Some interesting articles on incentive price for copper moving forward
BlackRock Says $12,000 Copper Is Needed to Incentivize New Mines
(Bloomberg) -- Copper needs to reach $12,000 a ton — a 20% jump from this week’s high — to incentivize large-scale investments in new mines, said Olivia Markham, who co-manages the BlackRock World Mining Fund.
The metal’s price hit a two-year high near $10,000, but Markham said further gains are necessary to encourage miners to sign off on projects required to avoid major deficits during the energy transition
When I look at the price today, I think it’s well below the pricing levels we need to incentivize new greenfield production,” Markham said in an interview Wednesday. “Structurally, we need more copper units, and currently I don’t see those big blocks of new supply coming through.”
BlackRock has been among the most bullish voices in the copper market for years, and by degrees that sentiment is echoing across the industry as buyers contend with an unprecedented shortage of mined ore. Demand has been alarmingly soft in China this year, but a broad consensus has nevertheless emerged that the worsening squeeze on mine supply may jolt prices.
Markham’s forecast is underpinned by an analysis of the soaring costs miners incurred in building copper projects recently, with an average spend of about $30,000 for each ton of production capacity.
For a mine producing 300,000 tons a year, that would translate to a ballpark price tag of $9 billion. Incentive-pricing analysis indicates that miners would need $12,000 copper to make a 15% post-tax return on future investments, she said.
Anything below that, and they may be reluctant to go ahead.
Together with signs of improving manufacturing sentiment, the shortage of mined copper that’s emerged this year has led some to ask if now is the beginning of a bull run that could see the metal smash price records.
Copper traded 1.2% higher at $9,818.50 a ton on the London Metal Exchange as of 3:48 p.m. local time Wednesday, lifting the year-to-date gain closer to 15%.
--With assistance from Jack Farchy.
And this from a * article:
What is the incentive price?
One outcome of recent inflationary pressure and the increased depth and complexity of mining operations is that the incentive price to bring a new copper mine online is increasing.
Goldman Sachs thinks incentive prices of US$3.60/lb would be required just to get BHP and Rio Tinto to sanction an expansion of Escondida, the world’s biggest single copper mine.
To justify new developments, GS thinks long run prices need to be at least US$4.30/lb — around US$9400/t.
Current prices are in the order of US$4.05/lb.
“It’s interesting, two of the bigger new developments that have just come online are in South America — Quellaveco and Quebrada Blanca II (QB2),” Forwood said.
“One of them needs a copper price of US$4.75/lb to wash its face on project economics and one of them needs a copper price of six bucks to wash its face on project economics.
“QB2 is estimated to need six bucks a pound copper for a 15% project IRR and Quellaveco looks like it needs US$4.75 a pound for a 15% project IRR.
“So on that basis, you would say that US$4.75/lb is probably a minimum of where the copper price needs to be to incentivise new production … and to bring on even more you’re talking about more like six bucks a pound.
“It’s well north of where we are at the moment.”
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