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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Critical Developments In The Copper Market

It’s been a roller-coaster couple of weeks for copper. With the Brexit scare dropping the price nearly 4 percent in a day — only to come soaring back to multi-month highs immediately afterward.

Uncertainty seems to be the order of the day in this space. As evidenced by several big developments unfolding around the world for copper miners.

On the negative side, the world’s top copper producer — Chile’s Codelco — said this week that it’s facing substantial difficulties right now, with CEO Nelson Pizarro telling a press gathering on Tuesday that the company is in the middle of a “deep crisis”.

Pizarro said that lower copper prices are pushing Codelco to the brink in terms of profitability, especially combined with increased regulation and environmental rules in Chile.

He said that the only solution Codelco sees to these issues is to increase productivity — by cutting inefficiencies and streamlining internal processes. But he also admitted that such an overhaul will take years for the state firm — raising concerns about the future of this critical producer over the next couple of years. Related: India Sends Shockwaves Through Coal Markets

Part of the challenge for companies like Codelco is increasing competition from elsewhere in South America, particularly Peru — with that country’s government saying Tuesday that nationwide copper production soared 61 percent in May.

As with past months, the majority of Peru’s rising production was due to the Chinese-operated Las Bambas mine, which continues to be one of the biggest new producers globally, adding an important shift to the global market.

But that’s not the only place where moves are afoot with big copper mines. With the world-class Panguna mine in Bougainville (formerly Papua New Guinea) in the news this week — after the government of this newly-formed nation said they should get a majority ownership in the big deposit.

The current plan for Panguna is for now-owner Rio Tinto to gift the mine in equal shares to the Bougainville and PNG governments. But Bougainville is now demanding a majority stake — adding a potentially important wrinkle to the future of this formerly large producer. Related: Oil Dragged Lower By Crashing Gasoline Futures

Finally, another nation with big copper mines — Mongolia — is also looking promising in terms of supply. With reports circulating that the Mongolian People’s Party will implement new mining-friendly policies, after sweeping to power in national elections last week.

The development coincides with rumors that Rio Tinto will make a bid for the entirety of Turquoise Hill Resources (formerly Ivanhoe Mines) — the 50.8 percent Rio-owned firm that holds the Oyu Tolgoi copper-gold mine in Mongolia. A move that could kick off a new surge of enthusiasm for Mongolia mining projects, and perhaps unlock some of the big copper potential still remaining here.

All of which shows there are a lot of dynamics at work today when it comes to copper supply and prices. Watch for more direction on pricing over the coming weeks, as general positive sentiment over commodities battles concerns about growing supply.

Here’s to a big week for a big metal,

By Dave Forest

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