Copper: An Insider's Perspective (Part II)
Do you see a similar situation? Why?
Juan Villarzu: I
agree with John Mackenzie. Copper consumption is expected to grow at a minimum
of 5.5% per annum during the next three to five years, which means that in
order to satisfy demand at the current stocks levels and scrap availability,
production would have to increase at an annual rate of 900,000 tons of fine
copper.
If you were to take into account the effect of declining ore grades in the existing mines, the need for new production would be 1,000,000 tons. In the best of the scenarios, mine production is expected to increase at an annual rate of 800,000 tons of fine copper.
The excess demand would be cleared through a combination of
lower stocks and higher prices.
Andrew Mickey: What would you define as a “high-quality project” in the copper world? Also, what size is kind of needed to go from development to mining?
What are some of the
things you look at, or maybe what attracted you to Apoquindo Minerals, that
shows a project has “real mine” potential and higher odds of success? Is it
size, grade, location or something else?
Juan Villarzu: The most important factors to consider when evaluating a mining opportunity are: the amount and quality of the resources contained in the deposit or the area to be exploited; the location; the availability of skilled labor and supervisors; the Capex, regulations, and business climate prevailing in the country where the resources are.
For example, to develop and build a copper mine in the north
of Chile should be a profitable and satisfying experience. There you would be
in the neighborhood of the largest copper mines in the world, with access to
excellent infrastructure, close to ports, low risk of community interferences,
low environmental requirements (desert), mining culture and a favorable
business climate.
In mining, size matters and explains why major companies usually look at deposits of 400 million tons of mineral containing 0.5% or more copper. Medium and small producers tend to look at smaller deposits of higher grades, which can be quickly put into production to take advantage of favorable market conditions.
Andrew Mickey: You
have worked for years in South America and all over the world. What has
attracted you to South America now?
Juan Villarzu: If you are in the copper business, Latin America is by no doubt the best place to work or invest, in particular Chile and Perú. Mexico is also becoming a very attractive place to get into mining. This together with the possibility of working with very qualified, experienced and agreeable people were the reasons that attracted my interest and triggered the decision to join Apoquindo Minerals Inc.
Andrew Mickey: We all
know the mining industry has some of the longest lead times in the world. In
the face of rising copper prices, how fast can the supply side really respond?
Do you see any lasting impacts from the credit crunch of 2008? We know a lot of mines were placed on “care and maintenance” or shut down completely. How long does it take to bring a mine back into production if it was shut down for less than a year or so? Also, are there any impacts from the credit crunch most folks not in the mining industry probably just don’t see?
Juan Villarzu: I
do no think that the credit crunch of 2008 had a major impact on the industry.
Marginal operations are certainly back in operation but supply response has been slow mainly because the leading players of the industry failed to anticipate the major structural changes produced by the transformation of China in an open market economy. It took them a long time to become convinced that China could sustain high rates of growth for a long period of time.
The best example is their decisions to put on hold
investment for expansions, new projects and exploration when the price
plummeted after having been at over US$ 4 per pound. After a short lapse, the
price recovered rapidly and surpassed the US$ 3 per pound level. Fortunately,
as of now the industry is moving at full speed but it will take some time to
deliver 1,000,000 tons of fine copper per year.
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