COPPER June 2017
Capital Intensity of New Copper Mines

The big new Las Bambas, Cobre Panamá, Aktogay and Bozshakol mines have high capital intensities of more than US$7.8/lb of annual copper capacity. Las Bambas has a capital cost of US$6.6bn due to its remote location and the need to construct a new town, while Cobre Panamá’s US$5.48bn capex includes a new power plant and port facility, and processing low-grade ores. Aktogay and Bozshakol also have low-grade ore, which requires greater ore volumes to be processed per tonne of copper.

Big New Mines Require Large Capital Investments

Capital intensity measures the efficiency of investment. In the copper mining industry this is calculated as the ratio of initial capital expenditure to annual production capacity, indicating the investment required to generate one pound of copper. An analysis of new copper mining capacity commissioned since the beginning of 2015, and extending out to around 2023 for committed, probable and possible projects, indicates that median capital intensity is US$7.26/lb (US$16,000/t) of annual copper capacity. Capital intensity for most new projects is in the range of US$5.0–10.0/lb of copper.



The large new projects now in production or under construction (that is, committed projects) are proving to be expensive in capital intensity terms.

  • MMG’s 62.5%-owned Las Bambas mine started producing concentrate in late 2015, and achieved commercial production on the 1st of July 2016. Las Bambas is expected to produce 300ktpa of copper for 20 years. Initial capital expenditure of US$6.6bn equates to a capital intensity of US$10.0/lb of copper. The high capital cost reflects the remote location in Peru at 4,000m above sea level, the large scale of the mine and 51Mtpa concentrator, and construction of the new town of Nueva Fuerabamba.
  • KAZ Minerals has brought on line two relatively large open-pit mines in Kazakhstan—Bozshakol and Aktogay. At full capacity, Bozshakol will process 30Mtpa of relatively low-grade ore (0.36% Cu) to produce 100ktpa of copper in concentrate. A capital cost of US$2.15bn equates to a capital intensity of US$9.75/lb. Copper cathode output from processing oxide ore at Aktogay commenced in December 2015, and copper in concentrate production from 25Mtpa of sulphide ore containing 0.33% copper began in February 2017. Aktogay is expected to produce 90ktpa of copper in concentrate and 15ktpa of copper cathode. In July 2016, Aktogay’s capital cost estimate was revised down by US$100m in July 2016 and by a further US70m in the March Quarter of 2017 due to commissioning efficiencies and operating synergies with Bozshakol. It is expected to achieve commercial production in the second half of 2017. At an initial capital cost of US$2.0bn, capital intensity is US$8.8/lb. The high capital intensity of these two projects is partly attributed to the low ore grades that require more ore to be processed per tonne of copper produced.
  • First Quantum should begin production from its 80%-owned, 320ktpa copper in concentrate, Cobre Panamá mine in 2018. With an estimated capex of US$5.48bn and capital intensity of US$7.8/lb of copper, Cobre Panamá lies within the third quartile of the capital intensity copper mine curve. Initial investment includes a coal-fired power plant (US$632m) and a port facility (US$383m). Similar to Bozshakol and Aktogay, Cobre Panamá will mine and process relatively low-grade ore averaging 0.37% copper. The original capex estimate of US$6.42bn (US$9.1/lb Cu) was reduced to US$5.48bn in February 2016, owing to savings in the project’s earthworks, concrete and construction phases and in lower pricing for equipment and materials. To the end of the March Quarter of 2017, project spending totalled US$3.7bn.

    The lower quartile on the capital intensity curve is occupied by projects in established mining districts, where there is existing infrastructure, thus reducing capital costs for power generation and delivery, water supply, road and rail transport links, shipping ports, and on-site accommodation camps. Other than First Quantum’s 270ktpa Sentinel, the projects within the lowest quartile are not large copper producers. This is attributed to the projects not needing to install very large processing plants and supporting infrastructure. 

  • The two lowest-cost projects on the capital intensity cost curve—Tschudi and Antas—are now in production. Weatherly International’s Tschudi is a small open-pit mine and SX/EW operation, producing 17ktpa of copper cathode close to the Tsumeb mine and smelter in Namibia. Avanco’s Antas mine is located in Brazil’s Carajás mineral province, which also hosts copper mines (Salobo and Sossego) and iron ore mines owned by Vale. Antas will produce 12ktpa of copper in concentrate. Avanco completed a prefeasibility study on a nearby, second mine in May 2017. Pedra Branca may produce 24ktpa of copper, starting in late 2019. Initial capital expenditure of US$153m puts capital intensity at US$3.0/lb.
  • First Quantum’s Sentinel mine is located approximately 150km from the company’s Kansanshi mine and smelter in Zambia. Although the initial capital cost of US$2.5bn and copper capacity of 270ktpa gives a low capital intensity of US$4.2/lb, Sentinel experienced a slow ramp up since commencing production in February 2015, largely due to delays in receiving adequate and consistent power supply. Commercial production was declared in November 2016.

    The capital intensity curve presented as Figure 7 shows Kamoa as a mine development that may produce 100ktpa of copper in concentrate after initial capital investment of US$1.2bn, based on the prefeasibility study completed in March 2016. The Kamoa-Kakula project looks like it will be much larger. Ivanhoe Mines and Zijin Mining are now assessing 6Mtpa mines at both Kakula and Kansoka (Kamoa). AME estimates that at 12Mtpa, the two mines would produce a total of approximately 500ktpa of copper in concentrate. A preliminary economic assessment is due to be issued in the September Quarter of 2017.


Good Value in Major Expansions

Major expansions of existing copper mines can be achieved at lower capital intensity than new mine developments. This is not surprising given much of the infrastructure is in place. The weighted average capital intensity of the Buenavista, Cerro Verde, Chuquicamata, Oyu Tolgoi, Spence and Toquepala expansions, listed in the table below, is US$5.4/lb of additional copper capacity, compared to the US$7.3/lb median for the new copper mines. The investments of between US$1.2bn and US$5.3bn are substantial in absolute terms.

  • The US$5.3bn Oyu Tolgoi expansion involves development of an underground block cave mine to extract the Hugo Dummett North orebodies until around 2040. The expansion was approved and construc`tion commenced in 2016. First underground production is expected in 2020. Forecast copper output from Oyu Tolgoi over 2025-2030, including the contribution from the open pit, is 560ktpa compared to the 200ktpa in recent years.
  • The US$4.0bn Chuquicamata underground development is to replace the century-old open pit. Underground production is to commence in 2019 and Codelco reports the project was 47.8% complete at the end of March 2017.
  • The US$2.2bn Spence expansion, or Spence Growth Option (SGO), is the subject of a feasibility study by BHP Billiton for open-pit mining of the hypogene ore below the supergene reserve. Spence produces 180ktpa of copper cathode by leach-SX/EW processing. The SGO would involve construction of a 35Mtpa concentrator to produce approximately 200ktpa of copper, possibly from 2020. An estimated capital cost of US$2.2bn excludes development of a required desalination plant.