Demand for copper is
surging. The red metal, considered a
barometer for economic health, is a vital
component for the construction and defense
industries, as well as a key ingredient in electric
cars, wind turbines and the power grid. Offshore wind,
for example, requires about three times as much copper
as does coal-fired power generation in terms of tons
per gigawatt of capacity. The outlook for copper is
very positive. I've never been more
enthusiastic about it. But mining companies are
having a hard time keeping up. There's this growing
consensus that demand fueled by the energy transition is
going to outstrip supply, and that's why analysts are
now saying we're simply not going to have enough of it. And so copper really is the
backbone of decarbonization goals. There's going to be a real
problem with this transition over the next ten years, is
that it is very, very hard for these companies to even
maintain the level of production that they have
at the moment. Globally, existing mines and
projects under construction will meet only 80% of
copper needs by 2030. That has analysts
predicting the red metal is at the start of a new bull
market. In recent years, prices
have soared. To keep up with demand the
industry is faced with a number of obstacles,
including the shortage of mining workers navigating
regulatory hurdles, as well as pushback from local
stakeholders. There are areas where you
can mine and areas where you can't mine. The mine being
it's it's a sacred site for the Apaches. The other part
is that that's where we get our water from. On top of that, mining is
difficult, costly and often dangerous work. Mining is a very capital
intensive business. It takes 10 to 15 years to
build these mines. Imports made up about 40% of
copper usage in 2023, and that could jump to two
thirds by 2035. So what impact will the
looming global copper shortage have on the
transition to renewable energy sources? To look at the challenges
facing copper producers, CNBC got a behind the
scenes look at Rio Tinto's Kennecott mining operation
outside of Salt Lake City, where about 200,000 metric
tons of copper are produced annually. Copper is essential to
modern life, delivering electricity to our homes
and powering our electronic devices. Because of its
strength, efficiency and reliability copper is also
the most economical conductor available, making
it ideal for wiring systems. It is also a bellwether of
the global economy. Directly and indirectly the
copper industry supports more than 395,000 US jobs
and more than $160 billion in economic output. Global demand in recent
years can be attributed largely to the economic
growth and urbanization in China, which made up 54% of
the world's consumption in 2021. But copper is also a
critical mineral central to the energy transition in
things like EVs and solar panels. An EV, for example,
uses about 3 to 4 times the amount of copper as a
typical combustion engine vehicle. In addition to
being used in EV motors, batteries, and power
cables, because of its high conductivity, it is the
preferred choice for high speed data wires used in
vision systems and sensors. It's also essential for the
infrastructure that carries that power, so think
distribution, transmission lines, all the wiring, all
the updates to the grid. That's all going to require
so much copper. Increasingly, it's
recognized that the move towards AI and data centers
is going to increase copper demand. Copper is also 100%
recyclable, with the majority of the 550 million
metric tons produced since 1900 still in use today. Recycling constitutes about
17% of the world's refined copper supply. The America's dominate
global copper production, with the region hosting 75%
of the world's largest mines. Chile holds the top
spot among producer nations at 22%, followed by Peru,
the DRC, China and the US. But demand may already be
starting to outweigh supply. The amount of copper needed
in the 28 years between 2022 and 2050 will exceed the
amount consumed between 1900 and 2021. But while copper is
abundant globally, only a fraction can be extracted
cost effectively due to today's prices and
technology. High grade economic copper
resources are not abundant. These things aren't all
over the place. You have to go find them,
and they're in risky regions or in very geographically
challenging regions. You know, high in the
mountains in Chile or in the Gobi Desert in Mongolia. So you have to go into
difficult regions of the world where there's no
infrastructure, maybe there's no water. You need
a lot of water, maybe there's no people. You need
workers. Roughly 2.1 billion metric
tons of copper reserves globally have been
identified, and an estimated 3.5 billion metric tons are
believed undiscovered. The US has the world's
sixth largest copper reserve, behind Chile and
four other nations. Constrained by investor
pressure for dividends and with much of the world's
high quality copper resources in geopolitically
risky regions, international mining companies capital
spending on new projects has remained subdued in recent
years. For a while back in the
2010s, they spent a lot and investors didn't like it. And so now they've pulled
back on their exploration and production budgets. They've been paying
dividends, they've been buying back stock. And all
of that means it's hard to build new mines. So you want to build a mine
in a region of the world where the rule of law will
apply? The mine is not going to
get stolen. There are examples of
mining companies that have spent multiple billions of
dollars on copper assets and other mining assets in
regions of the world where they end up basically
dealing with government efforts to steal the mine. Inflation and the high costs
associated with building a new mine have also been a
deterrent. It's so capital intensive,
you need to invest billions up front for a payout that
might take 10 or 15 years to come in the future, and by
that time, who knows what the economic landscape, who
knows what the geopolitical landscape will look like. And so it's hard for
investors to give the green light for that. These macro economic factors
are causing companies to be hesitant about investing in
new copper supply, which those investments take many
years to result in new production. But despite those hurdles,
there have been a smattering of new projects. Mining giant Rio Tinto, one
of the world's largest mining companies with 2023
copper revenue of $6.6 billion, has ramped up
production of its giant Mongolian copper mine. And a startup backed by Jeff
Bezos and Bill Gates has found a large scale copper
deposit in Zambia. At the same time, mining
stocks have continued to climb. The top producing
copper companies include Codelco, Glencore,
Freeport-McMoRan, BHP and Southern Copper. To mitigate risk some
copper miners are looking to the US to expand their
operations at about two miles wide and roughly a
mile deep, the Bingham Canyon Mine, owned and
operated by Rio Tinto, is one of the world's largest
man made excavations. And the mine, located
outside of Salt Lake City, Utah, is about to get even
bigger. To ramp up production, Rio
Tinto is expanding its open pit mining operation and
has begun an underground mining project at the site,
where typically the ore is a higher grade than a surface
mine. In addition to its size,
the operation is unique for its smelter and refinery,
where the ore is processed into almost pure copper. We're able to pull the ore
out that's needed. It then goes to a
concentrator where we concentrate that ore to
around 25%, and then get shipped in a via pipeline
down to our smelter. We're then able to increase
it to about 94%, and then we take it to our refinery,
where we're able to make it into 99.9999% pure copper. About 95% of what we ship
ends up directly here in the US. A lot of our customers
are in the Midwest, and they either get made into copper
wire, which can then go into motors or into the auto
sector. But about 700 miles away
outside of Phoenix, the company is struggling to
get another project off the ground. Resolution Copper,
co-owned with BHP, has the potential to supply nearly
25% of US copper demand. The last hard rock mine that
was permitted in the US was in 2008. So it takes a while and
we've been working like on the Resolution mine for
about 18 years. In addition to regulatory
hurdles, the mine is facing resistance from local
stakeholders over concerns about dwindling water
supplies and the preservation of Native
American land. Henry Munoz is a third
generation miner. Arizona right now we're like
in our 23rd year of a drought here. Water is a
scarce thing. It is really hard to build a
new mine in the US. If you think about it,
people don't want pipelines or transmission lines or a
big open pit mine in their backyard. And now there's a
lot more ESG scrutiny of these projects, a lot more
environmental concerns. And it can take a decade to
even secure the permits. While the exact figure is
disputed by Resolution Copper, a water study by
the San Carlos Apache Tribe says the mine will require
billions of gallons of water over its lifetime. Resolution Copper says it
has stored enough water to sustain our operations,
assuming the maximum production for more than
half of the mine's operating life. Despite those
challenges, demand for the base metal is expected to
climb, with copper seen as a key player in the energy
transition ecosystem. Theoretically, there are
enough reserves in the US that we could become
independent for a copper need. We could. It's just how do we do
that? How do we get the permits? How do we get the
acceptance of the public? How do we work through
those challenges? The reality is without
copper, without aluminum, without mining, there's no
energy transition. There's no decarbonization. In fact, when you look
around you, everything around you is either grown
or mined. So if we need to build the
infrastructure for the world to continue to advance, we
need mines.
