Copper in initial resources hits 7-year high

Introduction

The number of copper initial resource announcements jumped to 18 in 2021, a seven-year high, from 13 in 2020, although the contained copper fell 2% to 9 million tonnes. The all-time high was 57 announcements in 2012. The higher number of announcements coincided with a 31% increase in initial resource exploration budgets as companies accelerated exploration to take advantage of elevated metals prices and a bullish capital-raising environment.

The recovery in demand for commodities amid the reopening of the global economy as the pandemic recedes pushed copper prices to new highs after they bottomed in early 2020. Lingering supply concerns and a chronic underinvestment in the copper pipeline supported elevated prices and attracted companies, mostly juniors, to explore for copper. With the higher exploration budgets, the number of initial resource announcements for copper increased 38% year over year, although the amount of new copper fell slightly due to a lack of large deposits.

Early in the COVID-19 pandemic, the copper price fell to a low of $4,600 per tonne, or $2.10 per pound, on March 23, 2020, under the impact of public health lockdowns and restrictions. The price recovered quickly due to several factors, however, including the reopening of economies, pandemic-induced supply concerns and underinvestment in the copper-production pipeline. In October 2021, the price was at its highest since 2011, peaking at $11,300/t, or $5.13/lb, as energy issues and supply disruptions affected the market. The Russia-Ukraine conflict added further strain to the market in late February 2022, maintaining the elevated prices.

Initial resource-related exploration almost back to pre-pandemic levels

Grassroots is the exploration stage most likely to result in the announcement of an initial resource, although exploration at mine sites and at projects with existing resources can also result in the discovery of new deposits. Therefore, S&P Global Commodity Insights assumes that companies devote 100% of their grassroots and 25% each of their late-stage and minesite exploration budgets to the discovery of initial resources. Using this methodology, we examined the exploration budgets that led to the announcement of new copper resources over the period, although not all initial resources by majors are collected due to a lack of reporting.

Copper initial resource exploration budgets increased to $1.17 billion year over year in 2021 — just 3% lower than the pre-pandemic budget of 2019. The rebound would likely have been higher if not for the modest increase in copper budgets for Latin America due to ongoing pandemic restrictions in many of the region's countries. Latin America accounts for the largest share of copper exploration budgets over the last 10 years at about 40%.

The 31% increase in the copper initial resource budget year over year was also the largest increase in 10 years. The largest-ever copper initial resource budget was $2.36 billion in 2012, which coincided with 57 copper initial resource announcements containing 22.9 Mt of new copper.

Among the company types, juniors had the largest boost in copper budgets in 2021, with a 77% increase compared with a 19% increase by majors. The majors, nevertheless, still had the largest share of copper early-stage budgets at 66%, although it was down almost 7 percentage points from 2020. Junior companies accounted for 26%, up from 20% in 2020. Intermediates posted a 60% jump in grassroots budgets, although their share remained small at 3%.

More announcements, but no breakthrough in 2021

Unlike previous years, there were no very large copper initial resource announcements in 2021. In 2018,  Nevsun Resources Ltd.'s Lower  Timok deposit in Serbia accounted for almost 69% of the year's new copper. In 2016,  Ivanhoe Mines Ltd.'s  Kamoa-Kakula in the Democratic Republic of Congo accounted for 86% of the total.

The largest 2021 announcement was from Australia-based, U.K.-listed  SolGold PLC's Porvenir project in Ecuador, with 1.7 Mt of copper and 2.2 million ounces of gold at the Cacharposa deposit. The resource accounted for 19% of the new copper announced in 2021. SolGold began a 25,000-meter drill program at Porvenir in the first quarter of 2021 and announced the initial resource the following December. In 2018, SolGold announced 5.2 Mt of contained copper for the Alpala deposit at its Cascabel project, also in Ecuador, the second largest for that year. The company announced another initial resource containing 1.1 Mt of copper in Porvenir's Tandayama deposit in October 2021.

The second-largest copper announcement came from  Anleck Ltd., a U.K.-based private company, for its Maalinao-Caigutan-Biyog, or MCB, project located in the northern Philippines. A month later, Australian Securities Exchange-listed Celsius Resources Ltd. announced the completion of its acquisition of Anleck, including MCB and other exploration permits, by issuing 100 million shares of its common stock. Anleck announced 1.5 Mt of contained copper and 1.5 Moz of gold in MCB. After the acquisition, Celsius continued exploration and began drill programs and scoping studies.

The Copper World zone of Hudbay Minerals Inc.'s Rosemont project in Arizona was the second largest, with 1.5 Mt of contained copper, announced in December 2021. In September 2021, Hudbay identified seven deposits at Copper World and conducted a 28,000-meter drill program. The company is expected to release a preliminary economic assessment in the first half based on the drill results.

Australia has most announcements, Ecuador has largest new resources

Australia had the most copper initial resources in 2021 with four. The resources were small, however, containing only 360,000 tonnes of new copper. Three of the four were extensions or new zones at existing projects. The U.S. was second with three announcements containing 2.0 Mt of new copper, with Rosemont accounting for almost three-quarters of the total. Ecuador reported the largest country total for 2021, with 2.7 Mt at SolGold's Porvenir and Cascabel projects.

Australia has been the top country in the past 10 years with 44 announcements, although it ranks sixth in contained copper at 6.9 Mt. Canada is a distant second with 18 announcements, although the new copper totals 7.4 Mt.

Serbia, the exploration budgets of which total $110 million over the past 10 years, announced the largest amount of contained copper at 16.8 Mt in three announcements — primarily 14.3 Mt in the Lower Zone of the Timok project. Chile ranks second with 12.8 Mt in 10 announcements, boosted by 8.5 Mt of copper at the Los Helados project, which was announced in 2012.

^{This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.}