The Conversation (0)
This week was CESCO week in Santiago, Chile. It’s one of the more notable events in the copper space, and at this year’s conference, Rio Tinto’s chief executive for copper and coal, Jean-Sébastien Jacques, shared his thoughts on the long-term outlook for copper and what the industry needs to be focused on right now.
This week was CESCO week in Santiago, Chile. It’s one of the more notable events in the copper space, and at this year’s conference, Rio Tinto’s (NYSE:RIO,ASX:RIO,LSE:RIO) chief executive for copper and coal, Jean-Sébastien Jacques, shared his thoughts on the long-term outlook for copper and what the industry needs to be focused on right now.
Jacques also serves as chairman of the International Copper Association, and as far as industry players go, his opinion is certainly worth noting.
Unfortunately, according to Reuters the tone at this year’s CESCO week wasn’t overly positive for copper. During the CRU World Copper Conference, which takes place in Santiago during CESCO week, analysts suggested that it will take a little more time for the copper price to see a recovery.
“The worst is over for the price, but the (price) recovery is unlikely to be swift and dramatic,” Vanessa Davidson, director of CRU copper research and strategy, told the news outlet.
However, during his keynote speech, Jacques took another view, admonishing investors to look beyond short-term price swings for copper. “We don’t live month to month, we invest with a long-term view,” he stated. “In a quarter-to-quarter, minute-to-minute world — it is easy to forget that our business measures mine life in decades.”
To be sure, it can take years for mines to be built in the first place, and as Jacques noted, mines such as Rio’s Bingham Canyon have been operating for over 100 years. Certainly, both the copper price and the copper industry have changed drastically since the mine’s inception, illustrating the resilience of some operations in the industry.
“The company was formed in 1903 — the very year the Wright Brothers took flight at Kitty Hawk … in a plane with an engine block made of aluminum and copper alloy,” he pointed out. Similarly, Jacques suggested that the world is “on the edge of a new metals age” as the world continues to change rapidly.
“The long-term demand fundamentals for our industry present a great opportunity for copper producers, even with the macroeconomic challenges and uncertainty the world today faces,” he stated, pointing to urbanization in China, India and other parts of the world as key drivers for increased demand in coming decades. For instance, he noted that over 200 cities in China are expected to have populations of over 1 million by 2025, while India is targeting “housing for all” by 2022. Both of those changes will require large amounts of copper, and overall, Jacques sees the need for another 4 to 5 million tonnes of annual mine capacity in the next decade, on top of new mines under construction.
Jacques isn’t the only person to take that point of view. His reference to the “largest mass migration into middle-class life ever seen in human history” echoes the theme of Gianni Kovacevic’s book My Electrician Drives a Porsche?
And while some of the most recent predictions for the copper price are not overly optimistic, some in the industry believe copper deposits as scarce — a consideration that could potentially drive M&A activity in the industry. That was another key talking point at CESCO week, according to a report from Bloomberg. In other words, the scarcity of new deposits, falling grades at existing mines and high costs for building projects mean that it could be more effective to acquire other companies rather than develop projects from the ground up — certainly, that could potentially be a boon for juniors and developers in the copper space.
For his part, Jacques told Bloomberg that quality assets still have high price tags, and that Rio will be looking to both “build and buy” going forward. Overall, Jacques admitted that the emergence of a new metals age won’t be a given, but still stressed his belief in that the industry shouldn’t let uncertainty in the short term hamper planning for long-term demand.
“Now is the time to keep investing, keep innovating and keep creating value at all points of the cycle,” he said.
Click here to view the full text of the speech and presentation slides on Rio Tinto’s website.
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.