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Outlook for global copper: Interview with Nolan Peterson, CEO of World Copper Ltd.

01 March 2022 Kevin Adler

With degrees in finance and metallurgy, Nolan Peterson sees himself as a member of a new generation of Canadian mining executives who understands a balance sheet as well as an assay report. Having grown up above the Arctic Circle in the small, mostly Inuit community of Cambridge Bay, he's seen the financial benefits that mining can deliver, but also the risk to the environment from extractive activity.

Peterson hopes to bring all of those experiences together as CEO of World Copper Ltd., a 2019 startup that went public in January 2021, and which owns assets in Chile and Arizona. In this Q&A with Net-Zero Business Daily by S&P Global Commodities Insights, he discusses the potential for doubling of global copper demand by 2050, due to its use in electricity infrastructure, batteries, and electric vehicles (EVs). And he explains how World Copper plans to produce a low-carbon, low-impact product that will be at the forefront of the copper industry's emerging environmental, social, and governance performance.

Net-Zero Business Daily: Why is this a good time to start a copper company?

Peterson: Three years ago … we saw the way copper was heading due to supply and demand issues across the entire world, and we realized it was a prime time to get into copper. We [Chairman Hank van Alphen and others] said let's identify some undervalued assets …

In the mining space, you have to anticipate trends five to 10 years out. It's a cyclical business, where prices go up and down fairly predictably if there is no structural change in the commodity cycle. Supply comes on in big "slugs" when new mines open, and prices fall. Then demand catches up. It's a cycle. We could see how the major mining companies in the late teens were in cash preservation mode because commodity prices were low. They stopped developing assets. We saw buying opportunities, such as our flagship Escalones copper oxide mine in northern Chile.

Now with COVID [receding] and a steady increase in demand for copper, we also have the structural change of electrical demand and EVs that's going to kick it up a notch, leading to what some analysts are calling a "super cycle." But there's very little new supply coming on after 2023.

Net-Zero Business Daily: What do you mean there's very little new supply after 2023?

Peterson: This year analysts are expecting a few mines to come online that will add 3-4% to global production, and some others in 2023 for a small increase. But after that, the outlook for major projects is thin, although there may be some small ones and expansions along the way. There's nothing major for the foreseeable future. To find the ore, and do the engineering and permitting can take five or 10 years. That's why the industry has painted itself into a corner—and why we think it's good opportunity to start a company. We think we can [get started] quicker than others, but still it's a five-year time frame at least.

It's becoming harder to find good deposits that are … economic to advance, and grades of ore [the concentration of the copper] are dropping from mines in existence now. In the last 30 years, the average copper head grade has dropped by nearly 50%; that means it's effectively costing twice as much to process, twice as much to move the materials, to mine it, and twice the people, power supply, water—all that to produce the same amount of copper as 30 years ago.

Net-Zero Business Daily: You mentioned structural change in the demand profile. Can you say more?

Peterson: Copper demand could double by 2050 to 130 billion lb per year. Electrification is increasing around the world, especially in China and India. And the renewable power industry is growing faster; the generators at wind and solar facilities use a lot of copper. [In an investor presentation in February, World Copper Ltd. calculated—using the International Energy Agency's estimates of copper per unit of energy output from wind and solar installations—that annual demand for copper from those sectors will rise from 2.4 billion lb in 2020 to more than 7 billion lb in 2050.]

People understand that growth, but that's not the biggest impact. Conducting electricity is where you get 75% of the demand for copper. When you think about power generation and power users, what's in between is the distribution. It's metal that is used to get electricity from the source to its use. There is no other element that can replace copper at the scale and usage level needed. Gold and silver are heavier and can't be used at industrial scale. Aluminum can be used on an industrial scale, but it has about 40% lower conductivity and starts to overheat, so you have to use more of it, which can offset its weight advantage.

In EVs, we see growth too. They use four times as much copper as an internal combustion engine, 183 lb per car on average. It's in the motor and electrical systems. In 20 years, we could need 44 billion lb of copper just for EVs. And every EV charging station has to get power from the grid to the chargers and capacitors.

Net-Zero Business Daily: Those are huge increases over the long term. Are you looking at global deficits in copper in 2025 or 2030?

Peterson: It's tight right now. At the London Metal Exchange [one of the world's key copper trading markets] … the amount copper in the warehouses available for spot purchase was only about three days of supply in mid-February. With a massively used commodity like copper, you'd think you'd have at least a month. We're on a knife's edge. And it's been this way for the last two years.

The Escondida mine, owned by BHP in Chile, is the world's largest copper mine, and it produces about 5% of the world's copper. The miners threatened a strike in July 2021, and the price of copper went up 10% in a week, from about $4/lb to $4.40/lb. That's about where we are now, even though the conflict has been resolved.

In an economic assessment we published this year, we cite estimates of a global copper deficit of 12.5 billion lb/year by 2030 (about 30% of demand). Prices could be $6.80/lb in 2025.

I know from my experience that large mining projects don't usually come online on time, so if the ones for 2022 and 2023 are delayed … supply will be a step behind while demand continues to grow inexorably.

Net-Zero Business Daily: Your potential mines are listed as copper oxide operations. What's the difference between that and a copper sulfide operation?

Peterson: About 70% of the world's production is from copper sulfide ore that's found often a few hundred meters below the surface of the Earth and extending in many cases deep into the earth's crust. Many sulfide deposits have a cap of copper oxide material that is the result of thousands to millions of years of oxidative activity. The processing of the copper sulfides takes several steps, such as flotation, concentrating the ore, transportation off site, smelting, and electrolysis. You start with material that is 1% copper or less … and you create a concentrate that's 30% copper. You dry it as best as you can, put it on a truck or train, and send it to a port facility, and mostly it's shipped to China and South Korea for smelting, usually with fossil fuels. Conveniently, this hides the pollution of those last steps offshore.

The world has a lot of smelting capacity. In fact, that's why China is buying mines, so it can secure a supply of concentrate to keep its smelters operating and people employed.

The other 30% of production is copper oxide, which is much simpler to mine, uses less equipment, less energy, and has a lower environmental impact. It takes less capital to get a mine started and provides a higher margin for operators. Copper oxide is found near the surface, usually in thinner layers than the deeper sulfide layers. Instead of floating it, you stack it on leach pads, spray it with a sulfuric acid solution, and then you use a process called solvent extraction and electrolysis to produce 99.9% pure copper right at the gate of your mine. That's what our projects are going to do.

Net-Zero Business Daily: Tell us about the Chile copper oxide project.

Peterson: Before we took over the Escalones project in Chile, it [was projected to mine] copper sulfide and process it using sulfide flotation. We studied it, and we found it's more economic to go after the oxides, as well as being cleaner. And we expect it will be easier for getting the new mine approved because the environmental footprint is smaller; we don't need a giant impoundment area for the waste from flotation, for example. Also, we wouldn't need a site that's as large, and the entire process to create copper doesn't need as much energy.

At Escalones, we happen to have largest copper oxide mine in exploration and development in Chile. People didn't realize how thick the oxide is and how much value it contains. Our economic analysis estimates an internal rate of return of 46.2% with copper at $3.60/lb, and a net present value of over $1 billion. The previous holders of the property did an economic profile for copper sulfide mining, over 200 different scenarios, and the best they got was an unpublished scoping study with worse economics.

Net-Zero Business Daily: Water is an issue in Chile. What's your solution?

Peterson: Water is certainly of critical importance in Chile and answering that question is often one of the most important ones for a new project. Keep in mind that copper oxide processing uses about one-fourth the water of copper sulfide processing. We have two possible solutions that have already emerged at this time and that we are exploring. These options may include a desalinization facility on the coast feeding the mine from a 200-km pipeline from which we may be able to secure usage rights. It's very true, though, that some mines have not been able to secure water in Chile, so I'm quite pleased with the options we're seeing even at such an early stage of development.

Net-Zero Business Daily: Is power an issue at Escalones?

Peterson: No. There are power lines down the road that we can tie into. It's a well-established infrastructure location.

Net-Zero Business Daily: How about the Arizona project?

Peterson: The Zonia Copper Oxide Project is on private land, we own it. That can speed up the permitting. We have access to groundwater onsite, there's good infrastructure in the area, and Arizona is very supportive of mining. Zonia has had a lot of exploration done on it.

Also, we think the mine ties in very well with political sentiment in the US around building energy infrastructure, [that is] made in America. Copper is important for the global economy—it's becoming strategic commodity like oil—and the US would want to secure its own source.

Net Zero Business Daily: It seems that lower-impact mining is the way forward for the industry.

Peterson: I don't know how successful a new mine can be [without] greener technology. There's a new mine coming online in Mongolia, a deep mine, at a cost of $7.5 billion. You just can't get around the environmental impact when you are operating on a scale like that. You can't really say you're going to try to use cleaner and greener technology, if you're making copper concentrate that has to be smelted … it's very difficult.

In five or 10 years, it's not going to be enough to say we contribute to the production of copper; you're going to have to make it as clean as possible.

Posted 01 March 2022 by Kevin Adler, Chief Editor

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