The global mining industry, particularly copper exploration, is at a crossroads. Various challenges are reshaping the landscape of the industry, and while each presents its own set of problems, there are also potential solutions and rays of hope intertwined with each.
The Double-Edged Sword of Declining Ore Grades
As the average grade of copper ore mined drops, more ore needs to be extracted to yield the same amount of copper. This escalation in extraction naturally raises operational costs and places stress on finding profitable mining projects. On the bright side, this challenge has spurred innovations in mining technology and techniques. Improved efficiency and new extraction methods are being developed to combat these declining grades, turning adversity into an opportunity for progress.
Solaris Resources: Leading the Way with Warintza Project Discoveries
While the challenges facing the industry and junior copper exploration companies are very real, Solaris Resources is an example of what the industry is looking toward for new discoveries. The company’s relentless drilling program has continually led to discoveries at the Warintza Project. Last year Solaris issued a mineral resource outlining 1.5 Bt primarily from the Central deposit – one of six discoveries made on the project to date set within a cluster of porphyries, with the two most recent discoveries made this past summer. The most recent discovery, Patrimonio, which was unveiled in June 2023, is just about half a kilometre southwest of Warintza Central. Patrimonio is shaping up to be a significant new copper deposit.
The initial two reconnaissance drill holes were cut short by a porphyry stock returning promising surface intercepts: 96m of 0.59% CuEq from near surface within 144m of 0.50% CuEq, and 148m of 0.52% CuEq. The deposit revealed a surprise skarn system that has yet to be pinpointed, opening up new avenues of exploration for Solaris. With such consistent and promising discoveries, Solaris Resources and the Warintza Project are one example of a solution in the face of many challenges.
There’s no doubt that increased environmental scrutiny has made the process of obtaining permits more intricate and costly. While it restricts some of the territories for mining activities, it also pushes the industry toward more sustainable and environmentally-friendly practices. In fact, some mining companies are now seen as pioneers in green mining initiatives, turning what was once a hurdle into a hallmark of responsible operation.
Mining activities in remote or politically volatile regions introduce an element of uncertainty. Delays, unforeseen expenses, and even complete project shutdowns are possible outcomes. However, these risks have led companies to invest in community engagement, making sure that local populations benefit from the mining projects, creating a more productive relationship and reducing potential flashpoints.
The Era of Resource Nationalism: Striking a Balance
As some nations adopt a hands-on approach to their natural resources, it can pose operational and investment challenges for mining companies. In response, many companies are engaging in more collaborative efforts with these governments, ensuring mutual benefit and striking a balance between national interests and mining operations.
Commodities Exchanges, Trading, and Inventories in Focus
Volatile commodity prices are an inherent challenge for miners. A dip in prices can result in financial strains, mine closures, and job cuts. But this volatility also encourages companies to diversify their portfolios and seek innovative ways to reduce operational costs, making them more resilient in the face of market fluctuations.
Trading volumes and inventories on major commodities exchanges like the LME (London Metal Exchange) and SHFE (Shanghai Futures Exchange) have also been watched closely for changes as this has influenced metals prices heavily in the past few years.
In August 2023, there was a noticeable dip in trading volumes for copper on both exchanges. LME reported an average daily trading volume of 195,000 tonnes, which was a slight decline from July’s 210,000 tonnes. Similarly, SHFE also experienced a reduction, with daily average volumes falling from 430,000 tonnes in July to 415,000 tonnes in August. These decreased trading activities might suggest a reduced appetite for risk or perhaps a wait-and-see approach from traders, hoping for clearer market signals.
On the inventory front, both exchanges witnessed a decrease in their copper stockpiles. As of September 13, LME’s copper inventory stood at 133,675 tonnes, marking a descent from the 142,225 tonnes on September 6. Likewise, SHFE’s inventory registered a reduction, coming in at 188,750 tonnes on September 13, down from 195,500 tonnes a week prior. The declining inventories could indicate higher demand, and if the trend persists, it may create more upward pressure on copper prices and eventually stock prices.
Exploration Hesitation with the Need for New Discoveries
With a marked decline in exploration investment, finding new mineral deposits to replace depleting ones is a growing concern. Junior mining companies, often with leaner resources, feel this pinch even more acutely. Yet, their nimbleness can be an advantage. Partnerships with larger mining entities and leveraging new exploration technologies can help uncover the next big deposit.
Copper, indispensable in sectors like electronics and construction, is facing its own set of challenges. With supply outpacing demand, prices are under pressure. Moreover, the decreasing ore grades further escalate production challenges. Yet, the versatility of copper and its crucial role in green technologies, such as electric vehicles, means its relevance isn’t fading anytime soon as demand is set to outpace supply starting next year.
The China Puzzle
As the world’s premier copper consumer and a significant producer, China’s economic pulse has an outsized impact on the mining sector. While its slowing growth and tighter environmental regulations pose challenges, the vast Chinese market remains a pivotal player whose needs and innovations will continue to influence global mining trends.
With a slowing global economy and rising interest rates, mining companies face tighter budgets and expensive borrowing rates. However, these macroeconomic trends could also foster a more disciplined, and efficient industry that could come out stronger as a result.