Copper Alert: What does Chile’s production downgrade mean for small caps?

The prospect of higher copper prices is emerging, with Chile’s copper association slashing projections for the country’s 2034 output.

Pic: Getty Images

• The world’s leading copper producer Chile has lopped nearly 1Mt off its anticipated 2034 output

• The revision to 5.54Mt comes with future supply sources to meet rising demand forecasts already looking bleak

• Analysts believe the situation could lead to higher copper prices

Chile’s state copper commission, Cochilco, has sounded the alarm surrounding the nation’s production figures, taking a more cautious stance that could see higher prices for the red metal incentivise small-cap projects in both the short and long term.

The world’s leading copper producer now anticipates output to reach 5.54Mt by 2034, a downgrade from the agency’s 6.43Mt projection made last year.

Blue Ocean Equities senior research analyst Carlos Crowley Vazquez said Cochilco’s adjustment reflects a more realistic assessment of future project contributions, which when combined with lower grade profiles and operational issues at some of its largest mines, will make it hard for supply to keep up with demand.

The dearth of new copper discoveries is a direct result of the industry’s continued focus on brownfield assets with many of the rich, shallow ore bodies already tapped.

Lower grade mines are left for seconds, with BHP analysts Sam Farrell and Laura Whitton last year estimating copper grades had dropped 40% on average around the world since 1991.

That’s despite exploration budgets rising by 12% in 2023, with only four discoveries totalling 4.2Mt of copper made in the past five years (2019-2023).

According to S&P, most of the newly discovered copper has been found in Latin America, accounting for nearly 40% of global mine production with the top three largest discoveries including Collahuasi and the Los Bronces underground in Chile and Cerro Verde in Peru.

Copper market

“If copper supply is lower than demand then absolutely, we will see higher prices,” Crowley Vazquez told Stockhead.

“The current low level of TC/RCs (copper concentrate treatment and refining charges) are not only at decade lows but dropped +70% from last year, which points to a shortage of concentrates.

“Key swing factors include tariffs, lower economic growth and lower decarbonisation with Trump, but I don’t think they are strong enough versus the underlying demand and supply dynamics at present,” he added.

“I expect higher copper prices versus spot at US$4.10/lb and near-term futures at US$4.2/lb, which will ultimately make smaller projects and higher cost assets more attractive, although we would need to see +US$5/lb copper to incentivise larger projects with larger capital requirements.

“And that likely won’t happen in the short term.”

‘Importance of high-quality copper projects’

For junior mining companies, Cochilco’s updated production guidance is good news.

Higher commodity prices generally provide companies with greater potential to raise funds for drilling and exploration activities, creating the perfect setting for a healthy wave of market action including M&A deals, government incentive schemes and strategic partnerships/joint ventures.

QMines (ASX:QML) is building scale by exploring both the company’s newly acquired Develin Creek asset and its nearby Mt Chalmers project, which it hopes can become Australia’s next copper-gold producer.

QML managing director Anderew Sparkes told Stockhead that Chile’s decision to lower its copper production guidance is a positive development as it emphasises the importance of new, high-quality copper projects in stable jurisdictions like Australia.

“With Chile contributing a significant portion of global copper production, any reduction highlights the need for new entrants like QMines to fill this emerging supply gap,” he said.

“It enhances the attractiveness of QMines to investors and partners, as our Mt Chalmers and Develin Creek projects are well-positioned to benefit from higher demand and reduced competition.

“For instance, every $500/tonne increase in copper prices can significantly enhance revenue projections, increasing overall project value and potential returns for our shareholders."

The Develin Creek project currently holds a 3.2Mt at 1.61% CuEq resource, serving as a satellite to the main 11.3Mt at 0.75% Cu, 0.42g/t Au, 0.23% Zn and 4.6% Ag resource at Mt Chalmers.

That resource was the subject of an attractive pre-feasibility study, which outlined a decade-plus mine development with cashflow of $636m to power a respective NPV and IRR of $373m and 54%.

Junior copper projects on the ramp up

Antares Metals (ASX:AM5)intends to use modern exploration methods to progress its 2003km2 Mt Isa copper-uranium project in northwest QLD to a maiden resource estimate this year.

Maiden resource estimates are a big deal for any budding resources company as no meaningful development can take place before a resource has been established.

A 1500m RC drilling campaign kicked off last year to validate and extend existing mineralisation at the Surprise prospect, where historical drilling intercepts have returned 23.8m at 4.67% copper from 51.2m including 12.8m at 7.77% copper from 62.2m.

High-grade intervals of up to 12% copper were returned in pXRF review of drill chips as geophysical surveys got underway to identify buried targets for future drilling programs.

South Australian copper play Hillgrove Resources (ASX:HGO) recently announced copper production from its Kanmantoo mine came in during the December quarter at 2637t at an all in cost of US$3.97/lb and all in sustaining cost of US$3.60/lb.

That came alongside high-grade results from underground grade control diamond drilling of 18.55m at 5.69% copper and 1.02g/t gold uncut from 187m and 16m at 2.96% copper, 0.42g/t gold 197m downhole at the Nugent area.

HGO has set 2025 guidance of 12,000-14,000t at an all in cost of US$3.40-3.90/lb.

Operations are still in the process of ramping up, but HGO managing director Bob Fulker has previously said no there are still many opportunities to improve production rates and reduce costs as the company moves closer to steady state production.

Last year, Cannindah Resources (ASX:CAE) confirmed that Chilean copper beast Codelco was conducting due diligence over its Mt Cannindah project in Queensland.

If a deal eventuates, it would mark Codelco’s entry into Australia.

After releasing an updated mineral resource of 14.5Mt at 1.09% copper equivalent at the flagship Mount Cannindah asset, drilling operations kicked off to expand resources further.

White Cliff Minerals (ASX:WCN) ) has received remaining permits and approvals required to start drilling activities at the Rae copper project in Nunavut, Canada.

The move comes hot on the heels of approval inroads which were made over the Christmas period, with a positive screening decision provided by the Nunavut Impact Review Board and the subsequent issue of our Class A Land Use Permit from CIRNAC.

A maiden drilling campaign will now follow up high priority targets that were generated during the successful field campaign during 2024, where copper rock chips returned remarkable assay results exceeding 60%.

“This is a significant milestone," WCN managing director Troy Whittaker said.

“Over the coming weeks, we aim to finalise contractor selection and settle plans for priority target holes."

At Stockhead we tell it like it is. While QMines, Antares Metals, Hillgrove Resources, Cannindah Resources and White Cliff Minerals are Stockhead advertisers, they did not sponsor this article.