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Copper is the missing ingredient in the energy transition

Aton 76, Richard Adkerson Is the veteran of the copper industry.For twenty years, he has been CEO Freeport-McMoRan is one of the world’s largest copper producers, worth $55 billion. He has seen it all, from short-term booms and busts to China-dominated super cycles, from industry fragmentation to consolidation. Freeport itself sets some trends. In 2007, it paid $26 billion for Arizona-based Phelps Dodge, which dates back to the Wild West era of the 19th century, in the largest mining deal ever. This is also a trick. Less than five years later, the company’s unfortunate diversification into oil and gas isn’t the case, and he says it wasn’t his idea. This led to a near-death experience and having to close positions quickly after energy and metals prices plummeted in 2016.

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He has a deeply husky voice as a mining executive, which he uses to speculate on a potential copper squeeze. Industrial development pressures in the emerging world, coupled with advancing electrification and decarbonization as part of the energy transition, are likely to drive demand for the red metal. small&P Consultancy Global expects copper consumption to double to 50 million tonnes between now and 2035. However, supply is unlikely to keep up unless prices rise significantly. Outside of new copper mines coming on stream in Mongolia and the Democratic Republic of Congo, such projects are rare, Mr Adkerson said. Concerns about the environment and indigenous rights have made it harder for them to get approved. Additionally, Chile and Peru together produce nearly 40% of the world’s copper, leaving the mining industry vulnerable to national politics.

As Mr Adkerson said, this is not a supply problem that can be solved with money alone. “There is a dearth of actionable investment opportunities in today’s world,” he said. Wisely, he doesn’t imply that the world is running out of copper. Instead, he tells a story dating back to the early days of his career as a consultant to the oil industry. One of his friends was Matthew Simmons, a Texas investment banker known for promoting the “peak oil” theory, which suggested that the world was running short of oil. One of his clients was George Mitchell, who would later become famous as the father of the shale revolution that mocked the spell of peak oil. It was a salutary lesson, he said with a smile. He’s always keeping a close eye on the copper industry’s shale oil equivalent.

A comparison between the oil and copper businesses is useful. It helps illustrate the complexities of mining metals. It also hints at how to overcome shortages. Let’s start with the difference between the two products. As Mr Adkerson explained, techniques for finding copper are not as effective as seismic testing for identifying oil and gas reservoirs because copper deposits are spread over wide areas. Years of exploratory drilling will be required. In addition, much oil exploration takes place in the oceans, but deep sea mining is still in its infancy and is environmentally sensitive. Mr Adkerson pointed out that US arms maker Lockheed Martin, a big proponent of deep-sea mining, had just sold a subsidiary that had licensed exploration in parts of the Pacific Ocean. In effect, it is exiting the joint venture.

There are also marked differences in production. Not only is copper mining more geographically concentrated than oil mining. It takes years to go from permitting to operating a well, and it can take a generation to develop a “greenfield” copper mine. The good news is that copper mines don’t dry up as quickly as oil wells. Some of Freeport’s mines date back more than 100 years.

Next consider the similarities. During the commodity supercycle until the mid-2010s, both industries spent shareholder money on ambitious projects that made them guilty. Investors are demanding dividends from shareholders rather than risking stakes on big capital projects, even as concerns over oil and copper supplies intensify. This is exacerbated by pressure from ESG-concerned investors to reduce resource extraction (ESG) question.

However, sentiment may start to shift.In the oil industry, high crude prices led Shell and bp Rethink how quickly they cut oil production. Likewise, copper miners are getting more emboldened.in april BHP BillitonA diversified mining giant is set to make its $6.4 billion bid for the Australian copper miner to shareholders of Oz Minerals. If approved, it would be its biggest acquisition since 2011. Freeport said it would boost capital spending to $5.2 billion this year from $3.5 billion in 2022, mainly to expand underground development at its Grasberg mine in Indonesia. Mr Adkerson noted that some of the increase was a result of rising costs. But he also spotted a new sentiment among investors. “Today, when I talk to our shareholders, they ask us where growth is going to come from.”


There are two possible answers. The first is to double down on “brownfield” locations where mines already exist. Freeport has 22 million tons of copper reserves in the US alone. It takes six to ten years to develop such a project, and the current severe labor shortage may make development more difficult. But it’s more promising than starting from scratch. The second answer is technology. Mr Adkerson said Freeport left about 17 million tonnes of residual copper in its leaching process. He hopes new reagents, as well as new operational techniques using data analytics, will recover some of it in a way that costs less, emits less carbon and faces fewer regulatory hurdles than digging new mines.

The veteran miner doesn’t think the impact on copper supply will be as dramatic as the shale revolution is on oil. But he will say so. The greater the perceived scarcity, the more valuable Freeport’s reserves are, and the more valuable his company is. You can almost hear him rubbing his hands against potential clients.

Read more from our global business columnist Schumpeter:
What Barbie Tells You About Nearshoring (March 23)
A melee is brewing over copyright and AI (March 15)
How to Stop the Commoditization of Container Shipping (March 9)

Also: If you would like to write to Schumpeter directly, please email Schumpeter at [email protected]. Here is an explanation of how Schumpeter’s column got its name.

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