The SNL Metals & Mining
Research Group has just released Copper Discoveries,
1990-2014, the third of seven planned reports from its 2015
Strategies for Copper Reserves Replacement study, which analyzes reserves
replacement by copper-producing companies worldwide, based on data found in SNL
Metals & Mining's databases and through direct contact with major
copper-producing
companies.
The report series begins with
a review of copper exploration patterns — with particular attention to copper
discoveries — followed by analysis of the acquisition of projects and companies
with significant copper reserves. The found and acquired reserves are analyzed
based on costs, the location of projects and their stage of development, and the
types and headquarters locations of the companies involved. Twenty of the top
copper-producers are profiled separately, and their group metrics are combined
and analyzed to represent the industry as a whole. The study then looks forward
by analyzing the pipeline of potentially producing copper projects, while a
final overall analysis paints a comprehensive picture of the reserves
replacement efforts of the copper-producing industry as a
whole.
The first two reports, both
currently online, are Copper Exploration Budgets,
2000-2014 and Copper M&A Activity,
2005-2014. The first draws on SNL's annual Corporate Exploration
Strategies study for an in-depth analysis of industrywide spending on copper
exploration over the past 15
years.
Copper's perennial importance
to the industry becomes evident by viewing copper exploration budgets in light
of total nonferrous metals budgets. In 2010, the industry budgeted a total of
US$11 billion for exploration. After almost doubling by 2012, the total budget
returned to 2010 level again in 2014. Over those five years, the copper budget
increased more or decreased less as a percentage year on year than the total
budget; and more remarkably, copper's share of the total budget increased in
each of the five years, even as budgets were shrinking — in 2014, copper
accounted for fully a quarter of the industry's total budget, a 15-year high for
the red
metal.
The second report in the
series, Copper M&A Activity, 2005-2014, leverages SNL's M&A database to
analyze 10 years of project and company acquisitions (minimum US$10 million
purchase price), where copper was the primary metal or formed a significant
portion of the acquired
value.
It is no surprise that
acquiring companies pay more for copper in mineable reserves than they pay for
resources, since reserves can either immediately increase a company's
production, or add to its pipeline of potential production without the
expenditure and time otherwise required to prove up reserves. The prices paid
per pound for copper in reserves and copper in total reserves and resources
generally moved in tandem from 2005 to 2009. However, they diverged sharply
after the 2008-2009 financial crisis, with the reserves price soaring close to
50 cents per pound by 2011 — the highest price paid in the 10-year period —
while the price paid for combined reserves and resources increased much more
slowly. The divergence partly reflects most major producers' then current
strategy of increasing production. With recovering copper prices seemingly
headed for the stratosphere, adding mineable reserves seemed like a good
investment at the time.
However, the copper price
began declining in 2012, and angry investors began forcing the major companies
to curb spending and focus on increasing value. As a result, M&A spending in
2013 dropped by three-quarters from a record US$30 billion in 2012, and the
price paid for copper reserves fell to 30 cents per pound in 2013 — on par with
the 10-year average through 2014. M&A activity revived somewhat in 2014,
with the price paid for copper reserves perking up slightly and the total price
paid in copper acquisitions jumping 45% from the 2013
price.
The latest report, Copper
Discoveries, 1990-2014, is a detailed analysis of 201 copper discoveries over
the past 25 years, each containing at least 500,000 tonnes of copper. The topics
covered include the relationship between corporate exploration budgets and
discovered copper, and separate sections for discoveries by year, by location
(region and country), by company type and by classification as greenfields or
brownfields.
Clients can access these and
the forthcoming reports from Strategies
for Copper Reserves Replacement, along with Excel spreadsheets containing
the underlying data. In addition, clients are invited to register for a 30-minute presentation on July 23 that will
discuss the results of the full study.