By Keith Norbury

Among base metals — usually defined as non-ferrous, non-precious metals — copper is the master of them all, says Toronto-based mining analyst Stefan Ioannou. Not only is copper “widely used across a number of industrial sectors,” but it is used in large quantities unlike other base metals such as molybdenum, said Mr. Ioannou, an analyst with Haywood Securities Inc. A shutdown in one part of the global molybdenum sypply chain can easily affect its price, “but copper is more of a diversified metal,” Mr. Ioannou said. “So it’s a better reflection of the global economy in terms of its health.”

Copper aplenty, but is it a glut?

Of late, the world has been experiencing a glut of copper concentrate, Mr. Ioannou observed. Copper refiners are turning as much of that concentrate into metal as they can because of the high treatment charges they can command. Other observers in Canada’s copper mining industry aren’t as convinced the surplus is as pronounced as Mr. Ioannou and other analysts are making it out to be.

Cindy Burnett, Vice-President of Investor Relations for B.C.-based Capstone Mining Corp., said industry consultants have been projecting copper surpluses “year upon year” but they never materialize quite as projected. She expects that any reasonable demand from China, on the order of a six to seven per cent increase, would chip away at any surpluses. “The world still needs a lot of copper,” Ms. Burnett said. “There is a bit of sky-is-falling forecasting and yet copper prices haven’t come off. They’re still very near all-time highs.” Capstone — which has mines in the Yukon, Mexico and Arizona — is selling as much copper as it can produce, Ms. Burnett added.

Chile leads world in copper production

The world’s copper mines produced 18.1 million tonnes of copper metal in 2013, according to the International Copper Study Group. That was up from 16.7 million tonnes in 2012 and 15.5 million tonnes in 2011. Global production has risen more or less steadily by about 3.2 per cent a year since 1900, when total world output was just 500,000 tonnes, according to the study group’s 2013 World Copper Factbook.

Chile is the world’s leading copper mining nation, producing 5.7 million tonnes of the metal in 2013, up from 5.4 million tonnes in 2012, according to estimates from the Chilean Copper Commission. That was about 30 per cent of global output.

Five of the world’s top seven producing copper mines are in Chile, the factbook reports. The largest of those is the Escondida mine — a joint venture between BHP Billiton, Rio Tinto and Japan Escondida — which has a capacity of 1.15 million tonnes of copper. “In 2012 it accounted for five per cent of global copper production and around 15 per cent of Chilean copper production,” said a posting on Rio Tinto’s website.

China was the world’s second leading copper producing nation in 2012 with 1.77 million tonnes, followed by Peru with 1.43 million, and the U.S. with 1.29 million. Canada was eighth with 638,000 tonnes.

Canada’s place in the copper world

Canada places fourth among exporters of concentrates after Chile, Peru, and Australia, the copper factbook notes. Besides being the world’s second producer, China is the world’s largest importer of copper concentrates, copper blister and anode, and of refined copper. China topped the list of refined copper producers in 2012 with almost 6 million tonnes, nearly double that of second place Chile. Canada was 18th with about 300,000 tonnes.

Copper mine production in Canada and the U.S. is considerably less than it was in 1992 — Canada’s by about 25 per cent and the U.S. by close to 35 per cent. In that same period, Chile’s output has nearly tripled, while China’s has almost quadrupled. “British Columbia is the largest copper-producing province. Ontario, the second largest copper-producing province, owes much of its importance to the Sudbury region where the metal is recovered in conjunction with nickel mining operations,” says Natural Resources Canada’s 2011 annual copper review and outlook.

According to Natural Resources Canada’s preliminary outlook for 2012, the latest available, B.C. regained its lead among the provinces in copper production with 226,794 tonnes, worth $1.8 billion. That was 40.2 per cent of Canada’s production of 563,293 tonnes, valued at $4.48 billion. Ontario was the second leading province, with 184,993 tonnes, valued at $1.47 billion. Ontario had been the top copper producing province in 2011 with 209,427 tonnes to 175,161 for B.C., which had been the top producing province since 2000.

Canada’s major copper mines include Teck Resources Ltd.’s Highland Valley Copper Mine in B.C.; Taseko Mines Limited Gibraltar mine near Williams Lake, B.C.; Vale’s mines in Sudbury, Ont., and Voisey’s Bay, Nfld.; GlencoreXstrata’s (formerly Xstrata’s) Kidd Creek mine in northern Ontario; and HudBay Minerals Inc.’s 777 and Trout Lake mines in Manitoba.

China leads world in copper demand

On the demand side, as with almost every commodity on earth these day, the story is China, Mr. Ioannou said. “Just take a look at China and the cars they are producing now. They’re selling more cars annually than we have people in Canada,” said Steve Robertson, Vice-President, Corporate Affairs of Imperial Metals, a Vancouver-based copper mining company. “That’s pretty amazing consumption.”

Modern cars, because of their sophisticated electronics, require much more copper than models of a few decades ago, Mr. Robertson pointed out. Whereas an older car might contain a few pounds of copper, a modern vehicle can have 10 times that amount. A fact sheet from the U.S. Geological Survey bears that out: “The average car contains 1.5 kilometres of copper wire, and the total amount of copper ranges from 20 kilograms in small cars to 45 kilograms in luxury and hybrid vehicles.”

All that construction in China also requires copper. Much of it is for copper wiring, although copper plumbing is still also popular. China, home to more than 1.3 billion people, remains on a push to relocate hundreds of millions of residents from rural areas to the cities, transforming them from subsistence farmers into 21st century consumers. “That obviously has huge consumption implications for raw goods,” Mr. Ioannou said.

While China’s economy is no longer growing at double-digits, as it did for most of the past three decades, it has become such a huge driver of demand for commodities that even more modest growth of six to seven per cent a year has a huge impact, noted Mark Crawley, Senior Vice-President in the commercial department of Vancouver-based mining company KGHM International. That’s because that growth is occurring on top of a much broader base than ever before. “It’s still very, very significant and has much more of an impact than, let’s say, 10 years ago when China had 20 per cent annual growth, but from a much smaller base,” Mr. Crawley said.

Also contributing to sustained world copper demand are other growing economics like Brazil and India. “In terms of India, we’re probably talking ten years plus out before we really start to see that kick in,” Mr. Ioannou said.

Copper’s place as an important metal

After steel and aluminum, copper ranks third among metals produced on the planet, noted Natural Resources Canada’s 2011 copper outlook and review. Two-thirds of copper production is used in wires and cables.

Stephen Knapp, Executive Director of the Canadian Copper & Brass Development Association, said the second most common use for copper at present is as tubing for air conditioning and refrigeration, with copper plumbing “probably up there as well.” Copper consumption in the production of coins represents a drop in the bucket, he said. So the impact of the Canadian government’s decision to eliminate the penny won’t have any significant impact on copper demand.

The Association’s website also touts copper’s utility as an antimicrobial coating. However, Mr. Knapp conceded that copper anti-fouling paint has been applied to ships’ hulls for centuries. In recent years, copper has been used as a touch surface in hospitals to kill deadly microbes, such as drug-resistant MRSA.

A brief history of copper

Among copper’s earliest uses was the production of art objects, a use that dates back 10,000 years, according to the Copper Development Association and other sources. Those early copper objects were produced by hammering naturally occurring deposits of the metal known as “native copper.” Aboriginal people in North America, for example, exploited native copper reserves on the Keweenaw Peninsula in present-day Michigan to fashion weapons and tools. And First Nations on the eastern shore of Lake Michigan mined native copper nearly 5,000 years ago.

Deposits of native copper are increasingly rare. Today, copper is seldom found in isolation at any concentration. It often appears in ore bodies that also contain any combination of gold, silver, lead, zinc, tin, molybdenum, platinum, palladium, and even uranium. “Especially with the low grade deposits, those byproduct credits can make or break a mining project,” Mr. Ioannou said, “especially as copper miners have begun exploiting deposits with lower and lower concentrations of the metal.” Mr. Ioannou said the highest production costs of any mine are now around $2.50 a pound. “So [compared to today’s market price of approximately US$3.10 per pound] just from a margin point of view for the producers, there is room for the copper price to come down a bit,” he said.

The economics of copper mining

Copper can be mined in open pits or underground. Capstone’s Minto mine in the Yukon began as an open-pit project but has recently moved underground to follow the ore body. “The initial deposit was near the surface,” Ms. Barnett said. “It was economic to get it from an open pit, but as we are following the deposit deeper down, the economics switch and it makes more sense to go after it from underground.”

As the demand for copper from metal hungry nations like China persists, miners are developing deposits with grades as low as 0.2 per cent copper. In other words, the copper present in those rocks in just one part in 500. “It used to be that a company that had a dollar-per-pound cost was a high-cost producer,” Mr. Ioannou said. “That’s actually a low-cost producer these days.”

As the market has tightened, companies have focused more on turning a profit than on producing volume. So they’ve been working to cut costs at their existing operations to improve margins, and less on developing new mines, Mr. Ioannou said.

Canadian copper miners explore the world

While Canadian mines produce only a fraction of the world’s copper production, Canadian mining companies punch well above their weight on the international copper stage, as they do in the mining realm generally. “A lot of copper mined in Chile is produced by Canadian-run companies,” Mr. Ioannou said. According to a Natural Resources Canada backgrounder, companies listed on Canadian stock exchanges accounted for nearly 40 per cent of the world’s equity financing for mining and mineral exploration. And in 2012 mining companies headquartered in Canada accounted for almost 37 per cent of “budgeted worldwide exploration expenditures,” that same report noted. Capstone, for example, has a 70-per-cent stake in the Santo Domingo copper mine near Diego de Almagro in Chile’s Atacama region. It is expected to produce an average of 144 million pounds of copper annually over its 18-year life, according to an overview on the Capstone website. Meanwhile, Vancouver-based Teck Corp. owns 100 per cent of the Carmen De Andacollo and Quebrada Blanca mines in Chile.

Canadian mining companies have also attracted interest from other mining nations. Two years ago, KGHM Polksa Miedz S.A. of Poland acquired Vancouver’s Quadra FNX Mining Ltd., for example, which now operates as a wholly owned subsidiary called KGHM International. “They saw that we were operating in politically stable environments,” said KGHM International Senior Vice-President Mark Crawley. “Our mines are in places like Chile, the United States and Canada, and they were very positive on that. Canada is considered one of the better jurisdictions to have an operating mine when you compare it to other countries,” Mr. Crawley said.

At KGHM, 80 to 90 per cent of its production is copper, although it also has byproduct streams of gold, nickel, platinum, palladium, and silver at its Sudbury operations. And its new mine in Chile, Sierra Gorda, is expected to be the “largest molybdenum mine in the world over the next few years.” Scheduled to begin operation in 2014, Sierra Gorda will still be primarily a copper mine but with a “with a very significant molybdenum byproduct credit,” Mr. Crawley said.

Imperial Metals, based in Vancouver, is not a big player globally but is a significant player in B.C., where all its copper operations take place at present. “This is our backyard. This is where we work and make our living. We don’t have interests internationally, like a lot of the other firms,” Mr. Robertson said. (One exception is the company’s Sterling Gold Mine subsidiary in Nevada.) Imperial’s major copper asset is the Mt. Polley Mine near Williams Lake. Commissioned in 1997, that open pit mine produces about 22,500 tonnes a day of ore. The mine also has gold as a significant byproduct as well as some silver. Imperial also owns 50 per cent of the Huckleberry Mine with a consortium of Japanese smelting companies — Mitsubishi Materials Corporation, Dowa Mining Co. Ltd., and Furukawa Co. Huckleberry is almost a pure copper mine with a bit of molybdenum byproduct, Mr. Robertson said. Under construction is the Red Criss Mine in northeast B.C. near Dease Lake, off of the Cassiar Highway. It is expected to be commissioned in the summer of 2014. “It’s about 50 per cent larger than other two mines,” Mr. Robertson said. “It’s about 30,000 tonnes per day with a projected mine life of more than 28 years.”

Copper’s price rebound

After dipping to about US$1.30 a pound in mid 2008, copper prices spiked to nearly US$4.50 a pound in mid 2011. Since then it has gone up and down, to a low of about $3.00, and recently traded around $3.10.

As many others do, Mr. Robertson considers $3.50 to be a healthy copper price and one that “reflects the very delicate dynamics that are going on in the demand side of the business.” After the economic downturn in 2008 and 2009, demand from China helped lift the copper price out of the doldrums, Mr. Crawley said. “Unfortunately I think we’re realizing now that a lot of it was not necessarily real demand,” he added. “A lot of it was inventory building, a lot of people stockpiling material. Then that stock over the past couple of years has actually been dwindling down”, which he regards as a positive development.

Recently, however, treatment charges and refinery charges, known collectively as TC/RCs, have been rising, Mr. Ioannou pointed out. “The treatment charge benchmark last years was $70 a tonne, and the refining charge was about seven cents a pound,” Mr. Ioannou said. “And this year already we’re seeing numbers well north of $80 a tonne and eight cents a pound.” In some cases, treatment charges can exceed $100 a tonne, he added.

Of KGHM International’s five operating copper mines only one is subject to TC/RCs, Mr. Crawley said. That’s at KGHM’s Robinson mine in Nevada, a mine that produces copper concentrates. Two other mines use a direct-to-cathode process called sulphide extraction electro-winning, which is done at the mine site.

At KGHM’s mine in Sudbury, Ont., the ore goes to a Vale operation or to GlencoreXstrata’s nearby copper mill, where it is processed into concentrate, which is shipped to a GlencoreXstrata smelter. That production is indirectly affected by TC/RCs “but not to a great extent,” Mr. Crawley said. When it comes to overall costs, which are up around the globe, the TC/RCs are “fairly minor,” he said.

Projects put on hold

With uncertainties about future demand for metals, rising mine development costs and lower prices for most metals, bigger mining companies have cancelled or delayed projects, as they rebalance their exposure to different metals, and bring their expansion plans in line with their capability to finance such expansions. Although the market for copper has been impacted less than other metals markets, there has been a fear that with new production entering the market, overcapacity might result. In this environment, junior mining companies have found it very difficult or impossible to find financing to build new mines. Among projects recently put on hold is Cliffs Natural Resources Inc.’s $3.3 billion ferrochrome mine proposed for Ontario’s Ring of Fire region.

Mark Hallman, Vice-President of Communications with Canadian National Railway, also noted junior mining companies have experienced challenging times and had to put projects on hold. “The fundamentals of base metals remain strong, however, and CN is very active with junior companies,” Mr. Hallman said in an email. “CN assists them in the planning of future logistic needs. This benefits both parties — the juniors can determine the best transportation solutions early in their projects, while CN can ensure its future growth within the base metals sector.”

CN shipped about 1.4 million short tonnes of copper and zinc concentrate in 2013, Mr. Hallman said. “In recent years, the variation in business volume has been mainly affected by the closure of depleted mines like the Brunswick zinc mine in New Brunswick, for which CN compensated through organic growth activities such as servicing the newly commissioned Thompson Creek’s Mt. Milligan copper mine located in northern B.C.,” Mr. Hallman said.

Canadian Pacific Railway also transports copper and zinc, said spokesman Ed Greenberg. However, the company doesn’t provide breakdowns on those specialty products. Copper and zinc fall under the railway’s mines, minerals and aggregates category that makes up about 33 per cent of all the industrial products the railway transports, Mr. Greenberg said in an email.

How copper moves from mine to market

Copper mined in B.C. is usually shipped as concentrate to Asia. For example, Copper Mountain near Vancouver sends its concentrate to a Mitsubishi smelter in Japan. “Mitsubishi provided debt funding up front to help build the mine and in return, it got off-take agreements on the concentrate,” Mr. Ioannou explained. Smelters often enter into long-term contracts to ensure a steady supply “so they know how much copper concentrate they will receive on an annual basis and they do not have to scramble at the last minute to fill their smelters,” Mr. Ioannou added.

Capstone trucks concentrate from its Minto mine in the Yukon to Skagway, Alaska, where it is put on ships for Asia. In the winter, concentrate from the Minto mine crosses an ice bridge. But during freeze up in the fall and spring thaw, the concentrate has to be stored at the mine for about six weeks. “When the river opens up again, then we resume shipping. But during that period, we fly people in and out. And we fly supplies in and out. But it’s too expensive to fly the concentrate in and out,” said Capstone’s Ms. Burnett.

Ore from Capstone’s mine near Cozamin, Mexico is also trucked to port, at Manzanillo, for shipment to Asia. From the mine that Capstone purchased in Arizona, ore leaves by rail. That Arizona mine is one of the oldest mining districts in the Americas. So rail infrastructure already exists, she said.

Imperial Metals, meanwhile, trucks its concentrate from the Huckleberry Mine to the B.C. port of Stewart, just south of the Alaska panhandle. Huckleberry is 123 kilometres southwest of Houston, B.C., which is about 390 km southeast of Stewart. Copper concentrate from Imperial Metals’ Red Criss mine, which is expected to begin operation in 2014, will also move by truck to Stewart. Imperial’s Mr. Robertson said the company will be able to benefit from a regulation change the B.C. government implemented in 2010 to allow trucks to put on an extra axle, enabling them to carry heavier loads along the Cassiar Highway. “Instead of having to run ten trucks a day, we’ll be able to do nine,” Mr. Robertson said. “Little things like that, they’re small on a daily basis but over the life of the mine they really mean tremendous savings for us. I have to applaud the B.C. government for working with industry to allow them to do that.”

Once at Stewart, the ore is stockpiled, typically in 10,000 tonne packets, and then loaded on a ship for Asia.

From KGHM’s Robinson mine in Nevada, concentrate is trucked to a nearby rail siding “and then railed to the port of Vancouver, Wash. Then it gets shipped overseas by ocean vessels,” Mr. Crawley said. “Some of it is sold domestically but for the most part it actually goes over to smelters in eastern Asia.” KGHM is still going through the feasibility process on its proposed Ajax mine near Kamloops, B.C. “There hasn’t been a final decision on it but we are advancing the project,” Mr. Crawley said. Should it go ahead, that concentrate will be trucked or railed to Vancouver, B.C., from where it will also cross the Pacific Ocean for Asia.

Environmental and aboriginal conflicts

Like all mining, and all resource industries for that matter, copper mining has come under scrutiny from environmentalists and aboriginal groups around the world. “Challenges like that are just a fact of life nowadays, and you have to handle them very sensitively and be aware of the issues and concerns that are raised,” Mr. Knapp said.

A case in point is Imperial Metals’ proposed Red Criss Mine. Its federal environmental approval was “the subject of a drawn-out legal battle with environmentalists that went all the way to the Supreme Court of Canada,” the online news site the Tyee reported last July. That news item highlighted a confidential review of the project that recommended a more comprehensive review of the mine’s potential environmental impacts. That study was at the urging of the Tahltan First Nation, which has several of its members working on construction of the mine.

Imperial Metals’ proposal to mine copper on Catface Mountain, which First Nations call Chitapi, on Vancouver Island’s Clayoquot Sound, has also elicited protests from environmental groups like Friends of Clayoquot Sound and the Sierra Club. “Catface is not one of our core assets at this time,” Mr. Robertson said. “It’s a good project, it has a very good resource, and it would make a lot of sense. It happens to be located in a sensitive area.”

The environmental impact of a copper mine depends on its size, location and geology, and whether it is open pit or underground, Mr. Ioannou pointed out. The rock itself is important. Sometimes it is benign. Other times, it can produce toxic tailings. “Is the only place you can put that waste rock or tailings in a fish-bearing stream or are you in the middle of a relatively benign desert where there is no precipitation or no worries about acid mine drainage?” Mr. Ioannou said. Most governments have strict policies to address those issues, he said. (Not strong enough, according to Miningwatch Canada. “Even these national regulations, however, are being eroded by amendments, exemptions, and loopholes that allow destructive dumping in lakes and streams,” the organization said in a 2012 report.)

Mr. Ioannou said increased emphasis on environmental policy is a good thing, but noted that it does add to the timeline and cost for developing a mine. “You can’t just turn these projects on overnight,” Mr. Ioannou said. “They take years and years to develop.”