Prime Meridians: A Journey Along Copper’s New Silk Road

This week in Pierce Points:

E&Ps kept their good credit. A survey of U.S. oil and gas producers shows bank lines have been cut much less than expected.

China hinted at a plan to control Asia’s copper. Officials want to buy concentrate and build smelters along the Silk Road.

Ecuador’s mining sector rebranded itself. The government is offering better tax rates to re-attract up to $1.5 billion in investment.

Two private equity giants dumped their shale holdings. Energy specialists ArcLight and Denham Capital are selling to a Chinese real estate firm.  

A massive coal reserve got new life. Botswana’s stranded deposits will be turned into liquid fuels by a new $4.2 billion project.

A Journey Along Copper’s New Silk Road

Further to the second item above, it’s looking like copper developers need to head to Asia.

This part of the world has been a focus for years now when it comes to copper consumption. But news emerging about China’s plans here suggest the region may become equally important in another aspect of the market.

Copper production.

China’s growing focus on securing copper supplies from the “Silk Road” corridor makes perfect sense. Why not look in your own backyard? It’s the same reason that U.S. mining and exploration firms tend to focus on Mexico, Australian companies specialize in Southeast Asia, and London-based exploration outfits are Africa-savvy.

And the wave of Chinese investment along the Silk Road may signal a major opportunity for those holding the right projects in this region.

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China’s Silk Road economic belt extends west through Central Asia and into eastern Europe.

That’s because the amount of investment here is setting up to be huge. With China already having announced it will spend up to $16 billion on gold supplies from the Silk Road.

If that’s the figure for gold, then it’s a safe bet China’s investments for strategic Silk Road copper supply will run into the tens or even hundreds of billions. A nice purse to be a part of. 

So where will this boom unfold?

Existing production data gives us some ideas on where to start looking.

As the chart below shows, current options are fairly limited when it comes to copper production. China itself dominates the space, followed by Asia-ish Australia.

Pierce Points Mining Investment Exploration Copper

The latter two nations on the chart — Kazakhstan and Indonesia — are interesting. Both having well-established, although very different copper mining sectors.

Indonesia is known for big copper (plus gold) porphyries like Newmont’s Batu Hijau. Here, Chinese developers could go after long-life reserves — although the technical expertise needed to develop such high-throughput projects is a level up from other parts of the world.

Kazakhstan is the other end of the scale. With the bulk of the country’s copper coming from high-grade sediment-hosted deposits in the country’s east-central region (major mines produced an average grade of 2.48% copper ore in 2014). Making this more life Africa’s Copperbelt, in terms of technical development.

The relative technical ease of Kazakhstan’s high-grade copper is likely why China has already been focusing here. With officials this week saying that at least one Chinese copper producer is considering building a smelter in the country — and China Development Bank having previously provided $4.2 billion in credit to major Kazakh miner KAZ Minerals.

(The politics in Kazakstan also help — being a place where China can throw around political clout in order to get preferential access to mining projects.)

Kazakhstan’s eastern region (and bordering areas in northern Kyrgyzstan) also host a number of in-development porphyries — which have large, but lower-grade resources. On the order of billions of tonnes at 0.35% Cu. 

And that porphyry belt extends into another country that could be a major Silk Road target for China: Mongolia.

The Oyu Tolgoi mega-discovery (6.5 billion tonnes total resource, at 0.7% Cu) is proof of Mongolia’s prospectivity. And recently re-commencing exploration here is finding other prospective targets, all of which could command interest from China. 

Beyond that, there aren’t a lot of other options for major copper producing nations along the Silk Road.

But there are some intriguing possibilities when it comes to development projects.

Think Serbia. Where Reservoir Minerals and Freeport-McMoRan have found spectacular drill intercepts like 179 meters grading 10.75% copper (with 10.9 g/t gold) at their Timok project. And there’s almost certainly more to be found in this little-explored nation.

Or Turkey. Where Mariana Resources hit some of the most exciting drill results in years this past January, returning 103 meters at 2.2% copper and 9 g/t gold.

In fact, these Silk Road surprises are some of the best development projects going for copper anywhere in the world. Showing that China may be on to something when it comes to geology in this part of the world, in addition to infrastructure and economics.

Another dark horse (although getting whiter by the day) is Iran. Where world-leading deposits like Sar Cheshmeh are already known — hosting 1.2 billion tonnes at 0.7% Cu.

My own research recently has identified numerous early-stage projects here that show potential for big porphyry resources like this. And unlike most Western firms, China isn’t obliged to wait for a lifting of sanctions before it begins work on such projects — and they’re already active in the mining sector next door in Afghanistan.

Pakistan is another place where China could use political connections to go after big copper resources. Like the Reko Diq deposit, which contains 5.9 billion tonnes at 0.41% copper — but which has gone undeveloped since its owners Barrick Gold and Antofagasta gave it up due to political issues in the country.

And of course, let’s not forget China’s doorstep in Southeast Asia. Chinese conglomerate Norinco has operated the Monywa copper mine in Myanmar since 2011, and is looking to develop the nearby (and massive) Letpadaung deposit. Representing the largest and richest copper deposits on the Asian mainland here.

Oh yes, and there are rich copper skarns in North Korea — a place where China may be the only country with access.

Whichever of these destinations we choose, this is a good time to start getting acquainted with the roadways and the rocks of the emerging Silk Road corridor. By the looks of things, investment along this “highway of the future” will be a major trend in mining and exploration over the next decade.

Here’s to the red metal road,

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Dave Forest

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