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
MinEx Consulting Strategic advice on mineral economics & exploration
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
MinEx Consulting Strategic advice on mineral economics & exploration
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
MinEx Consulting Strategic advice on mineral economics & exploration
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
MinEx Consulting Strategic advice on mineral economics & exploration
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
MinEx Consulting Strategic advice on mineral economics & exploration
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
MinEx Consulting Strategic advice on mineral economics & exploration
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
MinEx Consulting Strategic advice on mineral economics & exploration
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
MinEx Consulting Strategic advice on mineral economics & exploration
0
500
1000
1500
2000
2500
3000
3500
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Estimated Reserves
Est Cumulative Mine Losses
Cumulative Production
9
Mt Cu
Sources: Production data from USGSMinEx Consulting March 2010
1236 mtin 2010
52 mt in 1900
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
MinEx Consulting Strategic advice on mineral economics & exploration
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
USGS "Reserve Base"
Estimated Reserves
Est Cumulative Mine Losses
Cumulative Production
10
Mt Cu
Sources: Production data from USGSMinEx Consulting March 2010
1236 mtin 2010
52 mt in 1900
577
Note: Assumes 20mt in cumulative historic production pre-1900Mining recovers 85% of copper contained in ore
686
1670
No data
pre 1977
MinEx Consulting Strategic advice on mineral economics & exploration
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
Est Cumulative Mine Losses
Cumulative Production
Cumulative Discoveries (MinEx data)
11
Mt Cu
Sources: Production data from USGSMinEx Consulting March 2010
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
Note: Assumes 20mt in cumulative historic production pre-1900Mining recovers 85% of copper contained in ore
Over the last Century copper endowment has grown 25 foldWorld Pre-mined Copper Reserves: 1900-2010
MinEx Consulting Strategic advice on mineral economics & exploration
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
MinEx Consulting Strategic advice on mineral economics & exploration
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
MinEx Consulting Strategic advice on mineral economics & exploration
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
MinEx Consulting Strategic advice on mineral economics & exploration
QUESTION:
Is a declining ore grade bad news or good news ?
15
MinEx Consulting Strategic advice on mineral economics & exploration
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 …
MinEx Consulting Strategic advice on mineral economics & exploration
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)
Source: MinEx Consulting March 2010
MinEx Consulting Strategic advice on mineral economics & exploration
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)
Source: MinEx Consulting March 2010
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
MinEx Consulting Strategic advice on mineral economics & exploration
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)
Source: MinEx Consulting March 2010
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”
MinEx Consulting Strategic advice on mineral economics & exploration
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
MinEx Consulting Strategic advice on mineral economics & exploration
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
MinEx Consulting Strategic advice on mineral economics & exploration
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)
Includes, transportation, smelting & refining and marketing costs
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 ?
MinEx Consulting Strategic advice on mineral economics & exploration
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)
Includes, transportation, smelting & refining and marketing costs
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
MinEx Consulting Strategic advice on mineral economics & exploration
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
Source: MinEx Consulting March 2010
Cost savings from economies of scale1 to 50 mtpa = 30%
Cost savings from new technology
1905->2007 = 70%
$80/t
$60/t
$18/t
MinEx Consulting Strategic advice on mineral economics & exploration
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
MinEx Consulting Strategic advice on mineral economics & exploration
QUESTIONS ?
26
Contact details
Richard SchoddeManaging DirectorMinEx Consulting Melbourne, Australia
Email: [email protected]