##{"id":77004,"date":"2018-10-02T13:07:29","date_gmt":"2018-10-02T01:49:20","guid":{"rendered":"https:\/\/www.fnarena.com\/index.php\/2018\/10\/02\/coppers-dirty-secret\/"},"modified":"2018-10-02T13:07:31","modified_gmt":"2018-10-02T03:07:31","slug":"coppers-dirty-secret","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2018\/10\/02\/coppers-dirty-secret\/","title":{"rendered":"Copper’s Dirty Secret"},"content":{"rendered":"

\n\tKatusa<\/span> Research outlines a number of reasons to be bullish on copper, including one little known market secret.\n<\/p>\n

\n\tBy Marin Katusa<\/span>, Katusa<\/span> Research\n<\/p>\n

\n\tAvoid the Con Artists. Here’s the Critical Demand Secret in the Copper Market<\/strong>\n<\/p>\n

\n\tCopper is a vital element used in nearly everything around you.\n<\/p>\n

\n\tIt’s used for plumbing in houses and factories. Since copper is also a wonderful conductor of electricity, it is used in power lines, electric motors, wiring, cars, and appliances as well.\n<\/p>\n

\n\tThis aspect \u2013 copper’s excellent electrical conductivity \u2013 makes it a critical part of the electric vehicle (EV) revolution.\n<\/p>\n

\n\tFor example, an electric vehicle requires three times more copper than conventional internal combustion engine vehicles.\n<\/p>\n

\n\tOn average, a car with an internal combustion engine uses 55 pounds of copper. A hybrid uses about 110 pounds, and an EV uses 165 pounds of copper.\n<\/p>\n

\n\tI’m long term bullish on copper, especially companies that produce a specific kind. Which I’ll get to in a moment.\n<\/p>\n

\n\tWhat are the Copper Signals Flashing?<\/strong>\n<\/p>\n

\n\tIn the last ten years there have been 9 major copper discoveries, totalling<\/span> 319 billion pounds. This may sound like a lot, but it’s not. From 1990 to 1999, there were 106 major copper discoveries, totalling<\/span> 1.1 trillion pounds.\n<\/p>\n

\n\tBelow you’ll see the total quantity of copper discovered annually from 1990 to 2018.\n<\/p>\n

\n\t\"\"\n<\/p>\n

\n\tNot only are there less pounds being discovered, it’s costing a lot more to find them too. Below is a chart which shows the cost of the copper discovered, based on annual exploration budgets.\n<\/p>\n

\n\t\"\"\n<\/p>\n

\n\tCosts have jumped from less than US$0.01 per pound to US$0.07 per pound of copper discovered. That’s a 7-fold increase in 2 decades.\n<\/p>\n

\n\tThat’s alarming.\n<\/p>\n

\n\tAnd it’s not like you can just say “hey, we need more copper, let’s turn on the next copper mine<\/em>.”\n<\/p>\n

\n\tCopper production is not like the shale oil and gas sector, where you can drill multiple wells and increase the production from the same patch.\n<\/p>\n

\n\tAt a mine, your production is fixed. And rarely do mines achieve 100% production because things always go wrong.\n<\/p>\n

\n\tMining is a tough, tough business. And when you look at the previous 3 years, there was no major global copper discovery. For two reasons:\n<\/p>\n

\n\tFirst \u2013 there’s less money in the sector to be spent on exploration.\n<\/p>\n

\n\tSecond \u2013 these projects are getting harder and harder and deeper and deeper to find. Because we’ve been really benefiting from prior generations of exploration.\n<\/p>\n

\n\tThat’s generally the cyclical nature of these things. Because the resource markets have been so horrible the last five years, there’s been very little money going into it to replace pounds produced.\n<\/p>\n

\n\tHence, why you’ve seen the reserve grade go from just under 1% 15 years ago to 0.37% today. As shown in the chart below.\n<\/p>\n

\n\t\"\"\n<\/p>\n

\n\tThis chart gives you a good idea of how tough it’s going to be to produce copper in ten years.\n<\/p>\n

\n\tAnd if you take a look at the copper days of supply over the long term, the supply is starting to dry up. Yet, the price isn’t responding.\n<\/p>\n

\n\tSo what gives?\n<\/p>\n

\n\tCopper’s Dirty Secret \u2013 What Majors Look for in World-Class Projects<\/strong>\n<\/p>\n

\n\tIt’s called “clean concentrate.”\n<\/p>\n

\n\tCopper concentrate is what a miner sends to a smelter after the rock that contains the copper is crushed and ground. Following that, the copper is extracted and concentrated.\n<\/p>\n

\n\t\"\"\n<\/p>\n

\n\tThe smelter turns that copper concentrate (which is usually anywhere between 22.5 \u2013 30% copper) into the copper we use in buildings and manufacturing.\n<\/p>\n

\n\tWhen a copper producer sends its concentrate to a smelter, it can contain nasty stuff like mercury, arsenic, and antimony.\n<\/p>\n

\n\tWhen copper concentrate has high levels of these “nasties<\/span>,” it is called “dirty<\/em>” concentrate.\n<\/p>\n

\n\tA producer can get “penalized” for dirty concentrate (meaning it gets less per pound of copper than it does for “clean concentrate”). And some smelters flat out refuse dirty concentrates when there is an excess supply of it.\n<\/p>\n

\n\tThe global smelters are in high demand for “clean concentrate.”\n<\/p>\n

\n\tYou probably didn<\/span>‘t know this, but for years, smelters have been dealing with this secret by “blending” the dirty concentrate with clean concentrate.\n<\/p>\n

\n\tChile is the world’s largest copper-producing country. And its giant Escondida<\/span> mine is showing higher nasties<\/span><\/em> compared to when it first started producing many years ago.\n<\/p>\n

\n\tMany of the large copper-producing mines will go through the same thing.\n<\/p>\n

\n\tThe Asian smelters who are now dealing with a high supply of dirty concentrate can dictate smelting fees, which means the dirty concentrate producers are getting slaughtered. This means that BHP, Rio Tinto, MMG, and Freeport are all dealing with this very dirty secret.\n<\/p>\n

\n\tNobody is talking about this, but they will be soon.\n<\/p>\n

\n\tThis is a small nuance that can have huge effects on a copper investment. A company can have a lot of copper in the ground, but dirty concentrate production can kill it. And your investment.\n<\/p>\n

\n\tSmelter logistics play another important role. Where will the copper company send their copper concentrate to? Access to a port is just one of the many concerning issues to check off the list.\n<\/p>\n

\n\tWhat happens if the closest smelter already has enough copper concentrate? This will mean additional transportation costs and lower copper producer profits.\n<\/p>\n

\n\tTo sum it up I am very bullish on top-tier, world-class copper deposits that have the following qualities:\n<\/p>\n