“What is the OPEX + CAPEX of a new 0.3% porphyry in Chile?”
The future of the marginal copper supply depends on lower grade, larger production operations.
I heard from a good industry source that $50,000 per tonne was the CAPEX of a new low-grade project in Chile. I am going to break that down over a set of blog posts. I expect that it will take me a couple of months and a lot of online debate to answer this question.
Water is the first issue.
- Saltwater: Any new large mine is going to utilise either desalinated water or saltwater. It is not going to be fresh water and it is not going to be local water.
- Pumping: For every tonne of ore processed, at least 0.7 cubic meters of water is going to be pumped from sea level. If the ore body is at 3,000 meters elevation, pumping alone can add $1.0-$2.0 per tonne to the OPEX (that’s a “WAG”).
- No tailings dam: Going forward I don’t see dams being the operational norm. As a result of Mount Polly and Samarco, local discussions have changed.
Grade is the second issue.
- Larger mess/mass: At least twice as much rock will be processed, and this is best case. That can be 550 tonnes vs 275 tonnes or rock moved per tonne of copper produced (assuming the same recovery of 90%). The lower the grade the lower the real recovery, and a 0.5x to 1 stripping ratio, going from an old norm of 0.6% grade to a new norm of 0.3% grade. The math gets terrifying if the recovery drops to 85%, and the stripping ratio goes up.
- Everything gets blown out of proportion: Water alone will add $388 per tonne of copper to the cost, or $0.175 per pound, and that is competing with a mine that is paying for water. Lots of mines are not paying for it at all yet. Against those mines, the marginal cost per tonne is $776, or $0.35 per pound. We can add in the other escalating costs as well (assuming 0.7 cubic meters water per tonne of ore processed and $3 per cubic meter of salt water cost and twice as much rock moved).
- Credits matter more: If the new mine has to move twice the rock of its existing competitor that still has 40 years of cheap production left, no credits can be left for the tailings. That results in lots of additional processes, and a flow chart that looks like it was designed by Trump. There is a reason that Moly has reported to tailings versus concentrate in older mines; it is not always economic to recover. And if every new mine has to recover molly to keep the copper production cost down, it is going to flood the molly market which is oversupplied at times.
- Locals have a say: There is an increased requirement for social responsibility that comes with with larger mines and/or with smaller tax bases.
- Taxes: Marginal mines do not pay a lot in income taxes. Compared with large, higher grade mines with decades of production left, these new low grade mines will not generate lots of income taxes, so the locals are going to have to come up with new ways to tax these mines. I can see a per-tonne-processed tax, or a tailings tax; I can see taxes coming via a regulatory requirement to smelt locally.
- Locals want jobs: However, let’s face it; the best jobs end up in the hands of transplants. Someone starting a mine is not generally going to go into a region and find locals, train them for the highest skilled jobs, and build a mine at the same time.
- Existing miners: They will follow a path where there is margin, stability, and history. They can easily create barriers to entry just by pointing out simple flaws over coffee.
- Concentrate grade: The lower grade the mine, one would assume the more complex the metallurgy, and the concentrate grade will suffer as a result. If you run 22% vs 30% concentrate and you pay TC/RC’s, your real recovery goes to heck. I am not even going to do the math here yet, but still...
- Logistics/Scale: Larger mines, less metal: everything gets supersized. You need 50 new/extra truck drivers, you end up with 10 new managers all the way up the food chain. So you decide to go for the largest trucks in the world, but you end up with tires that are so large you need a 996 just to change a tire. Either way the scale of doubling the mine for the same production is going to shift how you manage things.
- Mill design: The mill is not going to be twice the size of the competing project’s mill; depending on the scale, it is going to be a lot larger.
In the theme of keeping these thought pieces to a reasonable length, I am going to end this for the week. Clearly as I develop this line of reasoning, I am going to get into harder math around the concepts, but I wanted to start somewhere.
I want to give thanks to an online friend for the question. He clearly wants the answer as he is trading copper, but it is still a good question and one that impacts both of my day jobs, Aston Bay Holdings and Outotec.
For full disclosure, I am working 100% from public numbers and concepts here, and that is going to make this a bit harder and slower than working off of live projects. An example is the $3 per cubic meter price for water, realistic numbers are probably $5+, but in theory with salt water and pumping $3 is possible. Unless I can cite the costs from a published and publicly available number, I am not going to use it.
Until next time,