$4 before christmas, page-3

this sort of thing is much more interesting

The world’s largest miners have been working hard just to stand still. BHP Billiton and Codelco, the Chilean giant, produced a record amount 1.735 million tonnes of copper last year but it was only 2.6 per cent higher than the previous year and is expected to fall slightly this year. Rio Tinto, which both saw production fall in 2011, are spending $US4.5 billion to upgrade Escondida by 2015. Lifting production to 1.3 million tonnes of copper a year will be a leap up from last year’s low of 820,000 tonnes, but output will remain below peak historical levels?despite the capital injection.

New copper projects are tougher to build than in the past, and in many cases will require bulk underground mining methods that add to the upfront capital cost.

With Olympic Dam, the need to spend six years and $6 billion or so removing the overburden covering the deposit makes an investment decision particularly challenging.

Lower grades are also a factor, with Citigroup data showing the average open pit mine now has a grade of 0.71 per cent copper while the underground average is 1.16 per cent. Many of the new projects have even lower grades, with Quebrada Blanca at 0.43 per cent.

All major miners are re-examining their project portfolios and it appears clear fewer copper projects will get the go-ahead in the next year than had been planned.

That will continue the string of supply disappointments in the market. Xstrata estimates production has been falling short of expectations by around 1 million tonnes a year since 2006.

The silver lining is that will benefit the incumbents in the form of continued strong prices. The copper price is unlikely to ever dip below the $US1 a pound levels seen a decade ago, because production costs have since doubled. The bigger question is whether it can remain at the $US3 a pound-plus price needed to incentivise new production.