The Exchanges

Q Alright, so let's Let's define that then. How much copper, we'll talk more about how much we will need, but how much copper do we produce today, and where does that production generally take place?

A The general number is that the world consumes roughly 28 to twenty-nine million tons of copper a year. Of those, Something like 5,000,006 million come from recycling or scrap, or, uh, there's, there's a recovery of copper around that, that helps you. But in general, what is produced is going to be about twenty-two million tons of copper per year. That's like the rough figure of copper production in the world, all over the world. The main producer of copper is chile. And I'm Chilean, and we're based in Chile as a company. Um, and Chile produces roughly one-third of the copper. Peru produces another 10% of the copper. Um, and the rest of the Americas, that's US, Canada, Mexico, produce roughly another 10% of the copper. So, the, our continent is, by large, the largest producer of copper.

AI assessment note: “what is produced is going to be about twenty-two million tons of copper per year”

Q Is that a function of just where the resources are? Like, does Chile have the largest known resources for copper, or is it some relic of history that drove Chile to be the largest producer?

A Oh, it's nature. Nature left us a lot of copper as a legacy, uh, same with Peru and Mexico, and also in the U.S. So, U.S. has one of the largest mines in the world in Arizona, Morenci. Um, it is what nature gave us. Um, there are other There are other parts of the world that also have important reserves of copper and have natural resources rich in copper. It is, so it's a function of, yes, nature, but also of political stability and how you access to those minerals. And what's the rule of law that will allow you to make an investment for the next 50 or 60 years? How certain are you that you will be able to make that investment, that investment will still be yours, When it's operating. So it's a function of two things. One is natural resources, and then sort of the political or economical context that will allow you to extract and produce that copper.

AI assessment note: “Oh, it's nature. Nature left us a lot of copper as a legacy”

Q and Peru, and to a lesser extent, the rest of the Americas, who's doing that production? Like, who are the major producers, and how, how, uh, distributed is production amongst different players versus centralized? You know, are there three copper companies in the world, or is it a thousand? Um, and then we'll talk a little bit more about, like, the value chain. What happens after you mine it? Great.

A So the copper industry is, is concentrated in, And some very large players, and those are going to be companies that maybe for a lot of, um, listeners are not very familiar, uh, BHP, uh, Rio Tinto, Freeport McMoran, um, Vale. Those are very large mining companies in the world, and they have significant outputs of copper. The largest producer of copper in the world is, there's a, there's a tie. So last year there was a change in the ranking. Um, it was usually was Codelco, which is a state-owned company, a Chilean state-owned company. Um, Codelco was the largest producer of copper, and last year Freeport Came on top of Codelco for, for a few tons. Uh, but those are two large companies producing copper. And there's, so there's like tier one companies, and they're, um, tier two companies. Tier one companies will produce amounts that are going to be close to a million tons, maybe up to 1.5, or even a little bit more in the case of Codelco BHP.

AI assessment note: “the copper industry is, is concentrated in, And some very large players”

Q do want to talk about the results of these two different processes as it pertains to the value chain and the geography, because we've, we've talked about where copper is mined. We haven't yet talked about where it is refined, which is what these two processes are all about. So how does it differ if you're doing Uh, if you're doing the hydrometallurgical process versus if you're doing concentration flotation?

A Well, that's a great question, and it poses one of the challenges from a geopolitical perspective. So let me go to the end of the value chain. Who consumes the copper in the world first? So roughly China consumes 12 to 15 to thirteen million tons of copper per year. The U.S. around one point into two million tons. And then Germany, Japan, and developed nations consume roughly a million tons per year. Of copper. It doesn't mean that, um, China consumes all the copper and stays in China. It is used to products that then end up in different parts of the world. Um, that's sort of how it ends and the value change. Before that, in terms of production, the hydrometallurgical process allows you to have on-site A process that produces a final cathode of copper of 99.99 nine percent of purity, which is the final product A grade, which is traded in London Metals Exchange. That's sort of the, the, the standard commodity is that contract for copper. The, in the case of the concentrate, Most of the concentration occurs off-site, and roughly 50, between 45, 55% of the, of the smelting capacity in the world, so companies that purchase the concentrate and, and smelt it, are in China. Um, and there has been a lot of discussion around if, Basically, that China, without producing necessarily, a lot of the copper concentrates and has a lot of power, uh, when it comes to the copper market.

AI assessment note: “the hydrometallurgical process allows you to have on-site A process that produces a final cathode”

Q These are industries that are very complex, and, you know, the, the factors that determine success are more than just One simple, pure, how much copper can I get using this process? So maybe at the high level, like, what do you think of just as the checkboxes that you would need to check for a new technology to achieve success within an industry like copper mining or copper refining?

A As you say, it's, it's very similar to energy industry. So just like levelized cost, there's a cash cost consideration. So, uh, and mining companies are divided based on the quartile. They are, they are located for the cash cost. So that's called the C-one in the industry. Um, and that's really, really relevant for two reasons. One is, is how much cash you make, of course, if the prices go up, but also what happens if the prices go down. Uh, and, and mining companies and the CFOs of mining companies are really concerned what happens when the price tanks. Not only, of course, they need to deal with the benefits of high price, but it's really relevant for when, when prices go down. Because the fluctuations in historical prices of copper are ups and downs. When, but when you think of a new technology, that's one. So cash cost is one. The other thing that is really interesting, Shail, is How is it going to behave as the mine evolves? So you've mentioned a few times, this is a very long-term industry. So it takes time to get, to start a mine, but also it takes time and decades to operate. So you start a mine with the idea that the project will last 30 years. Some have lasted a hundred years, others are shorter, but in general you will, your aspiration as a mining operator is to have an asset that will operate for 2030 years. But you really don't know what's gonna happen in a few yea…

AI assessment note: “So cash cost is one. The other thing that is really interesting... How is it going to behave”

Q particular, it'll grow faster because of all this electrification that we're doing. Um, globally. So, and, and beyond that, we know that the world has plenty of copper reserves. Like, nobody's arguing that we're gonna run out of copper in the world. So, why not just build more copper capacity? Why not just build more mines? Why not just increase production at existing mines? Like, why is this a challenge?

A Well, you mentioned that it is really important. So copper has, the copper demand has two forces. One is economical growth. So just pure progress. And that already increases copper demand historically by about two percent. When you produce twenty million tons of anything, two percent means you need to add 400,000 tons of copper per year. That is a lot, Shell. That is a lot. So half of the Australian production per year. Um, that's just to, to have that, just to leave that number. Then, then you add Uh, electrification, and a green energy, and a green economy, and the number really jumps. So different estimates suggest that the world is going to run short on copper, and we're going to need an extra five to six million tons of copper just for the energy transition. So we have natural growth of copper demand plus the six million tons of copper. And pretty quickly, the expectation You get to the expectation that copper will need to double its output in the next 2030, 40 years. The number there depends on the report you read, but generally speaking, the idea is that the copper, the copper demand will double in the next decades or so. It's challenging when you start to think, where are you going to get this copper from? So remember all the, well, we talk about developing an asset, so Getting to a plan, you need to first explore, you need to develop it, and you need to build it and op…

AI assessment note: “takes a lot of time and resources... very lengthy process just to get to a project”

Q Okay, so let's talk about what happens to the copper mineral, uh, after we extract from the ground. So we've been talking about mining so far, but mining copper is not the end of the value chain. So what happens after we extract copper from a mine? How does it get from there into, oh, I don't know, a wind turbine or transmission line or whatever it might be?

A Well, that is a long route trail. Um, there are basically two kind of mines. One are subsurface mines or tunnels, huge, uh, tunnels that's like a whole city that occurs underground, and then you have open pits. What happens is once you get the rock out of the mine, and you do the, do that by, by, um, rock fragmentation, which is used in explosives, You will take it to the plant with this huge truck. So it's interesting the size. Let me just stop there. The size of the industry is so, so huge. The trucks are trucks that move 300 tons of material. Um, and when you stand by one of these trucks, the wheel Can be four meters tall. Just the wheel of the truck. Three to four meters tall. So, the dimensions here are huge, huge, huge. It's a little bit like, um, an avatar in this movie years ago when they had these mines somewhere in the space. The size is just huge and the volumes are huge. So, once these rocks are taken down from the pit, They're transported in these huge trucks. They go to a plant where they have to be crushed. So when a rock comes out of a mine, you will see a rock that can be a meter wide. And in order to process it, you need to reduce the size of the rock to different sizes, and the size will depend on the process you use. So generally speaking, there are two processes. One is going to be A hydrometallurgical process known as leaching, and the other one is the con…

AI assessment note: “They go to a plant where they have to be crushed.”

Q of distinction between the two, and then, and then we should transition to talking about what the challenge is in the copper market in general, and why we care about New solutions to extract more copper. But final question on, on pyro versus hydrometallurgy is the cost side of it, because there's a fairly different capital investment required to build new refining capacity in each of those two contexts, right?

A Yeah, absolutely. So yes, it has a higher impact concentration than leaching, um, or hydrometallurgy. The, the capital cost to build a concentration plant is huge. So we're talking investments that are usually in the realms of billions of dollars. And you need an important sort of geological, let me stop there and make a geological comment. Mines usually start processing the surface. And in the surface you will find, um, oxides. And so there's a, there's a technical distinction of what can be processed through hydrometallurgy and what can be processed through a concentration. And we, we haven't talked about that. And this is really important distinction because it has to do with the evolution of a, of a site. So mother nature has done a lot of work for us. One of them is that copper naturally will form or form millions of years ago attached to sulfides. But as it has been exposed and weathered out, it convert, it has converted by being exposed to oxygen to a copper oxide. So in the surface of the Earth, you will find copper, usually in the form of a copper oxide. And as you start digging deeper and deeper, you will get to copper sulfides. And the way you process them is different. So you will use a hydrometallurgical approach for copper oxide, and you will use a concentration approach for copper sulfide. And that's what sort of has divided the minerals and the processing techno…

AI assessment note: “The, the capital cost to build a concentration plant is huge.”

Q Let's talk about some of the other differences between the two pathways, particularly with regard to, I guess, cost. What does it cost to build the refining capacity in either context? And then environmental impacts, which I know differ a lot as well.

A Yeah, so the processes are very different. Let's go back, you crush it, Um, and after what you crush is the difference between hydrometallurgy and concentrate. So, and I make the distinction because from a greenhouse gases perspective, the mine itself is one of the main sources of greenhouse gases. So, regardless of what route you follow, there's sort of a base level of greenhouse gases attached to the mining process itself. Um, the Um, the difference then comes in hydrometallurgy, you use water to irrigate it. You don't use a lot of greenhouse gases in that process. Water is just recovered, or part of it is lost through evaporation, and the rest is recovered, and you recirculate as much as you can, because you, you want the water belts, because you want the ions that are in the solution, and part of the chemicals that you already used. The next step is Getting the plate of copper, and there you need energy. One of the interesting things, and this is, I guess, Mother Nature, again, um, a lot of the copper Mines in the world are in places with high solar radiation. So there has been a transition in terms of moving to cleaner sources of energy for the electro-deposition or the electro-winning process itself. So the carbon footprint has been reduced as the, um, energy grids in the world are moving more towards renewable energies. The concentration process, let's go back to the, uh…

AI assessment note: “from a greenhouse gases perspective, the mine itself is one of the main sources”