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Declining Copper Grades: Chile and Beyond

Declining Copper Grades: Chile and Beyond

With over 100 significant copper resource discoveries since 1998, the world is not short on copper. But because the easiest and most lucrative deposits are mined first, projects under development are generally deeper, more metallurgically complex and/or lower grade. The average grade of discovered but undeveloped copper is approximately 0.9% copper equivalent—compared to 1.2% copper equivalent for those in production. The large open-pit operations in Chile exemplify the trend.

Today, the average global cash cost for copper production is 220% higher than it was in 2005. One of the primary reasons for sky-rocketing cash costs is decreasing ore grades that result from lower average grades in new mines, as well as lower grades that occur in producing mines as a result of selective early high-grade mining.

Chile’s long-term competitiveness in the copper industry has been especially challenged by declining ore grades. Grades in Chilean copper mines are falling faster than elsewhere; in 2009–2014, Chilean grades dropped by an estimated 11.4%, while global copper ore grades declined by 8.4%. Codelco, the world’s largest copper producer, has recently identified grades as a major obstacle in maintaining profitability. To maintain stable production levels, the company has been compelled to focus on cost efficiency measures, such as capacity expansion, exploitation of oxide resources and leaching of low-grade sulphides and waste dumps.

AME estimates that annual ore extraction from Codelco’s mines (factoring 49.0% El Abra, 29.5% El Soldado and 29.5% Los Bronces ownership) reached 368Mt in 2014. In 2014, Codelco announced a US$23bn investment plan that would potentially expand five projects to maintain current production levels at lower grades. Similarly, BHP’s Escondida will require a US$3.4bn seawater desalination plant that is slated to begin operations in 2017 in order to provide the additional water necessary to process larger volumes of low-grade ore.

Codelco Mining Projects

For a mine with a low head grade of 0.3%, a 0.01% drop in copper grade would necessitate a 3.4% increase in ore extraction to maintain the same production level. Additionally, copper recovery decreases with grade and, as a result, the cash cost suffers. KGHM’s Robinson in Nevada has been producing for over 100 years and has experienced a continual decline in ore grades. Between 2008 and 2014, while Robinson’s head grade dropped from 0.68% to 0.53%, the cash cost after credit shot up significantly from US120¢/lb to US260¢/lb. (The aberrant 2013 dip in the cash cost was primarily due to the capitalisation of stripping costs related to future higher-grade ore production.)

Robinson Copper Ore Grade vs Cash Cost after Credit

Producers today are exploring conventional lower-grade brownfield or greenfield opportunities, as well as considering unexplored territories such as the ocean floor. Countries with high-grade un-mined resources can be politically unstable or less amenable to mining. While space mining remains far-fetched, sea-floor deposits present great opportunities for innovation and reward. Seafloor massive sulphide (SMS) deposits are distinguished as modern-day equivalents to volcanogenic massive sulphide (VMS) deposits, and are considered viable for economic extraction in the Red Sea, the North Fiji Basin and the Okinawa Trough among others. SMS deposits are plentiful but are often located in deep, isolated ocean settings and are not always potentially economic. In 2007, Nautilus Minerals published an NI43-101 resource estimation for the high-grade copper-gold Solwara 1 project, the world’s first SMS Indicated Resource with an estimated 1,030kt @ 7.2% Cu, 5.0g/t Au, 23g/t Ag, 0.4% Zn and an Inferred Resource of 1,540kt @ 8.1% Cu, 6.4g/t Au, 34g/t Ag and 0.9% Zn. Although advancements in technology have made deep-sea mining theoretically possible, environmental questions remain a key concern and may prevent the development of some projects. The New Zealand Government recently rejected two applications pertaining to iron sands and phosphate rock mining; however, countries such as Namibia—where De Beers currently extracts diamonds off the sea floor—have sanctioned such activities.

Codelco Head Grade vs Ore Extraction / Copper Production Ratio, 2008–2013


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