I’ve been thinking about the price of copper lately and its affect on the calculation of NPV. In a previous post some months ago, I calculated that a $0.25 increase in copper price per pound can easily add $0.5B or so to a NPV model.A higher copper price improves the economics of a project and makes lower grades more feasible for resource extraction.
Long-term copper prices from recent 43-101 mineral resource estimates have been trending upwards. Here is a sample set:
Copper Creek Project, Arizona
Faraday Copper Corp. - July 6, 2022
$3.80 / lb. Cu
Punitaqui Copper Mining Complex, Chile
Battery Mineral Resources Corp. - August 16, 2022
$3.50 / lb. Cu
Cactus Mine Project, Arizona
Parks/Salyer Resource estimate – September 26, 2022
$3.75 / lb. Cu
NorthMet Copper-Nickel Project, Minnesota
PolyMet Mining Corp. - December 30, 2022
$3.66 / lb. Cu
Carmacks Copper-Gold Project, Yukon
Granite Creek Copper Ltd. - January 19, 2023
$3.75 / lb. Cu (base case)
$4.25 / lb. Cu (case 1)
Florence Copper Project, Arizona
Taseko Mines Ltd. - March 30, 2023
$3.75 / lb. Cu
Constancia and Pampacancha, Peru
Hudbay Minerals Inc. - March 31, 2023
$3.60 / lb. Cu
Marathon Palladium-Copper Project, Ontario
Generation Mining Ltd. - March 31, 2023
$3.70 / lb. Cu
The industry has traditionally used a commodity price trailing average when pricing mining projects. However, the U.S. Securities & Exchange Commission (SEC) does not require that. The SEC simply requires that projects, “...use a price for each commodity that provides a reasonable basis for establishing the prospects of economic extraction when assessing mineral resources...” [See Federal Register / Vol. 83, No. 246 / Wednesday, December 26, 2018 with Final Rule effective date of February 25, 2019].
Historical data shows us that over the past 50 years, the price of copper has appreciated by 678%, or 14% on an average annual basis. That’s not quite as good Bernie Madoff’s returns. He reported 27% annually (but relied upon accounting chicanery).
https://www.macrotrends.net/1476/copper-prices-historical-chart-data
The macro trends chart reveals a long-term positive trend slope, interrupted by various recessions and a superior run-up in pricing over the 2003-2006 period exceeding 14% for that discrete interval.
The average grade of copper remaining reserves has been steadily trending downward over the past 40 years as noted in The Problems with Copper Supply (Goehring & Rozencwajg 2021). The industry has been able to add to their reserves by lowering cut-off grades. There is a numerical limit to this however. One cannot lower the cut-off grade to below zero.
Copper could be at the start of another superior run-up in pricing, akin to the 2003-2006 period, due to both the grade issue as well as the robust industry demand for the red metal across industry sectors. Regardless, the historical data is informative as to what we can expect as the pricing slope trends upward over the long-run at a 14% clip. This could be factored into a pricing model.
Copper closed on Friday at $9,030 / ton ($4.10 / pound).