Geology and Risk Hinder New Copper Supplies

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"There's no 'peak copper' theory, but the easy-to-get stuff is gone."

It will take more time and lots more money to bring new copper supply online, as miners venture into more challenging geographies and geologies to meet soaring demand.

Passion for the red metal has surged on rapid urbanization in China, India and Brazil. This thirst coupled with worldwide project delays sent LME copper prices soaring 260% over two years to a record high of $10,190/ton in February.

Rising copper brings rising profits, prompting everyone from junior explorers to diversified giants to spend increasing amounts of cash in search of the next mother lode.

". . .today, we're well above the incentive price to bring on new supply," said BMO Capital Markets Analyst David Radclyffe.

The first new wave of copper projects and expansions is set to roll out over the next two to three years, with more than 60% of this supply coming from Latin America.

While the copper price has dipped 7% so far this year, and is expected to fall further as big Chinese stockpiles soften short-term demand, analysts say there is still enough of a shortfall to make challenging projects worthwhile.

"At the end of the day, we're still short copper assets," said Radclyffe. "The companies are spending a lot more on exploration this year and hopefully that does lead to some more discoveries."

The biggest challenge for the sector is not that there is no copper left, but that all the "good" stuff is gone.

"There's no 'peak copper' theory," said Fidelity Investment Canada Portfolio Manager Darrel Lekkerkerker. "The problem is the easy-to-get stuff, we've already got."

Lekkerkerker, who comanages a resource fund with copper equity investments, said producers need to either take a second look at challenging, high-cost projects or start exploring in countries that may be less politically stable.

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