New mines needed to meet demands of clean energy revolution
By: Jason Smith
Majors actively looking for projects in mining-friendly locales
Copper prices spiked almost 30 per cent in 2017 as a result of a strengthening global economy, demand from developing countries in Asia, and explosive growth in the sales of electric vehicles (“EVs”).
Three-month contracts on copper are trading around US$6,900 per tonne. According to a recent Reuters report, Pan Pacific Copper — the biggest copper smelter in Japan — predicts copper prices will rise to US$7,280 a tonne in 2018 and US$7,720 a tonne in 2019.
Analysts expect continued infrastructure growth in Asia and increased demand from the Clean Energy Revolution to stoke the demand side of the equation for copper.
A big driver from the clean energy side is the copper-intensive nature of EVs, which require up to three times the copper of vehicles powered by fossil fuels.
Meanwhile, the industry is struggling to find large deposits of copper that it can cost-effectively bring online. Combined with demand pressures, supply constraints are also pushing copper prices higher.
In the current environment, mining majors looking to grow their reserve bases are investing in exploration companies with projects in mining-friendly jurisdictions. A good example is the 35 per cent stake mining giant Teck owns in Deep-South Resources Inc. (TSX.V: DSM), which is advancing a world-class copper deposit in Namibia.
One of Africa’s Most Mining-Friendly Countries
Located near Namibia’s southern border with South Africa, Deep-South’s Haib project lies atop one of the world’s oldest porphyry deposits.
According to the International Copper Study Group, around 60 per cent of the world’s active copper mines are porphyry deposits, which tend to host large, widely disseminated copper resources.
Haib is a good example of the deposit type. It hosts over five billion pounds of copper.
According to a recently disclosed NI 43-101 report on the project, Haib has an indicated resource of 457 million tonnes grading 0.31 per cent copper and an inferred resource of 342 million tonnes grading 0.29 per cent copper. This world-class size convinced Teck to take a large stake in Deep-South, but another factor was Namibia.
Deep-South President and CEO Pierre Léveillé noted, “The IMF typically ranks Namibia second or third in terms of countries to do business with in Africa. It’s stable and has partially modelled its mining law on Commonwealth countries mining laws.”
Given the long lead times required to build copper mines, majors like Teck prefer to operate in economically stable countries that are willing to work with miners to get projects into production. Namibia definitely meets both these criteria.
Haib has Solid Economics
Beyond the advantages of its location, the Haib deposit has compelling economics.
According to a recent preliminary economic assessment published by Deep-South, an 8.5-million tonne-per-annum (“Mtpa”) copper mine at Haib would generate a 23 per cent post-tax IRR and C$578.9 million in net present value (“NPV”), discounted at 7.5 per cent.
This prior estimate assumes a long-term copper price of US$3.00/lb. At US$3.60/lb., Haib’s post-tax IRR increases to 29.1 per cent and its NPV at 7.5 per cent jumps to C$839.1 million. Estimates for both prices assume a copper cut-off grade of 0.25 per cent.
At the 8.5 Mtpa operating rate, the project would produce 47 million pounds of copper per year over a mine life of 55 years. The estimated post-tax payback period varies from 5.7 years (at US$3.00 copper) to 4.4 years (at US$3.60 copper).
A key to achieving profitability at the US$3.00 or above level is the application of a bio-reactor (i.e., bacteria) to the heap-leap operation envisioned at Haib.
Léveillé explained, “Bio-reactors are simply specific bacterias added to the leaching sulphuric acid. The bacteria convert sulphide to oxide, which are leaching a lot faster and reduce the reaction time by four to eight times. This method results in lower capital expenditures and operating expenditures and makes the project economic.”
Paths to Improved Profitability
Deep-South is also looking at other ways to improve Haib’s profitability. The most promising method involves scaling up production from 8.5 Mtpa to 20 Mtpa. Economies of scale kick in at these higher production rates, lowering the cost-per-tonne of treating the ore.
“Our current plan allows for multiple expansion stages,” says Léveillé. “We can start at 8.5 Mtpa and then increase the tonnage after two or three years. Increasing more of Haib’s inferred resource to the indicated level will help.”
Solar power offers another avenue for improved economics at Haib. Namibia has a semi-arid climate and gets around 320 days of sun. It’s a climate that opens the possibility of supporting the power needs of a mine at Haib with an on-site solar grid. “Power is always a big cost of operation and using solar is a way to potentially reduce that cost,” Léveillé notes.
A third money saver would be to build an acid-burning plant on-site for the heap leach operation. Doing so would reduce the cost of transporting leaching solution, which is often a substantial cost for mines like Haib.
Deep-South Resources’ (TSXV: DSM) next step is to generate a prefeasibility study on the project. That work will include testing the heap leach process with bio-reactors and testing the use of a sorting system with crushers.
The company will also need to conduct infill drilling on the deposit to increase the known resource level to reserves. That work will also help it to define high-grade zones that can help with future mine management.
And, as big as Haib already is, the resource could grow substantially. Drilling may also test other promising areas of mineralization, as the deposit remains open at surface and underground.
Work on these programs should generate news from this Namibian copper project well into 2019.