One of the biggest challenges now looming for the resources industry is to find new mines to cope with the continuing growth in consumption. Geology might play as big a role as China in the fortunes of the industry.
The development of the copper industry highlights the extent to which mine output has been growing despite some tendency among commentators to characterize the industry’s supply response as sluggish.
The chart shows global copper mine output
since 1900. In 1900, copper mine output is estimated to have
been 495,000 tonnes. Between 1900 and 1985, output grew at
an average of 3.3% a year to reach 7.99 million tonnes. In
the succeeding 20 years, annual output again rose at an
average rate of 3.3%, this time more than doubling, to reach
16.2 million tonnes.
Today, there are some 330 copper mines around the world with an average output of around 50,000 tonnes a year.
Copper mining must occur where nature intended it to happen. The size of the operation is dictated overwhelmingly by the geological circumstances. There is only limited discretion available to the miner about how much production from any one location occurs in any given year.
Mining is very different in this respect from manufacturing industry, for example. In the case of manufacturing, as demand rises, the size of the factory is scaled up accordingly and, perhaps, relocated to ensure that larger scale production can also occur competitively.
The significance of the geological constraint is beginning to loom larger now that the copper industry has reached critically high levels of output. Growth of only 3% a year implies a need for some 500,000 additional tonnes of copper to be mined each year.
There is limited scope to expand existing production bases. Considerable efforts have already been made to achieve marginal increments in output in response to recent high prices and strong demand.
The need for an additional 500,000 tonnes of copper each year implies a need for 10 new mines of average size every year. If we project this average rate of growth to, say, 2015 an additional 13 new mines of this size will be necessary each year.
Mines can easily take three to five years, all going well, from the time the geology is established to the time they can be brought into production. Indeed, larger and more complex operations could easily take seven to ten years.
In earlier years, one could count on the occasional very large development helping. BHP’s Escondida, which began producing in 1990, was one such development which today produces copper at an annual rate of 1.3 million tonnes a year.
There is no similar opportunity today. This is one of the reasons the largest of the mining houses are seeking to acquire one another to bolster their growth prospects rather than use their expanding financial capacity to develop new mining operations.
