Mine collapses to dent in copper supply
A halt to operations at Grasberg is expected to force up prices, writes Peter Ker.
If the world needed a reminder that mining is a dangerous business, the past few months in the copper sector has provided ample proof.
Three mines have suffered significant wall collapses over the past two months and one of them has proved fatal.
While Rio Tinto and OZ Minerals had the management expertise and good fortune to ensure there were no injuries when their respective mines in Utah and South Australia suffered wall slides, the multinational miner Freeport-McMoRan was not so blessed.
At least 28 lives were lost on May 14 when Freeport's Grasberg mine in Indonesia suffered a tragic tunnel collapse.
Freeport has underground and open pit operations at Grasberg and tried to maintain mine production by switching its focus to the open pit, but tragedy struck again on June 1 when material overflowed from a bin and killed a man in a truck.
The confluence of events sparked action from the Indonesian government, which ordered a halt to all operations at Grasberg until a thorough safety probe is completed.
"Exports mean nothing if there are lots of people dead," said Dede Suhendra, an official from Indonesia's Ministry of Minerals, this week.
The safety inquiry is expected to close all operations at Grasberg for at least three months and, with the mine ranking as the world's second biggest producer of copper, the halt will have an impact on global copper markets in its own right.
When combined with a six-month delay at Rio Tinto's Kennecott mine in Utah, the copper market could miss out on 250,000 tonnes worth of expected copper supply this year.
While that is only a bit more than 1 per cent of global supply, it's likely to be enough to swing the well-balanced copper market from having a small surplus of supply over to a shortage of supply. But UBS commodities analyst Tom Price said there were other recent events that threatened to curb copper supply in the months ahead and duly force up the price.
The Democratic Republic of the Congo has announced plans to ban exports of copper and cobalt as soon as next month or August, in an effort to force miners to build multibillion-dollar smelters and refineries within the nation's borders.
The tactic - designed to stoke jobs and industry in the impoverished African nation - is not a new one and Indonesia is trying to impose a similar one on other commodities.
The ruling is bad news for companies such as ASX-listed Tiger Resources, which has been targeting copper in the DRC over recent years. Tiger shares lost about 30 per cent of their value since the ban was announced in late April.
DRC is Africa's second biggest copper producer behind Zambia and, when you throw in the usual spate of worker strikes in the world's biggest copper producing nation, Chile, the copper market starts to look short of supply in the near term.
"If you add all these up, it's between 2 million to 3 million tonnes of mine supply globally that is at risk and that's about 10 to 15 per cent of global mine supply," Price said.
After joining the broader commodities slump between February and April, the copper price regained more than a third of those losses during May.
"There's some evidence that the market recognises that the CFTC trade was busily going net short and now that's reversing and they are seeing that the trade is tightening," Price said.
"It is certainly the most appealing of the base metals group; aluminium, nickel, zinc and lead look really oversupplied but copper is the stand out."
Rio Tinto's Oyu Tolgoi is supposed to make its commercial sales debut this month, however strained relations with the Mongolian government have complicated that process.
Originally expected to become the third biggest copper mine on Earth (behind Grasberg and Escondida in Chile), the future for Oyu Tolgoi is starting to look more humble, after Rio downscaled its second stage in a bid to calm the Mongolian government's concerns about soaring costs.
Longer term, copper is favoured by many, with several banks naming it alongside tin as the commodity with the best investment outlook.