Copper December 2016
AME’s copper price forecasts for 2016 and 2017 are unchanged...

AME’s copper price forecasts for 2016 and 2017 are unchanged for now at US$4,750/t (US$2.15/lb) and US$5,050/t (US$2.29/lb), respectively. The refined copper market forecast for 2016 remains at a modest surplus of 95kt, with a surplus of similar size (110kt) forecast for the 24Mt market in 2017. After remaining essentially flat during February to October 2016, the LME copper cash price increased sharply through November.

The price rose from US$4,841/t (US$2.20/lb) at the end of October to US$5,813/t (US$2.64/lb) at the end of November. The monthly average price lifted 15% to a 16-month high of US$5,451/t (US$2.47/lb) in November. Market sentiment improved on expectations for higher metals demand. In the US, President-elect Trump plans to increase infrastructure investment and cut taxes. Chinese copper demand has improved through 2016 with credit growth and government stimulus earlier in the year supporting growth in residential and infrastructure construction, housing sales and motor vehicle production. Despite increases in Shanghai Futures Exchange (+42kt) and Comex (+5kt) stocks, an 86kt decline in LME stocks to 235kt saw total exchange inventories of refined copper decrease by 39kt during November to 450kt.

The concentrate market provided a surprise as Freeport-McMoRan and Jiangxi Copper agreed on copper concentrate treatment and refining charges (TC/RC) for 2017 of US$92.5/t and US9.25¢/lb. This is 5% lower than the 2016 benchmark TC/RC of US$97.35/t and US9.735¢/lb. AME expected contract TC/RCs for 2017 to increase based on the availability of concentrates and the rise in Chinese spot TCs to between US$102/t and US$105/t in the second half of 2016. World copper in concentrate production is forecast to rise 5.1% this year to 16.1Mt. Leading European copper smelter Aurubis was quick to describe the reported agreement between Freeport and Jiangxi as too low.

Merger and acquisition activity increased during November as a series of previously announced deals were completed, and new transactions were revealed.

  • In May 2016, the intended sale of Freeport's 56% interest in the 210ktpa Tenke Fungurume mine leach-SX/EW facility in the DRC to China Molybdenum for US$2.65bn was announced. The sale was completed on the 16th of November. Lundin Mining had been considering its right of first offer to acquire Freeport's interest. However, on the 15th of November, Lundin announced it had agreed to sell its 24% stake in Tenke to a Chinese private equity firm affiliated with BHR Partners for US$1.136bn, plus up to US$51.4m contingent on copper and cobalt prices.
  • Teck Resources will increase its interest in the Zafranal project in Peru from 50% to 80% by acquiring all of AQM Copper. Teck holds 30% of AQM’s shares and will pay approximately C$25m (US$19m) for the remaining 70%. Mitsubishi Materials holds the other 20% of Zafranal. Results of a pre-feasibility study released in May 2016 outlined the potential for an open-pit mine and concentrator, producing 120ktpa of copper in concentrate in the first five years and 75ktpa over its 19-year mine life. Estimated initial capital expenditure is US$1.2bn.
  • Antofagasta will sell its mothballed Michilla mine in Chile to Haldeman Mining for US$52m. The sale includes open-pit and underground mines, heap leach pads and SX/EW plant. Michilla’s production declined from a 53kt copper cathode peak in 2003 to 29kt in 2015. The mine was placed on care and maintenance at the end of 2015. Remaining resources contain 1Mt of copper.
  • Ivanhoe Mines and Zijin Mining will transfer an additional 15% stake in the Kamoa-Kakula project to the DRC government for a nominal cash payment and guarantees from the government relating to tenements, taxes and duties. The agreement brings government ownership in the project to 20%, with Ivanhoe and Zijin owning 39.6% each, and Crystal River Global holding 0.8%. The project is discussed in the section titled African Copperbelt – Challenges and Opportunities.
  • Newmont Mining announced it had completed the sale of its 31.5% stake in the Batu Hijau mine in Indonesia to PT Amman Mineral Internasional (AMI) for US$1.3bn on the 2nd of November. Batu Hijau produced 224kt of copper and 676koz of gold in concentrate in 2015. The sale takes AMI's interest to 82.2% following acquisitions of the Sumitomo, PT Multi Daerah Bersaing and PT Indonesia Masbaga Investama stakes. Oil and gas company Medco Energi International acquired the controlling 50% stake in AMI for US$2.6bn, also on the 2nd of November.
  • Evolution Mining announced completion of its acquisition of an economic interest in Glencore's Ernest Henry underground mine in Australia on the 1st of November. Ernest Henry produces 65ktpa of copper and 85kozpa of gold in concentrate. Evolution was to pay A$880m (US$670m), plus ongoing monthly cash contributions and capital costs associated with copper concentrate. In return, Evolution receives 30% of the payable copper and silver production and 100% of the payable gold from an agreed life of mine area.

There was a spate of incidents at copper mines during November, each resulting in multiple fatalities.

  • Eight miners at KGHM’s Rudna underground mine in Poland were killed by rockfalls caused by a tremor on the 29th of November. KGHM said the tremor caused extensive damage, but the mine remained mostly open. Rudna produces 240ktpa of copper in concentrate from 12Mtpa of ore.
  • A landslide, following heavy rainfall, at the Siirt Madenkoy open-pit copper mine in Turkey on the 17th of November has left 16 workers dead or missing. By the 27th of November, eleven people were confirmed to have died and five remained missing. The mine, owned by Park Elektrik, produces 18ktpa of copper in concentrate. Production is halted indefinitely due to recovery activities and the risk of further landslides.
  • At least 13 illegal miners were killed in a landslide at the Tenke mine in the DRC. The landslide is believed to have been triggered by up to 10,000 illegal miners who invaded the mine. No immediate reason has been given for the illegal miners invading the mine, but the occupation coincides with the change in majority ownership described above.