The hunt for large scale copper deposits is going to intensify.
Many of you, no-doubt, will have read about the global electrification trend that’s taking place. This is not new news and has been written about for several years now. However, 2021 was, in my opinion, an inflection point. Take a look at the growth rates for Electric Vehicle (EV) sales that were realised in the first 9 months of 2021.
For investors, with Tesla’s market capitalisation now in excess of US$1.1 trillion, the opportunity now lies in the raw materials that will benefit as this global electrification trend accelerates.
The Copper Mining Companies
All of this, of course, is not new news to major mining companies. But again, 2021 was a fascinating year. For example, BHP entered a bidding war for Noront Resources who own the majority of tenements in a region called the Ring of Fire (named after a Johnny Cash song!) in Northern Ontario. Noront’s Eagle’s Nest project is the largest high-grade nickel discovery in Canada since the giant Voisey’s Bay discovery.
Then just at the end of 2021, Rio Tinto announced the purchase of the Rincon lithium project in Argentina for US$825 million. This was Rio Tinto’s first major acquisition since it acquired coal miner Riversdale Mining in 2011.
In 2021, BHP and Rio demonstrated their move towards battery materials. After all, both nickel and lithium are key raw materials used extensively in today’s lithium-ion batteries.
The Commodity Mix
BHP has made no secret of its strategic direction. A Climate Change report released by BHP in 2020 quoted CEO, Mike Henry as follows:
“We are already a major producer of copper and nickel and are seeking further options in these commodities, which see strengthening demand as the world moves to decarbonise. Potash also sees upside in a decarbonising world.”
It’s worth keeping in mind BHP’s current commodity mix. Below is a chart of their FY 2020 revenue by commodity. BHP’s nickel production currently sits within their ‘Group and Unallocated’ segment. It’s dwarfed by the other segments.
And it’s also important to understand that BHP has stated that it intends to exit thermal coal. In June 2021, BHP announced an agreement to sell its stake in a thermal coal asset called Cerrejon, located in Colombia.
Turning our attention to Rio Tinto, in their FY 2020 annual report they commented:
“In 2020, we continued to progress important growth opportunities and projects, to bring to market materials critical to the transition to a low carbon economy: copper, lithium and iron ore among others.”
If we look at Rio Tinto’s commodity mix by revenue, they have a slightly different challenge to BHP. They don’t have a significant hydrocarbon business that fits awkwardly with an environmental agenda, like BHP do. Rio Tinto exited their ill-fated Riversdale coal acquisition in 2014. Nor do they have a significant nickel business to build on, but they do have a copper business that they can grow.
One challenge that both BHP and Rio Tinto have is that growing their iron ore businesses without growing the rest of their divisions puts both companies in danger of losing their ‘diversified mining’ titles and merely becoming iron ore miners. This is most acute for Rio Tinto.
BHP is targeting nickel and Rio Tinto has made a new acquisition in Lithium. They clearly plan to grow their presence in these commodities respectively, but they will find it hard to scale-up these segments and make them a significant percentage of their overall revenues.
The key stand-out sector for a major diversified miner, in my opinion, is COPPER. It has environmental credentials. I won’t go into the detail here, but arguments can be made for copper’s role in a decarbonising economy. Also, it can be scaled, as proven by BHP’s business.
For BHP and Rio Tinto, growth options in COPPER make strategic sense and I believe the copper sector will become a battleground for majors on the look-out for acquisitions. Which is why I’m watching this space closely.
So, for major mining companies looking to increase their copper exposure, where would they begin to look? Well, amongst the largest types of copper deposits, what are known as, COPPER PORPHYRIES. They can be enormous in scale and form in subduction zones. This is where two tectonic plates meet and one of the plates gets pushed down into the earth’s mantle.
The forming of a porphyry is a complex geological process. But its general habitat is relatively simple to understand. The map below shows key subduction zones around the globe. Notice the population of porphyries around these subduction zones, particularly along the west coast of the Americas.
Chile is by far the largest copper producer in the world accounting for approximately 33% of global copper production. Peru is the second largest producer, accounting for approximately 13% of global production. Together, these two Latin American countries control 46% of total production. They’re both key copper destinations for large scale copper.
Los Andes Copper (CVE: LA)
Los Andes Copper are in the heart of the Chilean copper belt, and it was no surprise to me, that the company is surrounded by mining majors. BHP and Rio Tinto aren’t the only ones looking for copper in the Andes!
However, I was surprised to learn that Los Andes Copper has a substantial mineral resource already drilled out, at their Vizcachitas project in Chile. The Measured and Indicated category of their Resource Statement shows 1.3 billion tonnes of ore at a copper-equivalent grade of 0.45%, containing 12.8 billion lbs of copper-equivalent metal. For those who prefer metric terms, this is 5.8 million tonnes of copper-equivalent metal.
This is a considerable amount of metal, made all the more interesting since according to their 2019 technical report, there is ‘continuous mineralisation occurring near the surface’ and so can be mined by open-pit and ‘the project is in close proximity to extensive infrastructure, including port facilities, railway lines, and high-tension substations.’ In addition, the company’s market capitalisation is only C$315 million (£185 million). An ideal target for a major mining company looking for copper acquisitions. After all, there aren’t that many junior mining companies with this much inventory already.
I decided to take a closer look at the technical report and found this:
“In drill hole V2017-10, located at the northern end of the project, bornite accounts for 15% of the total sulphides below 900 m. This indicates that a possible bornite core could be located below the current drilling.”
For those not familiar with copper minerals, bornite is one of the most interesting. The image below shows an example of some drill core containing bornite drilled by a different company called Stavely Minerals. The purple-coloured rock is the mineral bornite. This mineral is dense and rich in copper and contains approximately 63% copper by mass. Finding a ‘bornite core’ would be very interesting since bornite is often found in the richest parts of a copper deposit.
A November 2021 news release by Los Andes Copper has announced a new drill program. The rigs are turning now and they’re aiming to drill 18,000m of core, including three deep holes. Drill results will be available in early Q1 2022. Time will tell what lurks at depth at the Vizcachitas project.
In addition to testing for the possible bornite core below drill hole V2017-10, recent geophysical testing has suggested that the deposit extends to the north of previous drilling. The 18,000m drill program will also test this concept. The 5.8 million tonnes of copper-equivalent found already could grow further.
The Armchair Trader says
With R. Michael Jones now leading the company and with a fresh drill program underway. The first few months of 2022 are set to be very interesting for Los Andes Copper. I have no doubt that the majors will be watching closely.