In this interview, Joe Mazumdar from ExplorationInsights.com shares his valuable insights on the copper market and discusses the potential impacts of political changes in Chile and Mexico on the mining sector.
Part 1: The Copper Market
1. How do you think supply/demand dynamics will develop in copper over the next 10-20 years?
The growth in demand is inextricably linked to carbon-neutral technologies (electric vehicles, solar, wind, among others), which are copper intensive as they are all based on electrification and exploit copper’s properties such as conductivity and malleability.
My focus is more on the lack of supply growth due to several obstacles, including permitting risk, lack of infrastructure, funding, qualified labor resources, and creeping nationalism, among others. The current near-term weakness in the copper price is well below the incentive price to advance some development projects.
2. What regions will be most important when it comes to new copper discoveries and the development of new mines?
The regions that may become the most important are those that encourage mining with quicker permitting timelines and the ability to help fund major infrastructure (roads, power, port, rail).
Many low-grade projects in the western part of Canada may come online if the copper price can rise to a level that would incentivize developers. Argentina has the potential to become a major player but there are issues with infrastructure and the country’s political and economic stability. The Central African Copper Belt could be another major source of copper, but political stability and security are required in some regions for more companies to enter the region.
Part 2: Chile's Plan for state control of Lithium
1. What are the implications of Chile's state-led plan for lithium, which mandates private-public partnerships?
The left-wing administration of the Andean nation seeks to run private-public partnerships with state control on any new properties and do the same once the leases expire for the major producers such as Sociedad Quimica Y Minera de Chile (SQM) and Albemarle on the Salar de Atacama. The state-led plan would be led by state-owned Codelco, the largest copper producer, and ENAMI.
2. How does Chile's new policy impact project timelines, control, and profitability?
Albemarle stated that this would not impact their current operations but that is because their lease is long-dated (2043), whereas SQM’s is shorter (2030). Companies exploring for lithium brines in Chile may be deterred and fight it hard to attract the funding required to advance projects because of the mandated joint venture with state-owned entities. Note that Chile will have a couple of changes of government prior to the lease expiring for SQM therefore, the potential to change policy remains. But new administrations may find it difficult to give back control over the lithium sector.
3. How does Chile's increased state involvement in lithium affect global supply, pricing, and competition?
Currently, Chile is the second largest producer of lithium after Australia, but it produces its supply from brines such as the Salar de Atacama, whereas the latter produces lithium from spodumene-bearing pegmatite dykes. The policy will most likely lead companies to abandon Chile as a focus of lithium exploration, development, and production in favor of other jurisdictions, such as Australia, Canada, and Argentina, with more favorable policies. The competition for projects will accelerate in those regions, while the lithium supply and pricing impact will be a longer-term impact after the leases expire (>2030).
Part 3: The Mexico Mining Reform
1. Can you provide an overview of the key aspects of the new mining reform in Mexico?
Reforms in the Mexican mining laws by the Andres Manuel-Lopez Obrador administration (Morena party) were expected in September but the left-wing Morena party passed the reforms in May without any participation from the opposition, which may challenge its constitutionality in the federal courts.
Major changes include:
Life of a mining concession – Changes from 50 years without a renewal to 30 years with a 25-year renewal after a review by the mining minister. This is a marked improvement from the first draft, which was 15 years with a 15-year renewal.
Transfer of ownership – More conditions for transferring the ownership of concessions.
Mineral specific – Concessions must be mineral specific.
Pre-consultation – In line with ILO 169, concessions that cover areas occupied by indigenous and/or Afro-Mexican communities.
Exploration – Future exploration will require a joint venture with the Mexican Geological Survey prior to applying for a concession. Bonding will be required for potential ecological impacts.
Auction – Concessions will go through an auction process.
Protected areas – No more concessions will be granted near protected areas and those that are currently near them will be highly scrutinized.
Mining has no priority over any other industry.
More scrutiny around water usage.
2. What are the anticipated impacts of the new mining reform for mining companies in the region?
Most legal interpretations suggest that current concessions will be ‘grandfathered’ with little impact from the reforms except for more reporting. Those with concessions that were pending approval are being canceled but this is being challenged by companies and the opposition is challenging the entire package of reforms. But new concessions will be more difficult to obtain for explorers. Mexico presents a higher-risk jurisdiction for non-cash juniors.
3. How do you assess the potential impact of the new mining reform on global supply dynamics?
Mexico is the number one silver producer in the world and a top ten producer of copper and gold. If the current concessions are truly grandfathered, then near-term impacts on supply may not be significant but the negative impact on exploration of the Mexican mining reforms will have longer-term impacts on production from the country.
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