“In the event you look again to the provision progress charges within the trade from 2009 to 2016 or so, copper provide grew at a compound annual progress fee of round 3.5-4%, so successfully half of GDP, so comparatively good contemplating the Chinese language bull thesis was the early 2000s commodity bubble,” McGill mentioned.
“Since 2016, when copper costs bottomed at round $2.00-$2.20/lb., you’ve seen a median progress fee on an annual foundation of round 1%, so that you haven’t seen that progress fee enhance.”
The rationale, mentioned McGill, is what he known as the “legacy asset” thesis that’s more and more being understood by the market.
“In the event you take a look at grades on the high 20 copper mines since 2000, they’ve trended down about 15-20%, and in case you take out among the higher-grade African initiatives, that’s even decrease.”
“So, you’re seeing as grades get decrease, firms must enhance their capital depth to drag that manufacturing ahead as a result of your reserve grades are getting decrease; you’re seeing legacy belongings now have to be buoyed by new provide, and the price remains to be too excessive to deliver new initiatives on-line.”
Successfully, hundreds of thousands of tonnes extra rock will have to be moved and processed to get the identical quantity of copper, and in line with McGill, that’s the sort of relationship the massive miners are seeing proper now.
He pointed to how the world’s greatest copper miners, corresponding to BHP, Anglo American and Antofagasta at the moment are solely constructing round their high-grade belongings, or their high 3 belongings.
“What’s attention-grabbing is the BHP-Anglo transaction. Out of all the highest miners, BHP is the one firm that has seen its proportion of manufacturing from its high 3 copper mines lower decade over decade, so it is sensible that they’re attempting to backfill a few of their legacy belongings for brand new copper progress.”
McGill additionally famous that mining firms at the moment are grappling with provide disruptions worldwide, particularly Latin America, regardless of increased costs.