the key drivers behind resource growth: an analysis … factors for copper sm… · minex...

MinEx Consulting Strategic advice on mineral economics & exploration

The key drivers behind resource growth: an analysis of the copper industry

over the last 100 years

Richard SchoddeManaging Director, MinEx Consulting

2010 MEMS Conference Mineral and Metal Markets over the Long Term

Joint Program with the SME annual meeting in Phoenix, March 3 2010


Overview

1. What are the key drivers?

2. How much copper has been found and mined

3. Trends in declining ore grade – is it good news or bad?

4. Untangling the effects of discovery, technology, costs and prices

2


Key drivers for resource growth

• Exploration success

– Trends in copper discovery rates over last century

– Growth in world reserves & resources

• Changes in costs

– Impact on what we define “economic” ore

– R&D and Engineers can grow the resource

• Changes in prices

– Higher prices will expand the pool of economic projects

3


Discovery: Most of the metal found is tied up in a handful of deposits Amount of copper found in deposits >0.1 Mt Cu in the World: 1900-2009

4

0

30

60

90

120

150

180

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

Other & Unspecified

Individual Deposits > 1 Mt Cu

Note: Chart include minor adjustment for deposits missing from the database

Source: MinEx Consulting Feb 2010

Mt Cu

Estimate

Most of the copper found came from

a handful of giant deposits

Chuquicamata

El TenienteAndina

Olympic Dam

Escondida

GrasbergLubin


Until recently, we have been finding it faster than we mine itAmount of copper mined vs copper found in deposits >0.1 Mt Cu in the World: 1900-2009

5

0

30

60

90

120

150

180

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

Discoveries

Production

Note: Chart include minor adjustment for deposits missing from the database

Source: MinEx Consulting Feb 2010

Estimate

CAUTION: Not all discoveries turn into

mines, and not all resources get recovered

Mt Cu


Copper reserves continue to growWorld Copper Reserves: 1900-2010

0

200

400

600

800

1000

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

Various Authors

Tilton & Lagos (2007)

Govett & Govett (1976)

Brook Hunt (2007)

USGS

USGS "Reserve Base"

6

Mt Cu

Sources: Various


Copper reserves continue to growWorld Copper Reserves: 1900-2010

0

200

400

600

800

1000

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

Various Authors

Tilton & Lagos (2007)

Govett & Govett (1976)

Brook Hunt (2007)

USGS

USGS "Reserve Base"

ESTIMATED RESERVES

7

Mt Cu

Sources: VariousMinEx Consulting March 2010

550 mt in 2010

25 mt in 1900


0

500

1000

1500

2000

2500

3000

3500

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

Est Cumulative Mine Losses

Cumulative Production

8

Mt Cu

Sources: Production data from USGSMinEx Consulting March 2010

577

Note: Assumes 20mt in cumulative historic production pre-1900Mining recovers 85% of copper contained in ore

686

Over the last Century copper endowment has grown 25 foldWorld Pre-mined Copper Reserves: 1900-2010


0

500

1000

1500

2000

2500

3000

3500

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

Estimated Reserves



9

Mt Cu


1236 mtin 2010

52 mt in 1900

577


686




0

500

1000

1500

2000

2500

3000

3500

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

USGS "Reserve Base"

Estimated Reserves



10

Mt Cu


1236 mtin 2010

52 mt in 1900

577


686

1670

No data

pre 1977


0

500

1000

1500

2000

2500

3000

3500

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

USGS "Reserve Base"

Estimated Reserves



Cumulative Discoveries (MinEx data)

11

Mt Cu


1236 mtin 2010

52 mt in 1900

577

3145

686

1670

No data

pre 1977

GA

P ?

MinEx data includes Inferred Resources and assigns the

current known resource back to the original discovery date

– and so is larger




Reserve life has slowly declined over the last 60 yearsRatio of Reserves/Production - World: 1900-2010

0

20

40

60

80

100

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

12

Years

Sources: Production data from USGSReserve data MinEx Consulting March 2010

36 years in 2010

111

Note: Chart based on “Estimated Reserves” Peaks in 1921 and 1932 due to sudden drop in production

91

50 years in 1900

32

60

Assuming continued discoveries, the world isn’t going to run out

of copper soon


Ore grades mined have declined over timeCopper ore grade for World and selected countries: 1900-2008

0%

1%

2%

3%

4%

5%

6%

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

World

USA

Canada

Australia

13

Sources: USGS, Mudd (2009)Brook Hunt, UBS

6.86%

1.07% in 2010

4.0% in 1900

Note: Rise in ore grade in Australia from 1972 onwards is due to startup of the high-grade Olympic Dam mine

Copper Grade (%)

Estimate


The average grade for copper discoveries has remained relatively constant. This is dragging down the average ore grade mined

Copper ore grade discovered and mined in the World: 1900-2008

0%

1%

2%

3%

4%

5%

6%

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

Mined Grade

Discovery Grade

14

Copper Grade (%)

Sources: USGS, Mudd (2009)Brook Hunt, UBS

WARNING: The definition of what is economic ore has changed over time. The estimated discovery grade is based on the latest available resource figures – which is much

larger (but often lower grade) than that originally reported at the time of discovery

The ore grade mined is converging on the average

discovered grade

Estimate


QUESTION:

Is a declining ore grade bad news or good news ?

15


There is a trade-off between tonnes and gradeRio Blanco copper deposit

0%

2%

4%

6%

8%

10%

1 10 100 1000 10000

16

Grade (%Cu-equiv)

Resource (million tonnes)

Source: MinEx Consulting March 2010

1100 mt @ 0.58% Cu= 6.38 mt Cu

65 mt @ 1.26% Cu= 0.82 mt Cu

Lowering the cut-off grade grows the resource

= MORE METAL

… lower grades could signify“good” news as …


There is a trade-off between tonnes and gradeTonnes-Grade data for 48 copper deposits

0%

2%

4%

6%

8%

10%

1 10 100 1000 10000

17

Grade (%Cu-equiv)

Resource (million tonnes)



There is a trade-off between tonnes and gradeNORMALISED Tonnes-Grade data for 48 copper deposits

0

1

2

3

4

5

0.01 0.1 1

18

Change in Grade (over Base Case)

Change in Resource size (over Base Case)


On average, by adjusting the cut-off grade, it is possible to double or triple the head grade of the ore body, but at

the expense of shrinking the ore tonnes by a factor of 10

Base Case defined as the maximum reported resource size for a given deposit


There is a trade-off between tonnes and gradeNORMALISED Tonnes-Grade data for 48 copper deposits

0

1

2

3

4

5

0.01 0.1 1

19

Change in Grade (over Base Case)

Change in Resource size (over Base Case)


On average, by adjusting the cut-off grade, it is possible to double or triple the head grade of the ore body, but at

the expense of shrinking the ore tonnes by a factor of 10

Base Case defined as the maximum reported resource size for a given deposit

1.0

2.3

3.5

Curve of “Best-Fit”


Most of the huge growth in known resources in the last 70 years can be attributed to a reduction in cut-off grades

Change in pre-mined resources for 12 giant porphyry deposits: 1929-2008

0

100

200

300

400

2008 Adjusted 2008 1929

20

Mined to-date

136 mt Cu

Remaining

Resource

242 mt Cu

Total 378 mt Cu

(61,000 mt @ 0.62% Cu)

Total 60 mt Cu

(3880 mt @ 1.55% Cu)

Pre-Mined Resource

at higher cut-off gradeMined to-date

10mt Cu

Remaining Reserve

Total 47 mt Cu

(3068 mt @ 1.55% Cu)

Including “speculative” resources increases this to

67 mt Cu

37mt Cu

Mt Cu Top 12 Porphyry Mines in 1929

ChuquicamataBraden (El Teniente) Morenci Utah (Bingham Canyon) Ray Chino Miami Nevada (Ely/Robinson) Inspiration Andes (Potrerillos)New Cornelia Copper Queen

In 1929 these 12 mines accounted for 55% of the

world’s Cu reserves. In 2008 they still accounted

for 10% of world resources

Reduction in pre-mined

resource from using

higher cut-off grade

Sources: Parsons (1933) MinEx Consulting


Over the last 100 years, the real price and cost of copper has halved Copper price and (estimated) average operating costs for Western World: 1900-2009

$0

$1

$2

$3

$4

$5

$6

$7

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

Operating Cost

Copper Price

21

2009 $/lb Cu

Sources: USGS, Brook Hunt, CRU MinEx Consulting estimates (for 1900-1974)

Includes, transportation, smelting & refining and marketing costs

QUESTION: Is price an input or an output ?

Estimate

… Prices are set by supply & demand


Over the same period, unit mining costs have dropped four-fold Estimated average operating costs for copper mines in Western World: 1900-2009

$0

$20

$40

$60

$80

$100

$120

$140

$160

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

22

2009 $/tonne ore

Sources: Brook Hunt, CRU , Historical reportsMinEx Consulting estimates (for 1900-1974)


The lower cost per tonne has more than offset the lower grades

mined - leading to lower unit price per lb of copper produced

EstimateKey Challenge – In the future

will costs continue to fall faster than the grade ?


Key Technical Innovations Estimated average operating costs for copper mines in Western World: 1900-2009

$0

$20

$40

$60

$80

$100

$120

$140

$160

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

23

2009 $/tonne ore

Sources: Brook Hunt, CRU , Historical reportsMinEx Consulting estimates (for 1900-1974)


Better Smelting &

Refining

… which opened up the “Age of

the Giant Porphyries”

Airborne geophysics

post-WW2 led to raft of new

discoveries

Expanding demand led to economies of scale

Development of a good

geological model for Porphyries

SXEW

Computer controls ,

modelling and scheduling

Low cost mines in new

countriesBetter work

practicesImproved recoveries

65% to 85%

Bulk mining at Bingham Canyon &

Chuquicamata …

Froth Flotation

Improved transportation


Economies of scale and new technology helped drive down costs

Cash operating costs for selected open pit mines in USA and Chile

$0

$20

$40

$60

$80

$100

$120

0 1 10 100

1905

1915

1929

1996

2007

24

1905 Trend line

1915

1929

1996 & 2007

2009 $/tonne ore

Mining Rate (mtpa ore)

Operating costs include transportation, smelting & refining charges# Bingham Canyon, Ray, Chino, Morenci, Robinson, Toprerillos, Chuquicamata and El Teniente


Cost savings from economies of scale1 to 50 mtpa = 30%

Cost savings from new technology

1905->2007 = 70%

$80/t

$60/t

$18/t


SUMMARY

• World’s copper resource base grew by x25 over last 100 years

• Much of this was through discovery

• Technical innovations enabled giant “disseminated” Porphyries to be mined, and then later Cu-oxide deposits

• Costs reduced through economies of scale and new technologies

• As costs went down, so too did cut-off grades … thereby further growing the resource

• Prices are a output – not an input. They are driven by supply & demand

25

Hard to untangle the partnership between

geologists & engineers … say 50: 50

30% 70%

Halving the ore grade increased ore tonnes by x6 and metal by x3


QUESTIONS ?

26

Contact details

Richard SchoddeManaging DirectorMinEx Consulting Melbourne, Australia

Email: [email protected]

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