Copper occurs in many forms, and in a variety of geological settings. As such, there are various factors to consider in determining the value of a copper deposit — for instance, companies must consider the estimated copper resource, the grade of the copper, the ease at which the copper can be mined and the cost of refining the copper.
That said, historically the most profitable copper mines have been large-scale porphyry deposits, with chalcopyrite mineralization extracted via open-pit mining. While the grade of the ore is not the highest, and the refining costs are more expensive, these deposits tend to have large overall resources, with size trumping grade and refining costs.
The largest producing copper mine in the world is the Escondida mine in Chile, jointly owned by BHP Billiton (NYSE:BHP,ASX:BHP,LSE:BLT) and Rio Tinto (NYSE:RIO,ASX:RIO,LSE:RIO). Escondida means “hidden” in Spanish, and the deposit was given the name because there are no outcrops; in fact, the main ore body is hidden below hundreds of meters of overburden.
Copper production figures change rapidly, but in 2014, the mine produced 1.154 million tonnes of copper, a 3-percent decline from the previous year. According to the latest Copper Survey from Thomson Reuters GFMS, Escondida saw a 7-percent increase in ore milled that year, but that was offset by a 5-percent drop in ore grade.
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How to determine the value of a copper deposit
Type of deposit
Porphyry copper deposits are the largest source of ore, supplying nearly 60 percent of the world’s copper. Porphyry ore bodies typically contain between 0.4 and 1 percent copper in concert with smaller amounts of other metals, such as molybdenum, silver and gold. Porphyry deposits are massive, with extraction taking place by open-pit mining. Copper-bearing sedimentary rocks are the second-most important deposit, accounting for approximately one-quarter of the world’s identified copper deposits.
Other types of copper deposits include volcanogenic massive sulfide (VMS) ore deposits, a source of copper sulfide formed through hydrothermal events in submarine environments. Iron oxide-copper-gold ore deposits (IOCG) are highly valuable concentrations of copper, gold and uranium ores. Copper skarn deposits, in a broad sense, are formed through chemical and physical mineral alterations created when two separate lithologies make contact.
Most copper ores contain only a small percentage of copper metal bound up within valuable ore minerals, with the remainder of the ore being unwanted rock.
Exploration companies conduct drilling programs to extract samples of rock, called cores. The cores are then subjected to chemical assays to determine the “grade” of a deposit. Grade effectively is a measure of the concentration of metal.
Grade is usually expressed as a weight percentage of the total rock. For example, 1,000 kilograms of copper ore that contains 300 kilograms of copper metal has a grade of 30 percent. When the metal is at a much lower concentration, it may be described in terms of parts per million. However, with copper, grade is the common convention. Grade is a significant factor in how much a copper deposit is worth.
Exploration companies estimate grade through drilling and assaying. The average grade of copper ores in the 21st century is below 0.6 percent copper, with a proportion of ore minerals being less than 2 percent of the total volume of the ore rock.
Approach grade estimates with a critical eye. When an exploration company issues grade statements, investors should be sure to compare them to the total depth of the drill core used to determine the grade. A high grade at a low depth can have far less value than a mediocre grade consistent through a deep core.
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The largest, most profitable copper mines have been open-pit mines, although underground copper mines do exist. Of particular importance in an open-pit mine is a resource that is relatively close to the surface. Mining companies are particularly interested in the amount of overburden, which is the amount of worthless rock and soil on top of the copper resource. This material must be removed to access the resource. However, Escondida, whose resource is covered by a large amount of overburden, shows that a large resource can compensate for overburden.
Types of ore
There are two distinct types of copper ore: sulfide ore and oxide ore. Currently, the most common source of copper ore is the sulfide ore mineral chalcopyrite, which accounts for about 50 percent of copper production.
Sulfide ores are refined via froth floatation. Copper ores containing chalcopyrite can produce a concentrate with between 20 and 30 percent of copper in concentrate. The more valuable chalcocite concentrates typically grade between 37 percent and 40 percent copper in concentrate due to the fact that chalcocite contains no iron. Chalcocite has been mined for centuries, and is one of the most profitable copper ores. The reason for that is its high copper content and the ease at which the copper it contains can be separated from sulfur. It is not, however, the primary copper ore today.
Oxide ores are leached with sulfuric acid, which is more economical compared to froth flotation.
Primary and secondary ores
The most profitable mines have different mineral assemblages. The primary assemblage is the mineralization type that is most prevalent. Secondary ores can add a great deal of value to a deposit. The Escondida mine is primarily a chalcopyrite porphyry deposit overlain by secondary oxides. In short, don’t discount secondary mineralization.
A world-class copper deposit holds a copper resource whose value far exceeds the cost of mining and refining. To date, some of the biggest copper finds have been the Kennecott copper mine, a large-scale porphyry deposit, Escondida and the Chuquicamata copper porphyry complex.