Due to its high use in construction, infrastructure and industrial equipment, copper demand is seen as an indicator for the health of the global economy. We had the chance to speak to Jacky Chan, Vice Chairman, Hong Kong Mining Investment Professionals about China’s current demand for copper and crucial success factors for copper exploration and development projects in Asia.
IMM Events: What economic factors currently have the biggest influence on the Asian copper market?
Jacky Chan: The Chinese economy. The industrialization and urbanization of China have driven rapid growth in copper demand. In recent years, China has been the top consumer and accounts for around 40% of global copper consumption. The economic situation in China will affect the Asian copper market directly. Even with the current slowdown in the growth of the Chinese economy, we are still talking about growth rate of more than 7% GDP each year.
IMM Events: In which industries and emerging markets do you see the biggest demand for copper in the near future and why?
Jacky Chan: The physical properties of copper determine that it can be processed into plate, strip, foil, tubes, rods, and lines and more widely applied in electricity, electronics, household appliances, transportation, and construction industries in the Asian market. In China, investing in Infrastructure will boost the demand of copper. To give an example, the State Grid Corporation of China (SGCC) is currently investing a lot of capital in its distribution network in the period from 2011 to 2015. At the same time, the government plans to spend over 10, 000 billion RMB (about AU$1662 billion) on new housing. There are also some policy initiatives in place that to increase the penetration of electronic household appliances in rural areas. The development of the motor industry will also bring a surging demand of copper.
IMM Events: Building new copper mines can be a very difficult and challenging enterprise. In your experience, what are the key success factors for a copper exploration project?
Jacky Chan: In my opinion, there are four factors that have a major impact on the success of emerging copper project.
Number one is the availability of sufficient capital. Recently, it has been quite hard to raise funds to develop mineral projects, in particular at the exploration stage. Most potential bigger copper projects are subsurface and buried targets; we need deeper drilling to define the resources. That means more funds are required for the exploration phase.
The second most crucial factor is political stability in the project region. Particularly in developing countries, it is vital to develop good relationship with, and an understanding of the political particularities of the local government and central government in your project area. “Nationalism” on mineral resources seems to be quite common. A good example is Oyu Tolgoi in Mongolia. Rio Tinto and the Mongolian government have been debating for years on various issues including the national equity of Mongolian government in the project. Another point in case is the possible ban for exporting semi-metal products in Indonesia. As far as copper is concerned, only finished product such as copper cathode will be allowed to be exported from 2014. All these national policies have a big impact on the projects. Millions of dollars that are invested in the exploration or development of a project may have a possibility to turn to zero; a possible court case or negotiations with the government that could result in significant delay in the development of the project.
Being environmentally and socially sustainable is another key aspect for long-term project success. Companies are spending more human and financial resources on environmental protection and building relationships with stakeholders during the exploration, development and mining stages of mineral projects. Particularly, in the development of a copper porphyry projects, the impacted area is relatively extensive, which means that more communities need to be consulted.
Lastly, successful copper projects require professional feasibility studies with relatively accurate financial forecasts. I have seen, a number of mineral projects fail due to an underestimated forecast and costs at the feasibility stage. Most mineral project investments are international. Changing foreign investment policies can influence the cost of exploration and development of mining projects a lot.
IMM Events: You will be a presenter at the inaugural Asia Copper conference. What debate would you like to have with your industry peers at the conference?
Jacky Chan: With the acquisition of the London Metal Exchange Ltd. (LME) by Hong Kong Exchanges and Clearing Ltd. (HKEx), will the world centre for copper trading shift from London to Hong Kong, or from Europe to Asia in the next decade?