How copper miners can meet long-term demand

Demand for green copper

Copper miners are now considering the impact of green initiatives to reduce emissions at every stage of the value chain. As end consumers face increased pressure to report and reduce Scope 3 emissions, there is a growing expectation of low-carbon copper supplies. Increased demand for sustainable products from end consumers is pushing miners toward greater adoption of sustainable production techniques, including improving process efficiencies and electrification of mining operations.

Miners are focusing on new technologies to produce copper sustainably. For instance, BHP is using data analytics to reduce copper supply chain emissions. In parallel, metal recyclers are also working on techniques to maximize scrap usage. For instance, copper recycler Aurubis has been using copper scrap, electronic scrap and residues as inputs for processing, smelting and refining processes in its Lunen plant.⁸

End consumers, especially from the electric vehicle (EV) sector, are increasingly preferring copper with a lower-emission footprint. However, the premium to be paid for green copper remains a topic of discussion. The price parity between conventional and green copper will be key in determining the incentive for mining and smelting companies to produce green copper.

Geopolitical uncertainty and resource shortage

The changes in LatAm royalty taxes add to the regulatory uncertainty prevailing in the region. The Chilean government is considering a modified version of a 2021 bill to impose a 1% sales tax for copper companies producing less than 200 kilotonnes per annum (ktpa) and up to 3% for companies with output exceeding 200ktpa. However, the companies producing under 50ktpa are exempted from this tax. Similarly, tax changes and local community protests in Peru have impacted production from major mines in the region. This is likely to impact new project pipeline over the coming years.⁹

Freshwater usage is another major concern for copper mines, especially in Chile, Peru and the southwest United States. Companies are investing in desalination technology to minimize freshwater consumption along with investing in access to additional water rights and water re-use measures to reduce pressure on water supplies.

Companies will be assessed on a set of responsible production criteria meeting industry norms defined by the Responsible Mining Initiatives’ Risk Readiness Assessment. The assessment covers five areas: environmental, governance, community, business and human rights, and labor. These factors are broken down into 32 different norms. The Copper Mark will require all norms to be fully met at copper-producing sites. Any copper mine, smelter or refiner can apply for The Copper Mark. Stakeholders such as traders and end users can also participate. This will provide a comprehensive assessment framework for all value chain partners^.12

Several miners have already received The Copper Mark for responsible production at their mine sites. For instance, BHP’s Chilean operations Escondida and Spence, and Olympic Dam in Australia were awarded The Copper Mark in November 2021.¹³ Codelco has committed to have all its sites participate in the framework by the end of 2023.¹⁴

Rising popularity of EVs and shift toward renewables support long-term demand

The transition toward EVs and associated charging infrastructure will continue to drive the demand for copper. For instance, about three times more copper is required in an EV than in a conventional internal combustion engine vehicle. A shift toward renewables will also aid the demand in terms of overall capacity installation. The copper intensity for solar-powered capacity is 4 tonnes per megawatt (t/MW), which is approximately two to five times the copper intensity of coal or oil-based power generation capacity, further adding to the consumption levels.¹⁵

China has been accelerating investment in renewable energy over the last decade. The country’s installed renewable energy capacity reached 1,063 gigawatt (GW) in 2021, accounting for about 45% of total power generation capacity. Newly installed capacity reached 134GW, which accounts for about 76% of the total newly installed power generation capacity in that year. In the beginning of 2022, China State Grid announced a record budget of more than US$74.5b for power infrastructure, which accounts for half of Chinese copper consumption, further supporting demand over coming years.¹⁶

Summary

Increasing focus on energy transition and sustainability is likely to keep copper demand high over the next decade and beyond. Exploration activities continue to be on the rise but will need to be incentivized by higher copper prices. Sustainability will remain the key focus area for miners as they progress toward net zero emissions. Adoption of new and innovative technologies while growing supply levels would help the transition toward more sustainable operations and build long-term competitiveness.