Copper exploration opportunities are abundant in Southern Africa, particularly in Namibia and Botswana, as well as in East Africa, professional services firm Venmyn Deloitte mining analyst Andrew de Klerk tells Mining Weekly.
However, he cautions that many of the early-stage greenfield exploration projects, regardless of their potential, remain largely dormant, owing to how rife certain challenges, such as raising the necessary capital for exploration, are.
“Investors tend to favour investing in advanced brownfield or near-production projects, many of which remain on tight budgets – even those whose foundation is based on previously pro- ducing mines,” he notes.
De Klerk adds that this reflects the general state of the copper industry and the minerals industry as a whole, with the price of copper largely being driven by China’s demand.
“China accounts for almost 40% of the global demand for copper and the slowing Chinese economy has contributed to the drop in the copper price,” he says, adding that this year alone it has dropped by nearly 11% and it currently sells at $3.12/lb.
“Should demand increase and the industry grow, the copper exploration industry will become more active, as the drive to discover new large-scale near- surface copper deposits does exist.
“It is unlikely that this is going to change in the foreseeable future, as the Chinese economy is predicted to remain under some pressure, which could impact on the metal’s price even further. This is not unique to copper, as other base metals are showing similar low prices,” he notes.
Further, De Klerk points out that a combination of ailing copper prices, which dictate demand, and the chal- lenges in finding new near-surface copper deposits are major obstacles for the industry.
“Many of the South African copper deposits have been largely mined out and have closed down, with mining major Rio Tinto’s Palabora copper mine, in Palaborwa, the only operating copper mine in South Africa,” he says, adding that many of the current defunct copper mines form the basis of brownfield or expansion exploration projects.
De Klerk explains that the industry has been on a slow decline over the last 12 to 18 months, with many fringe projects becoming dormant.
He adds that, although the copper price will remain steady, it will not rise in the near future.
“South Africa has a well-established mining and exploration industry, capable of supporting projects in the country and across the continent. “With waning exploration for copper, there has inevitably been a drop in the demand for copper exploration skills, with Venmyn Deloitte having under- taken a handful of copper exploration studies in the last 18 months,” he says.
Mining resource intelligence company IntierraRMG states in its monthly copper briefing report that liquid copper stocks are at a historically low level.
It states that, while more copper has become available from the merchant bond stockpile in China, that source is diminishing, with a growing likelihood of a real shortage of physical copper for spot purchase resulting in higher premiums.
The report predicts copper price spikes of $8 000/t or more in the third quarter of this year.
It notes that economists’ opinions vary on China’s role in the state of the industry. One view is that, despite problems, Chinese economic growth will continue, more or less unabated, with a modest slowdown.
Another view is that overinvestment in physical assets, debt and over- stretched bank finances will need to be addressed by central government to ensure that China’s asset bubble does not burst.
Macro forecasting company CHR has switched to the latter view, which currently reflects the mainstream view, the report states. It highlights that the implications for commodities are serious, as the economic restructuring required would mean a period of low economic growth, while China reinvents itself as a consumer-driven, rather than a fixed-asset-investment- driven, economy.
The report further states that copper, with its late-stage use in building con- struction and extensive use in the power network – which should emerge relatively unscathed – may perform better than some other commodity metals, but the risk to demand forecasts is definitely a factor.