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Copper is the missing component of the energy transition

at76, Richard Adkerson An elder in the copper industry. For 20 years he CEO One of the world’s largest copper producers, Freeport-McMoRan is valued at $55 billion. He has seen everything from industry fragmentation to consolidation, from short-term booms and busts to China-led supercycles. Freeport itself has pioneered several trends. In 2007, when he paid $26 billion to Phelps Dodge, an Arizona-based company that dates back to the 19th-century Wild West, it was the largest mining deal in history. It was also a masterstroke. Less than five years later, the company had the misfortune to diversify into oil and gas, which he says wasn’t his idea. It set off a near-death experience that had to be quickly rewound after both energy and metals prices crashed in 2016.

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As befits a mining executive, he has a hoarse voice, which he uses to speculate about potential copper crunch. The pressure of industrial development in emerging countries and the increasing electrification and decarbonization as part of the energy transition could lead to a surge in demand for red metals. S.&P. Consultancy Global expects copper consumption to double to 50 million tonnes between now and 2035. New copper mines are coming online in Mongolia and the Democratic Republic of the Congo, Adkerson said, but such projects have not found their feet on the ground. Concerns about the environment and rights of indigenous peoples make it difficult to obtain such recognition. Moreover, in both Chile and Peru, which together produce nearly 40% of the world’s copper, mining is susceptible to national politics.

As Adkerson says, this is not a supply problem that money alone can solve. “Today’s world lacks viable investment opportunities,” he says. Wisely, he doesn’t go so far as to suggest that the world is running out of copper. Instead, he tells a story that dates back to when he was an oil industry consultant early in his career. One of his friends was Matthew Simmons, a Texas-based investment banker famous for promoting the “peak oil” theory, which assumed the world was short of supplies. And one of his clients was George Mitchell. He later gained fame as the father of the shale revolution that mocked the Peak Oil mantra. It was a useful lesson, he laughs. He is always on the lookout for the shale oil equivalent of the copper business.

A comparison between the oil business and the copper business is informative. It helps explain the intricacies of mining metals. It also suggests ways to overcome the shortage. Start with the difference between the two products. As Adkerson explains, copper deposits are spread over vast areas, so techniques to find copper are not as effective as seismic tests used to identify hydrocarbon reservoirs. Years of exploratory drilling are required. Additionally, while much oil exploration takes place offshore, deepwater mining is still in its infancy and sensitive to the environment. Adkerson said US arms maker Lockheed Martin, which was heavily involved in deep-sea mining, just sold a subsidiary that has a license to explore parts of the Pacific Ocean. Effectively, it’s quitting the venture.

There are also big differences in production. It’s not just that copper mining is more regionally concentrated than oil drilling. While it takes many years from licensing to operating a well, it can take a generation to develop a ‘greenfield’ copper mine. The consolation prize is that copper mines don’t dry up as quickly as oil wells. Some of Freeport’s mines date back over 100 years.

Consider the following similarities: During the commodity price supercycle through the mid-2010s, both industries blew shareholder money on ambitious projects, trapping them in the guilt bin. Despite growing concerns about oil and copper supplies, investors are demanding payments to shareholders rather than risk equity in large capital projects. This is exacerbated by pressure to reduce resource extraction from investors concerned about environmental, social and governance (ESG) problem.

Still, your mood may be starting to change.In the oil industry, Shell and blood pressure Reconsider the pace at which they cut oil production. Likewise, copper miners are getting bolder. in April BHPDiversified mining giant offers Oz Minerals shareholders a $6.4 billion proposal to acquire an Australian copper mining company. If approved, it would be the largest acquisition since 2011. Freeport says he will raise capital expenditures this year to $5.2 billion from his $3.5 billion in 2022, primarily to expand underground developments at Indonesian mine Grasberg. Adkerson points out that some of this increase is the result of rising costs. But he also noticed a new mood among investors. “Today, when I talk to shareholders, they ask me where the growth is coming from.”

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There are two possible answers. The first is to strengthen “brownfield” sites where mines already exist. Freeport has 22 million tons of copper reserves in the United States alone. Developing a project like this would take him six to ten years, and the current severe labor shortage could make it even more difficult. But it’s more promising than starting from scratch. The second answer is technology. Freeport has about 17 million tons of residual copper left over from the leaching process, Adkerson said. He argues that new reagents and new operational techniques using data analytics are less costly, less carbon-intensive and face less regulatory hurdles than digging a new mine. I hope to recover some of them.

The veteran miner doesn’t think this will have as impressive an impact on copper supplies as the shale revolution did on oil. The higher the perceived rarity, the higher the value of Freeport’s reserves, and the more valuable his company. You can almost hear him rubbing his hands on the observatory.

Read the article by Schumpeter, a columnist on global business.
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Also, if you would like to write to Schumpeter directly, please email him. [email protected].and here it is explanation Origin of the name of the Schumpeter column.

https://www.economist.com/business/2023/03/30/copper-is-the-missing-ingredient-of-the-energy-transition Copper is the missing component of the energy transition

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