Asian economies — including China, Japan and Korea — are a driving force behind global economic growth.
The International Monetary Fund projects an economic growth rate of 6.6 percent in 2019 for the region, comparable with rates forecasted for 2017 and 2018. This steady growth creates a strong platform for base metals markets, particularly copper — the best electrical conductor of all the metals and a key material in a wide range of industrial applications.
While Asia accounts for more than 60 percent of global copper demand, the region is woefully lacking in domestic supplies and must import copper to meet that demand. China, the world’s largest copper consumer, imported 17.35 million tonnes of the red metal in 2017.
“Infrastructural development in major countries such as China and India will continue to sustain growth in copper demand,” says the International Copper Study Group, which forecasts that Chinese copper demand will grow at a rate of around 3 percent in 2018.
Electric vehicle market boosts copper demand in Asia
One the key factors contributing to growth in copper demand is China’s expected leadership in the global electric vehicle (EV) revolution. While lithium dominates the headlines for EV battery market news, analysts point out that copper is also a critical material for EV battery manufacturing.
The Wall Street Journal recently featured a graphic sourced from Citigroup (NYSE:C) that demonstrates that plug-in hybrids and battery-powered electric vehicles use more than three times the amount of copper used in conventional cars. According to Citigroup, conventional cars use 23 kilograms of copper compared to 77 kilograms in EVs.
The “biggest single news in the industry” for 2017 was “the idea that the electric vehicle market in China will take off soon and that it will as a result potentially increase demand in copper as well as other metals,” said Dan Smith, head of commodities research at Oxford Economics.
Pan Pacific Copper (PPC), Japan’s biggest copper smelter, told Reuters that by 2030 the world will need 4.6 million tonnes of copper ore coming from new mines in order to meet growing demand from EVs, renewable energy and infrastructure. In January 2018, Japan — the third-largest economy in the world — saw its manufacturing sector expand at its fastest pace in nearly four years, signaling a strong recovery.
Copper supply low and new discoveries rare
Another pillar of copper’s strong fundamentals is the looming supply crunch brought on by low levels of current aboveground supply, the dearth of new copper discoveries and the lack of new mines coming into production over the past decade.
This supply/demand imbalance has boosted copper prices significantly in the past year, pushing price levels to four-year highs at the end of 2017. Japan’s PPC expects copper prices to gain another 25 percent over the next two years on growing demand and weakening supply levels to average $7,280 a tonne in 2018 and $7,720 in 2019.
Strong copper prices are in turn incentivizing copper producers to allocate more dollars to their exploration budgets, including BHP Billiton (ASX:BHP,NYSE:BHP,LSE:BLT) whose management believes the electric car boom is at a “tipping point” for the copper market. Danny Malchuk, president of operations at BHP’s Minerals Americas division, said the company is looking to joint venture with junior explorers on large, long-life deposits. Such projects are now “not that easy to find,” said Anglo Pacific and Audley Capital Managing Partner Julian Treger, speaking on a panel at Investing in African Mining Indaba, held in Cape Town, South Africa in February 2018.
“The lack of new copper discoveries around the world has big players like BHP and Antofagasta (LSE:ANTO) investing in a lot of juniors, picking up where they can to feed production,” Adrian Smith, president of ML Gold (TSXV:MLG), told the Investing News Network. Smith pointed out that studies show that beginning in 2005, exploration spending across the mineral sector climbed sharply, reaching a peak high in 2012 of $23 billion.
The increased spending did not, however, translate into corresponding increase in discoveries — in fact, that figure remained flat. “This increase in money being spent overall and a decrease in new discoveries means the discovery of a new copper deposit has more significance than in the past,” he added.
As copper prices begin to rise, analysts are betting on an increase in M&A activity in this space, as has been seen with BHP and Antofagasta, with that activity being especially focused on new copper discoveries and quality development-stage plays.
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Copper-rich British Columbia attracting Asian interest
Copper’s short supply is also leading advanced Asian economies such as China, Japan and South Korea to lock in access to high-quality copper deposits through strategic partnerships with junior explorers in mining-friendly jurisdictions.
One such example is Serengeti Resources’ (TSXV:SIR) joint venture agreement with Korea’s largest trading company, POSCO Daewoo (KRX:047050), which has been investing in resource exploration projects all over the world, including the Wetar copper project in Indonesia. POSCO Daewoo has contributed $8.2 million to advance the Kwanika copper-gold project through prefeasibility for a 35-percent interest. Kwanika is located in the mineral-rich Quesnel Trough of British Columbia.
“The location is a huge piece of the equation in what attracts an Asian partner to a mineral project. Great port access and excellent infrastructure nearby, those are some of the key factors. They’re also going to be looking for close-to-surface mineralization that would be amenable to open-pit mining, and of course, high enough grades to support economic mine development,” explained Smith, whose company is exploring the Stars copper-gold-silver–molybdenum property in North-Central British Columbia.
Recent drilling at Stars has discovered the presence of a large copper zone within a porphyry system occurring in host rocks similar to those associated with the Huckleberry mine to the south of the project.
British Columbia has a global reputation as a mining-friendly jurisdiction with bountiful resources and a highly skilled workforce. Canada’s westernmost province is also one the country’s largest copper producers, and boasts access to Asian markets through its advanced port system.
British Columbia netted C$7.3 billion in mining revenue for 2016, up 16 percent over the previous year, according to a PwC Canada report.
“Mining is an industry that touches every single corner of the province … Although the province is relatively small, the structures are in place to be globally competitive,” Bryan Cox, president and CEO of the Vancouver-based Mining Association of British Columbia, told CAIFU magazine, a bilingual business magazine specifically for the Chinese-speaking investor audience in China and North America. “B.C. has wonderful deposits, as it’s a hub for exploration projects,” Cox added.
Asian investors understand that today’s exploration projects have the potential to be tomorrow’s mines, supplying much-needed resources to their growing economies. Given the strong demand and looming supply crunch, junior explorers with high-quality copper projects in attractive mining jurisdictions are sure to catch the eye of Asian firms looking to shore up their supply lines.