guinea, which was ranked 77th of 109 regions and countries for its policy affecting miners in the Fraser Institute’s most recent survey of mining companies. 

5. Rosemont

Owner: Hudbay Minerals 80%; United Copper & Moly 20%

Country: US

Billed by Hudbay as “one of the first new copper projects to be built once copper prices and capital market conditions improve”, the former Augusta Resources-owned asset could be a plus-100,000tpa copper mine. 


A 2012 feasibility study envisaged a $936 million capital spend, a post-tax NPV of $1.14 billion (8% discount) and an IRR of 30.9% at the currently fictional copper price of US$5,777/t. The project hosts “historical” reserves of 605Mt at 0.44% Cu, which Hudbay has been confirming with drilling.

Since acquiring the asset, Hudbay hasn’t over-promoted Rosemont, which could hint at the permitting issues it faces in Arizona linked to environmental concerns. The company has adapted Augusta’s plans to use dry stack tailings and best practice to cater to any concerns, but there is still serious opposition.  

While Hudbay works through these administrative issues, it will spend $30 million on an updated definitive feasibility study this year, including a mine plan. This is a change from what former CEO David Garofalo said in 2015, when he hinted construction could start this year.

Though frustrated by opponents, Rosemont remains a great opportunity for development with relatively low capex for its production profile and reasonably tight operating costs. 

4. Carrapateena

Owner: OZ Minerals

Country: Australia

OZ Minerals has said it will draw on its plus-$350 million war chest to move the Carrapateena project (below) to the next stage following a scoping study delivered in February, which outlined a 2.8Mtpa single decline sub-level caving operation with on-site processing using hydromet technology.


The mine will deliver a relatively modest 40,000tpa of copper along with 38,000ozpa of gold. The scale of the operation is reflected in the build cost of just $580 million, while operating costs are kept in check ($1/lb) by the gold credit.

Average annual cashflow is forecast at $115 million.

The company has already put the decline out to tender with a final construction decision due mid-year. A $20 million prefeasibility study should be signed off by the end of the year, with production set for 2019, should everything go to plan.

And, according to OZ Minerals managing director Andrew Cole, the chances of something upsetting the applecart now are minimal.

“The probability of this project not going ahead is very low,” he said when the scoping study was released.

“Everything we know about this project today – and everything we know about the market – says that this project has a high probability of turning into cashflow.”

Based on the cumulative metrics we’d have to agree. Though the production profile is relatively modest, the grades are excellent and, together with the gold credit, offers plenty of protection through margin. The Australian address, cheap capex bill and current cash balance, meanwhile, all point to Carrapateena being built without delay. 

3. Resolution

Owner: Rio Tinto 55%; BHP Billiton 45%

Country: US

This mammoth project has just entered the all-important public comment period when locals get their say on development plans and how it stacks up from an environmental standpoint. Considering the project has, so far, involved a complex land exchange agreement, which has already riled some politicians, this will be crucial to whether or not the project goes smoothly. 


Having already sunk $1.5 billion, the two mining giants obviously think this would-be underground mine in Arizona is special. It hosts inferred resources of 1.766Bt at 1.51% Cu and is near the former San Manuel copper operation, which previously extracted more than 600Mt of ore. 

One of the project’s strengths is its size. To get down to the 10 level, the company had to sink the deepest single mine shaft in the US (2,116m). If it is able to bankroll the circa-$6 billion project, the operation could produce more than 500,000tpa of copper at full capacity for decades, according to Rio. This would make it the biggest copper mine in the US and it could supply up to 25% of North America’s copper needs.

The scale of Resolution is its friend (mine life, NPV, cash flows, leverage) and its enemy (public concerns and related media profile). 

The cost to build it is huge, but, backed by the two biggest names in mining, this isn’t a problem. It may be delayed, but it will be built and, when it is, it will change the market. 

2. Khoemacau

Owner: Cupric Canyon

Country: Botswana

Having bought the Boseto plant in Botswana from liquidators in July last year, Cupric Canyon released updated capital cost estimates to develop its nearby Zone 5 copper deposit on the Kalahari Copper Belt, using the defunct plant.


It would cost just $350 million to construct the three interconnected underground mines along strike in the Zone 5 orebody and a 30km ore transport system to the Boseto mill, which will be expanded from 8,200tpd to treat 10,000tpd. The private company has also completed 194,000m of drilling for a plus-100Mt resource grading 1.95% Cu and 20g/t Ag.

Production would average 50,000tpa of copper in concentrate at C1 cash costs of $1.05-1.10/lb, after by-product credits.

In another scenario, a $600 million capex bill would pay for six underground mine developments feeding a 16,800tpd plant for 87,000tpa of copper in concentrate with C1 costs of $0.90-0.95/lb.

Both scenarios have capital intensity estimates of c$6,500/t, almost half the industry average for brownfields projects ($12,000/t).

Khoemacau flexes its muscles as a very cheap, very high-grade development opportunity in a country that loves mining, with perhaps its only drawback a limitation on its mine life compared to peers. 

1. Kamoa

Owner: Ivanhoe Mines 48%; Zijin Mining Group Co 47%; DRC government 5%

Country: DRC

In the first half of 2015, Ivanhoe CEO Robert Friedland sold just under half of the company’s 95% stake in this huge development to its Chinese partner, locking in a total value for Kamoa (below left) of nearly $900 million. 


Found in an area of the Central African Copperbelt thought to be unexciting by most, good conceptual geology coupled with a high-resolution airborne magnetic survey and an aggressive drilling programme delivered a resource of 966Mt at 2.5% Cu for 24.2Mt of copper metal. 

A 2016 PFS estimated production of 3Mtpa at an average grade of 3.86% copper over a 24-year mine life, resulting in copper production of about 100,000tpa.

Initial capital cost, including contingency, is $1.2 billion. Life-of-mine average mine-site cash costs are $0.75/lb, though optimisation could reduce this figure during the first phase to $0.61/lb.

Openpit mining is set to start in 2018.

Yes, it’s a fairly expensive build, but by no means the dearest on our list – and just look at the prize. Globally significant production at low costs for the indefinite future built on a gigantic deposit blessed with industry-best grades.

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