Challenges in copper exploration

Global mine production of copper is dominated by large operations – indeed, the 14 largest mines account for 40 per cent of world production.
And production is geographically concentrated – in the Andes of Chile and Peru; in the western United States; and in the southwest Pacific.
The importance of these copper provinces – for sustaining major open-pit operations and for meeting growth in global demand – cannot be under-estimated. But can these provinces continue to bear demand growth into the future?
Since the middle nineties, there has been a fall in the years of copper production that existing major mines can support. What this means is that as demand continues to grow, these operations are mining reserves faster than they are being replaced.
We are also seeing the beginning of a decline in average mined copper grade. What I suspect this observation is telling us is that supergene-enrichment blankets – so important at the US and Andean operations – are starting to show signs of depletion. Stripping of these blankets will eventually expose sub-economic underlying mineralisation.
These observations from existing operations provide an early warning to us that the long-term price of copper, the incentive price to mine a particular style and quality of resource, will eventually have to rise unless new surface deposits are found of comparable size and quality. Alternatively, we have to make technical breakthroughs to produce cheaper copper from lower-grade mineralisation. New finds of comparable quality are however diminishing. The simple fact is that the industry as a whole is spending more on copper exploration than before and is delivering fewer resources. But why should this be the case?
What it reflects I think is that exploration spending has been focused in the established copper provinces – which are now explorationally mature and where good new opportunities are rare.
A second dimension to the issue is that we are using the current copper price, along with conventional mining and processing, to define what constitutes a resource. And anything inferior to what is currently mined is obviously not going to qualify.
Yet any future rise in the long-run copper price – or a breakthrough in mining and processing technology – could lead to rapid conversion of lower-grade surface deposits into brand new copper resources. So the situation is not as bad as it seems – the world is certainly not running out of copper.
While surface resources are now declining, at least in the established copper provinces where the majority of exploration is done, there is instead an emerging new trend towards finding buried deposits in these areas.
While these discoveries are still rather rare, they are commonly of high copper grade. And typically they have been found near known surface mineralisation. I’ll talk more about these buried deposits when I discuss brownfield exploration.
So what can we do to improve the rate at which we deliver new copper discoveries?
First we have to focus our effort on deposits that make a difference.
As I’ve already pointed out, global copper production is dominated by giant operations. And these operations are founded upon the world’s largest and highest-quality deposits.
A convenient label to describe such a deposit is a Tier 1 resource. These resources are profitable at all parts of the natural price cycle and deliver sustainable competitive advantage. And their size allows repeated production expansions to accommodate growing world markets.
An important characteristic of Tier 1 deposits is that they tend to be far larger – and therefore far more valuable – than you initially thought at discovery. Indeed, it can take decades for their full potential to be revealed through ongoing exploration.
Another very important observation is that mineral deposits – including the Tier 1 elephants – tend to occur in clusters. So finding a Tier 1 resource can lead us into a whole new mineral district - where some deposits are located at surface while others occur hidden at depth.
Rio Tinto’s global multi-commodity exploration program is entirely focused on delivering Tier 1 resources.
What we can see is that greenfield exploration in emerging countries has delivered more than 60 per cent of our Tier 1 discoveries. Yet our spend for the majority of the period has been heavily weighted towards the OECD.
What this observation tells us is that prospectivity varies with political geography. And the biggest bang for our greenfield spend – for copper or any other commodity – is in under-explored parts of the world. This is where the industry has to go to find new surface copper deposits.
Second, while discovery is easier in the emerging countries, the retention rate of finds is lower. Third, we cannot predict when we’ll make a discovery in a particular commodity. Discovery events are definitely not random but we certainly can’t deliver to order.
Moreover, due to more exhaustive permitting requirements and stakeholder consultation, it is taking longer to develop Tier 1 assets once we’ve actually found them. Diavik took a relatively modest nine years from discovery to first production. The Resolution and La Granja copper projects may take even longer. What this means is that given the uncertainty of discovery and the likely timeline to first production, current copper exploration programs, if successful, will be delivering new copper production 10 years or more from now. So, exploration must be framed with long-term outcomes in mind – using a forward-looking view of the copper market and of the countries that we wish to explore.
Greenfield exploration in emerging countries offers superior discovery potential. However, while the technical risks may be lower, there are normally some pretty good reasons why certain countries remain under-explored.
Resource nationalism, corruption and unstable investment frameworks are real issues in certain countries. Or there may be a history of political instability, insurgency or war. Exploring for copper in these environments – provided it is safe to do so – clearly requires a favourable long-term outlook on a country’s sovereign risk. Yet adverse changes can never be ruled out with the potential to threaten an investment.
And ongoing under-investment in countries like DRC that are fabulously endowed with copper is a stark reflection of risk perceptions. The rates of return required by nervous investors are quite simply beyond most projects.
Turning now to brownfield exploration within the established copper provinces. Brownfield exploration provides the easiest opportunity for creating value through exploration. And the reasons for this are obvious – there is typically highly prospective ground around existing operations and economic thresholds are lower than in a greenfield setting.
And I’d like to use Bingham Canyon as an example, a place where folks have been mining for over a hundred years - 2.5 billion tonnes of porphyry ore have already been mined to yield almost 19 million tonnes of copper, 1.4 million tonnes of molybdenum and 36 million ounces of gold.
Yet even in this sort of environment, we can make major discoveries – in particular of buried deposits. Drilling over the last two years beneath the current open-pit has identified an annular body of molybdenum mineralisation that feeds upwards into the copper ore body. With the deepest hole still in mineralisation at more than 2km depth, we believe this may be one of the world’s most significant molybdenum discoveries of recent years.
And there may be more to come. For the first time, we have managed to image the system beneath the Bingham Canyon ore body. And we now know the ore body continues to depth and connects with other undrilled porphyry targets.
Recognition of the Bingham Canyon district as a potential cluster of porphyry deposits, only one of which is exposed at surface, with hindsight shouldn’t be much of a surprise, given the buried discoveries by our partners at Escondida in Chile, at the Freeport operations in West Papua and in the Oyu Tolgoi district of Mongolia.
What these discoveries tell us is that there is excellent potential for buried deposits around other open-pit porphyry mines. This will be a fertile avenue for copper exploration for at least another generation.
With brownfield discoveries being made at depth in the established copper provinces – and the greenfield potential of emerging countries perhaps not being fully realised – the proportion of production from underground mining is forecast by many to increase.
With underground mines typically much more expensive than open pit operations, this may result in higher average costs across the copper mining industry. This change in the cost of production may in turn support a higher long-term price.
However, innovations in mining and processing could potentially slow the move underground by converting uneconomic low-grade surface copper into viable open-pit ore.
A current example within Rio Tinto is provided by the La Granja copper project, where work by several previous companies had demonstrated that a conventional mining, milling and concentrate-shipping operation was uneconomic due to the relatively low grade of the deposit, its high development cost and the presence of deleterious elements in the ore.
The Rio Tinto pre-feasibility study instead is aimed at recovering copper and zinc metal – using the dump leaching of crushed whole ore and follow-up solvent extraction and electrowinning.
By carefully controlling the chemistry of fluid in the crushed ore, we can potentially dissolve the ore minerals, leave pyrite intact and lock deleterious elements in secondary iron oxides. The main challenge now for the La Granja project is to massively scale-up this leaching process.
And leaching technologies such as this could potentially be applied to the enormous volumes of low-grade copper underlying supergene enrichment blankets. Sparse attention has been paid to these low-grade deposits until this point in time.
All companies regardless of size have introduced cash conservation measures this year and this is an entirely prudent response to the current economic environment. So while access to funds is a current concern for just about everyone in the exploration sector, this is nothing that we haven’t been through before and won’t go through again.
Perhaps a more constructive view of current circumstances looks at the flip-side of the current situation – cheaper access to new opportunities, cheaper goods and services and easier staff retention.
The simple fact is that exploration expenditure varies significantly from year-to-year in response to global economic cycles. Market forces dictate the level of expenditure that the industry is able to justify.
The intrinsically cyclical nature of exploration expenditure means there is no normal or correct level of spending. And the expenditure peaks during economic booms are simply not sustainable.
Previous downturns in exploration spending have had no discernible impact on copper production or price. And given the range of options to accelerate discovery, I think it unlikely that this situation will change.
In summary:
. Open-pittable reserves and resources are falling in the established copper provinces.
. Deeper discoveries are appearing in these areas as we explore around surface deposits.
. Greenfield exploration in under-explored countries offers great potential for new surface discoveries. The full potential of these countries to support major production may be undermined by sovereign risk factors.
. Innovation in mining and processing technology may convert uneconomic surface copper mineralisation into viable open-pit ore.
. Future copper prices will depend on the interplay between greenfield discovery, brownfield discovery and innovation in mining and processing.
. Global copper resources will dramatically expand as either price increase or innovation allows mining of lower-grade mineralisation.