If you are thinking of investing in copper, this article looks at how to evaluate the quality of a copper mine; the factors that determine the price of copper; the different ways of investing in copper and finally, how the copper industry is regulated.
How to evaluate the quality of a copper mine?
As copper minerals occur in different forms and geological settings, there are many factors to consider when assessing the quality of a copper mine.
Historically, the most profitable copper mines have been open pit mining of large-scale porphyry deposits with chalcopyrite mineralisation.
While the ore from these mines can be relatively low grade and the refining costs high, this is counter balanced by the vast resources of copper they provide.
Some of the critical factors used in assessing the value of a copper mine include copper deposit type, grade and mining costs:
- Porphyry deposits are low grade but are workable at large scale and low costs. Copper content is 0.4% to 1.0% often with small amounts of gold, silver and molybdenum. The mining method us usually open cast and the deposits are massive
- Sedimentary rocks are the second most important copper deposit and account for a quarter of the worlds known copper deposits
- Volcanogenic massive sulphide (VMS) ore deposits formed through hydro-thermal vents provide copper sulphide ores
- Iron oxide-copper-gold (IOCG) ore deposits provide valuable copper, gold and uranium ores
- Copper skarn deposits are silicate-rich and are common along subduction zones. The largest of these is in the Andes region of Peru.
- Grade is expressed as the weight percentage of copper in the rock. To determine this rock cores are removed and analysed chemically and recorded as a weight percentage of copper in total rock.
- Mining costs which are dictated by many factors including the accessibility of the ore and the overburden.
What are the factors affecting the price of copper?
The price of copper can impact the timing of any investment decision you make; so, before investing in copper it is important to understand the main factors behind price changes:
1. Supply and demand
The primary driver for copper prices is supply and demand. The ability of producers to mine and extract copper in sufficient quantities, coupled with the demand for commercial products that require copper.
When that supply/demand relationship is out of sync, for example, when the supply of copper is greater than the level of demand, then the price of copper can be quite volatile and fall. This can make copper uneconomic to produce and lead to mining operations being mothballed.
2. Energy prices
Refining copper is an energy intensive mining process, therefore an increase in the price of oil for example, can result in increasing copper prices.
3. Strength of the US dollar
The US dollar is the benchmark currency for copper prices. When the value of the dollar falls relative to the commodity buyer’s currency, copper becomes cheaper and demand increases.
However, producers are faced with falling revenues and have no incentive to increase supply, which can also lead to higher prices.
4. Speculation
For example, copper traders taking speculative positions on the China futures markets.
5. Stock levels
When prices are low, producers may hold an increasing amount of copper in reserve which in turn restricts supplies.
6. Scrap copper
Copper can be recycled, so the supply of scrap copper will also impact on availability of stock levels.
7. Price of copper alternatives
In some applications and products other metals such as aluminium, nickel, lead and iron can be substituted for copper.
What are the different ways of investing in copper?
Speculating in copper metal is not really feasible for the ordinary retail investor, primarily because the bulk size of the smallest lot is 25,000 troy pounds or approximately nine tonnes.
Copper can be traded through the common trading platforms such as options, futures, and spread betting or alternatively by investing in Exchange-Traded Funds (EFTs) that specialise in copper and similar commodities.
However, it is more common for investors to consider opportunities in companies that are involved in the copper supply chain or to invest directly in the shares of copper miners and producers.
How is the copper industry regulated?
As is the case for all the metals and mining sector, copper mining is heavily regulated by governments. Regulations cover issues such as ownership, mining practices, mining waste, human rights, sustainability and the environment.
In addition, mining regulations in different countries can vary considerably. For example, regulation in China is much less stringent than in Europe and the US.
Obtaining all the necessary permissions and permits to open a new mine can be costly and time-consuming, sometimes delaying mining projects several years.
Often different governments, planning authorities, and NGOs are involved, and the cost of navigating through the bureaucracy can cost millions of pounds.
An example is the open-pit Rosemont Copper mine in Arizona US which was initially proposed in 2007. Its potential output would make it the third largest copper mine in the US, and it has taken a decade to complete the environmental impact report, yet, over ten years later, the mine is still awaiting approval.
What is the Copper Council?
The Copper Council, which is formally known as the International Wrought Copper Council (IWCC), is a network of organisations involved in copper and copper alloy fabricating industry.
Its goal is to support the industry by providing information resources as well as offering a platform for meetings and networking.
The copper mining process and uses of copper
If you want to learn more about the copper mining process or the most common uses of copper, then please follow the links.
