RBC Capital Markets’ Sam Crittenden Anticipates Copper Price Surge Amid Projected 10Mt Deficit by 2035

June 20, 2023

RBC Capital Markets

by James Hyland, MiningIR
  • Copper prices are projected by RBC Capital Markets to increase from the current rate of US$3.82/lb to US$4.50/lb between 2025 and 2027.
  • To address an anticipated deficit of 10 million metric tons (Mt) by 2035, it would require an investment of US$200 billion to construct the necessary mines.
  • When copper is priced at US$4.50/lb, miners will enjoy a higher free cash flow (FCF) yield compared to any sector in the S&P 500, except for the energy sector.

RBC Capital Markets forecasts a deficit of 10 million metric tons (Mt) by 2035, which is equivalent to more than a third of the current market. If this funding is not allocated, the minimum internal rate of return (IRR) of 15% required to justify mining investments would not be met unless copper prices exceed US$4 per pound.

Which can drive higher copper prices, but there is a sweet spot

According to RBC Capital Markets analyst Sam Crittenden, copper prices are expected to increase from the current rate of US$3.82/lb to US$4.50/lb between 2025 and 2027. However, in order to prevent a significant copper deficit caused by rising demand from the energy transition, miners will need to secure over US$200 billion within the next ten years.

The current price of copper stands at only US$3.82/lb due to the underperformance of China’s post-Covid economy, failing to meet market expectations at the beginning of 2023. Consequently, this may discourage investments in copper supply at a time when demand is projected to grow at a rate significantly higher than historical norms.

RBC Capital Markets, Sam Crittenden said, “You have probably heard by now that the energy transition will require a lot of copper. An additional 1%/year on our estimates which doesn’t sound like much but would be the equivalent of one large-scale copper mine coming online every year,” analysts led by Sam Crittenden said in a note this week.

“We can debate demand projections, but it’s always been a supply story with an aging supply base, declining grades, and quality projects becoming more scarce and harder to build for ESG reasons.”

“We think this potential supply deficit is filled partially by increased scrap and substitution/thrifting of copper but largely through a supply response from the copper mining industry which likely requires a period of high copper prices,” Crittenden and Co. said.

RBC Capital Markets, Sam Crittenden

RBC suggests that copper consumption has been increasing by an average of 2.5% per annum over the past four decades. However, it is anticipated to ramp up to 2.8% per annum due to additional demand from electric vehicles (EVs), renewable energy, and the expansion of the global electrical grid.

Currently, copper mines generate a free cash flow (FCF) yield of less than 4%, which is below the S&P 500 average. If copper prices remain at US$3.50/lb, the FCF yield drops to less than 2%, surpassing only negative-yielding utilities. However, if copper prices rise to US$4.50/lb, the FCF yield increases to 8%, approximately double the S&P 500 average, trailing only the energy sector.

“There are only a handful of companies with the type of scale that would be of interest to the large global miners; however, we could see more consolidation in the mid and small-cap space,” RBC reckons.

RBC Capital Markets, Sam Crittenden

A significant challenge lies in the scarcity of high-quality copper projects available. Consequently, mergers and acquisitions (M&A) activity is likely to persist in the industry. Recent examples include BHP’s (ASX:BHP) $9.6 billion acquisition of OZ Minerals, Rio Tinto’s (ASX:RIO) minority buyout of Turquoise Hill and its stake in Oyu Tolgoi, Glencore’s hostile bidding for Canada’s Teck, and project-level purchases like Sandfire’s (ASX:SFR) acquisition of MATSA and South32’s (ASX:S32) purchase of a 45% stake in the Sierra Gorda mine in Chile.

At the large-cap level, RBC identifies First Quantum Minerals, Lundin Mining, and Ivanhoe Mines as potential targets for takeover. Additionally, RBC highlights the outperformance of various international copper juniors, including Filo Mining and Arizona Sonoran backed by BHP and Rio, Solaris Resources focused on Ecuador, and oxide explorer Marimaca Copper.

Source: Imagining where the copper will come from – RBC Capital Markets

Elon Musk has made bold claims that there will be enough copper for Tesla’s EVs, despite concerns that the metal-intensive nature of the technology will necessitate a substantial increase in mining to meet the order volumes of major original equipment manufacturers (OEMs). RBC acknowledges the possibility of EV designs becoming less copper-intensive but notes that they are still more reliant on copper compared to internal combustion engine vehicles. RBC estimates that the 70kg of copper in first-generation BEVs could potentially decrease to 19kg (2.3 times that of ICEs) by the third generation.


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James Hyland, MiningIR