Le Dain: Supporting copper is a public service for energy transition

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Copper is critical to the clean energy transition. That alone should be enough for copper to get some love, but it remains misunderstood, even resented, and much-needed new mining projects are being blocked regularly. Instead of supporting the development of copper and making a major input for clean energy cheaper, the world finds itself in a position where we may not even get the copper required for the energy transition to take place. There are not enough people sounding the alarm on this and my in-laws are likely growing tired of me mentioning copper underinvestment at family dinners.  

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In a cleaner world, people picture transportation as electric, with a robust grid to support charging. Let’s quickly look at those two items and their relationship with copper. Wood Mackenzie references that the average electric vehicle requires 3½ times as much copper as an internal combustion engine vehicle. If you start looking at buses, they require at least 11 times as much. As we transition to EVs, this difference will rapidly increase copper demand.

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Required in parallel is the transmission to support all those electric vehicles, and transmission requires copper. Grid infrastructure required to support the expected number of charging stations in 2030 is expected to consume 250 per cent more copper than in 2019. Keep in mind that this copper will be required regardless of what power source wins. Everyone arguing for different types of renewable power will all need copper to deploy that power.   

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The above math is scary. Scary to the point that almost all major copper executives, the ones that understand copper dynamics best, have spent the last two years raising alarms that we are sleepwalking into a crisis. “I genuinely don’t see where all of this copper is going to come from,” Anglo CEO Duncan Wanblad warned. The CEO of Freeport-McMoRan said, “there’s going to be a time when the world is going to be very short of copper.” The former CEO of Glencore laid it out nicely a year ago when he said, “Today, the world consumes 30 million tonnes of copper per year and by the year 2050, following this trajectory, we’ve got to produce 60 million tonnes of copper per year.”

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Warnings from these experts have been treated with skepticism and haven’t received the coverage they deserve. I can understand this initial reflex since if a businessperson told you what they sell was grossly undervalued you’d roll your eyes. The largest commodity producers though have a long history of trying to avoid booms and busts. Booms are great for traders and speculators but for the people making careers in commodities they result in demand destruction, government intervention, and structural substitution. These are all things to be avoided if you are investing in projects with paybacks measured over decades.  

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The other thing holding back copper projects is us, as a record number of planned projects continue to get blocked by stakeholders. Two-thirds of the world’s copper reserves are in Chile, Argentina, Peru, Mexico and the U.S. Several of those jurisdictions are difficult for investment on a good day so let’s focus on the U.S., which is presumably the most environmental and capital friendly. In the U.S., we are seeing projects get blocked consistently despite their role in the energy transition. Rio Tinto’s Resolution copper project in Arizona was blocked due to environmental concerns. The company references that it could supply 25 per cent of U.S. copper demand. Before that, the Twin Metals’ $1.7-billion copper mine in Minnesota was blocked as activist groups flagged that the mine expansion risked biodiversity in the area.

Environmental concerns around new mines are always important, but at the same time if we block every new copper mine for ESG reasons we are all going to feel great while consuming more and more fossil fuels throughout this century. Copper needs more support immediately with higher prices, larger inventories, and more mines getting permitted.  

Mark Le Dain is vice-president, corporate development, at Neo Financial in Calgary.

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