Has copper demand been unaffected by financing costs and volatility? | Hotter Commodities

Questions around financing costs arose amid soaring inflation and a spate of banking issues which led to the collapse of two United States regional banks and the sale of Credit Suisse to UBS, according to Hidalgo.

“On the customer base side, we haven’t seen a major impact [on demand] yet, but obviously we’re monitoring the situation because there are still some developments that we need to understand better, such as from the banking side,” he said during an interview in the annual CESCO week in Santiago, Chile.

Hidalgo added: “At this point in time we’re looking at the situation globally – we haven’t seen a major issue in terms of disruptions to demand, but obviously sentiment around what might happen is creating uncertainty around accessing financing. It is yet to be seen what the impact is going to be.”

The European refined copper market has started to see the effects of higher financing costs, sources told Fastmarkets.

Chile has seen historically high inflation rates of 12-13%, which has an inevitable knock-on effect on costs. Currency exchange rates have also impacted costs, Hidalgo said, with the Chilean peso reaching an all-time high in July 2022.

Anglo American Chile’s c1 operating costs – a standard metric used in copper mining as a reference point to denote the basic cash costs of running a mining operation to allow a comparison across the industry – have risen more than 50% in the past two years, Hidalgo added.

In 2021, c1 costs were 120 cents per pound, rising to 157 c/lb in 2022 and now forecast to reach 190 c/lb in 2023.

Demand is unlikely to materially change given copper’s role as a critical mineral essential to the energy transition due to its use in electromobility and renewable energy, Hidalgo said.

“We strongly believe the energy transition requires copper,” he told Fastmarkets. “An awareness of this is there and it has been evolving over time, but there is an understanding that without these metals, we can’t get to the transition that we all need.”

Los Bronces in final permitting stages

The expansion of the Los Bronces mine has a couple more stages to progress through before being given the final green light, Patricio Hidalgo, chief executive officer of Anglo American Chile, told Fastmarkets.

This makes it quite difficult to predict a timeline for the project, which received an environmental licensing permit earlier on Tuesday April 18, Hidalgo said.

The project must now go through the sectorial permitting process.

“Timewise, we don’t have clarity of how long that will take, but it’s a required process,” Hidalgo said in an interview during the annual CESCO week in Santiago, Chile.

The company also needs to finalize compensation measures with the regional governments, he noted.

Once Anglo has received the sectoral permits it will be able to proceed with the expansion of the current open pit within Los Bronces’ operating site, one of two phases for the project.

The other phase will replace future lower grade ore by accessing higher grade ore from a new underground section of the mine. Anglo still needs to finalize the engineering studies and go through board approval before commencing the underground activities, Hidalgo said.

Los Bronces, which produced 270,900 tonnes in 2022, is part of Anglo American Sur, owned by Anglo American, with a 50.1% share, the Codelco-Mitsui consortium, with a 29.5% share and Mitsubishi, with a 20.4% share.

The project uses the mine’s existing processing facilities, optimizes water efficiency, and requires no additional fresh water or tailings storage facilities.

Drought

Water consumption plays a central role in the project, which is located in central Chile. Los Bronces has already struggled with limited water availability, an ongoing problem in the region due to a decade-long drought.

For the short to medium term, Anglo has been using rainwater from treatment plants and increasing its water recycling, reducing its water usage by 45% in the last three to four years, Hidalgo said.

“We need to see how the year pans out in terms of rain, but we are currently keeping our 2023 market guidance for copper production in Chile at 530,000-580,000 tonnes,” Hidalgo told Fastmarkets. “It is highly dependent on how much rain we get this year.”

The long-term plan for Los Broncos is to switch to desalinated water. The company has already been able to secure 45% of Los Bronces’ water needs through desalination from 2025, while also providing clean water to approximately 20,000 people in communities local to the operation.

The company has an integrated water supply project which has two stages, Hidalgo told Fastmarkets.

The first stage – a supply agreement with a desalination plant – has been approved and is likely to commence in late 2025. The second stage – which will see Anglo swap desalinated water with treated water in local communities – is subject to negotiations and approval, Hidalgo said.

“We’re really trying to transform the way we mine. [We’re] transforming our operations while at the same time giving back to our communities,” Hidalgo told Fastmarkets.

Other miners have been impacted by the drought in Chile and are making similar investments in desalination.

In July, Chilean state-owned copper producer Codelco said it planned to invest $1 billion in a water desalination project to secure supply to its northern district operations.

Antofagasta meanwhile said in October that it has reduced the original production guidance at its Los Pelambres mine by 30,000 tonnes due to delays in the completion of a desalination plant.

In Hotter Commodities, special correspondent Andrea Hotter covers some of the biggest stories impacting the natural resources sector. Sign up today to receive Andrea’s content as it is published.