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  • Rick Mills: Copper Catch Up MUX, TNR.v, LCC.v, CU, GDX 0 comments
    Nov 13, 2013 9:46 AM | about stocks: TRRXF, MUX, GDX, GG, GLD, SLV, NEM, RGLD, AUY, SLW, FCX, RIO, BHP, TCK, VALE, SSRI, PAAS, NG, KGC, EGO, GDXJ, FXI, CU, BVN, PPP, GORO, ASM, HL

    (click to enlarge)

    Rick Mills has published a great article on Copper and its place in the development of human civilisation and the coming of the new transformation stage, when Global Urbanisation will have to deal with the finite supply of red metal.

     

    Brutal Past 24 Months For Precious Metals Investors, Nearing A Bottom - Rob McEwen MUX, TNR.v, GLD, GDX, SLV, CU

    "Rob McEwen can not control Gold, Silver or Copper prices, but he can control the management of his company. McEwen Mining has delivered solid results in the very tough environment and shows very entrepreneurial approach to advance its business plan.

    We would like to see the more aggressive approach in the promoting and marketing of Los Azules copper deposit in Argentina now. This is truly the world class asset, according to McEwen Mining and this project deserves the spotlights on the scene where Chinese companies are scooping all available resources now. After delivered PEA in September and recent elections in Argentina there is a window of opportunity to capitalise on the recovery - like Lumina Copper price action has demonstrated this year. Las Bambas copper project bidding war amongst Chinese conglomerates is just another reminder about the smart money actions in this market."

    AheadOfTheHerd:

    Copper Catch Up

    Richard (Rick) Mills
    Ahead of the Herd

    As a general rule, the most successful man in life is the man who has the best information

    Until roughly 12,000 years ago - at least 90 percent of our history - we humans eked out a living by hunting and gathering. Our hunter-gatherer ancestors were replaced by farmers and herders who crowded into villages following the invention of agriculture.

    Over the last 200 years a major resettlement pattern has emerged:

    • In 1800 only about 2 percent of the world's population lived in urban areas
    • In 1950, 30 percent of the world population was urban
    • In 2000, 47 percent of the world population was urban
    • Today, 53 percent of the world's population is considered urban


    What was predominately a rural culture has been turned into a predominately urban one and the transformation is expected to continue. By 2050, according to 'Global Urbanization' by Eugenie L. Birch and Susan M. Wachter, 70 percent of the world's population will be urbanized

    Urbanization is defined as 'a rapid and historic transformation of human social roots on a global scale.' There are many reasons for the long underway rural flight; greater and more varied economic opportunities; enhanced education and health care; much improved services such as entertainment and other urban amenities and an expectation of social mobility.

    The advantages of living in a city can be summed up as:

    1. Proximity
    2. Diversity
    3. Marketplace competition


    In China the average salary for urban residents stood at 22,068 yuan in the first three quarters of 2013, up 9.5 percent year on year. The figure for rural residents rose by 12.5 percent year on year to 7,627 yuan. Urban consumption hit 1.76 trillion yuan in September, up 13.1 percent year on year, while rural residents spent 304.7 billion yuan, up 14.8 percent from the previous year.

    "The rural-urban divide is quite evident. Megacities and large cities are the richest and have far better access to basic public services; smaller towns, secondary cities, and areas on the perimeter of urban centers are less rich; and rural areas are the poorest," Kaushik Basu, World Bank's Chief Economist and Senior Vice President for Development Economics

    In India there's also a wide difference in wages between urban and rural areas. A male casual laborer can earn Rs 150 per day in rural areas, his urban counterpart receives Rs 180 a day - Indian Rupee (Rs) . A salaried employee in rural areas might earn Rs 300 per day but in urban areas the same employees daily earnings would rise to nearly Rs 450.

    The Philippines' overall ratio of rural-urban wage gap is 67 percent. When skilled and unskilled workers are considered separately a much higher ratio becomes evident.

    Population Growth

    At this moment there are slightly over 7 billion people living on this planet, an urbanization rate of 53 percent means there are roughly 3.71 billion urbanites in the world today. It has been estimated that by the year 2050 our global population will reach 10 billion people. If our global population does indeed reach 10 billion people and if Birch and Wachter's expected urbanization rate of 70 percent is achieved, seven billion people, or almost the equal of today's current world population will be considered urban.

    Could we hit the ten billion people mark? Could 70 percent of us be living in cities by 2050? The answer is likely yes. Developing countries are responsible for 90 per cent of current population growth - these are on average very young people with many years of fertility/reproduction left to them. By the year 2025, in just 12 short years, 84 per cent of the world's people will live in developing regions.

    According to the World Health Organization (WHO) "Almost all urban population growth in the next 30 years will occur in cities of developing countries. Between 1995 and 2005, the urban population of developing countries grew by an average of 1.2 million people per week, or around 165 000 people every day. By the middle of the 21st century, it is estimated that the urban population of these counties will more than double, increasing from 2.5 billion in 2009 to almost 5.2 billion in 2050."

    (click to enlarge)

    The developing world's urban centers are expected to burgeon, drawing 96 percent of the additional 1.4 billion people by 2030. Due to the overall growing global population - but especially an exploding urban population (urban populations consume much more food, energy, and durable goods than rural populations) - demand for water, food, housing, heat, energy, clothing, and consumer goods is going to increase at an astounding rate.

    Today's Copper Consumption

    Let's take at look at copper to see the future regarding living in a finite mineral world.

    According to the International Monetary Fund (NYSE:IMF) the consumption of metals typically grows together with income until real GDP per capita reaches about $15,000-$20,000 per capita (2005 int$) as countries go through a period of industrialization and infrastructure construction.

    (click to enlarge)

    Countries by 2012 GDP (NYSE:PPP) per capita, based on World Bank figures and current Int$

    A few country's stand out as well below the IMF's $15,000.00:

    • China - 9,233
    • Indonesia - 4,956
    • Philippines - 4,410
    • India - 3,876
    • Pakistan - 2,891


    In line with China's rapid economic growth the country's copper consumption has increased sharply over recent decades.

    Since they are still a considerable distance from the point where further increases in GDP per capita no longer increase copper consumption per person, China, Indonesia, the Philippines, India and Pakistan (and the other 113 out of 180 countries listed below the IMF's 15,000 Int$ cutoff) are likely to continue to add significantly to global demand for copper for some time to come.

    Reserves

    Each year, the U.S. Geological Survey (USGS) estimates the amounts of reserves: the quantities of mineral that can be economically extracted or produced at the time of determination.

    World copper reserves are currently placed at around 630 Mt. When considered as just a single consolidated global num­ber copper reserves seem large and adequate for several decades of production at 2012 levels.

    Unfortunately most people do not take into consideration that these reserves are made up of many separate deposits, each of which has to be considered as a standalone and on its own merits.

    The economic viability of the world's copper deposits are influenced by many factors that inevitably reduce the amount of copper that reaches production.

    These factors are:

     

    • Location
    • Capital and operating costs
    • Market conditions

    Each of these deposits is also subject to geologic, engineering, environmental and political constraints that are always changing.

    Consider

    • Average capital and operating costs for copper production capacity in new mines increased an average of 15% per year over the past 20 years
    • From 2001 to 2012, the weighted-average head grade at 47 producing mines with comparable data declined by almost 30%
    • The average ore grades of copper in new discoveries and developing projects is declining
    • Significant deposits are now being found at greater depths or in more remote areas
    • Net of administrative costs, a mining company had an average total cost to replace reserves and produce copper of more than $3.30/lb in 2012
    • The 22 major copper producers, based on 2012 production levels, need to replace an average of at least 500,000 mt of copper reserves each year


    Tomorrow's Copper Demand

    According to the Minerals Education Coalition every American born will need 978 pounds of copper over their lifetime.

    (click to enlarge)

    We can see in the above Wood MacKenzie, Macquarie Research graph, from an August 2013 report, a projected refined shortage in 2018. The surplus forecast between now and then is diminutive in relation to the sheer size of the copper market and copper production often falls short of forecasts due to accidents, strikes, ore degradation or power shortages. Disruptions in the copper market averaged 900,000 tonnes of copper supply per year between 2004 and 2012.

    We already have one billion people out of today's current population slated to become significant consumers by 2025.

    Another 2.8 billion people will be added to the world between now and 2050. Most will not be Americans but they are going to want a lot of things that we in the western developed world take for granted - electricity, plumbing, appliances, AC etc.

    Out of a total of 10 billion people in 2050, 8.2 billion of them are expected to be in developing countries.

    How much copper could they expect to use over their lifetime?

    Will they each use 978 lb's of copper in their life time? Is there 8 plus trillion pounds of new copper left to be mined in the world?

    Probably not…

    According to a September 2013 report from the United States Geological Survey (USGS) global land-based copper resources (contained in identified, mined, and undiscovered resources - undiscovered resource numbers are based on geological modeling, the copper should, might, be there) exceed 3 billion tons (6 trillion pounds). These identified, mined, and undiscovered resources do not include deep-sea nodules and submarine massive sulfides.

    "Infinite growth of material consumption in a finite world is an impossibility." E. F. Schumacher

    "We're living in a finite world, one in which resource constraints are becoming increasingly binding."Paul Krugman, 'The Finite World'

    Conclusion

    If we mined every last discovered, and undiscovered, pound of land based copper the expected 8.2 billion people in the developing world would only get three quarters of the way towards copper use parity per capita with the U.S.

    Of course the rest of us, the other 1.8 billion people expected to be on this planet by 2050, aren't going to be easing up, we're still going to be using copper at prestigious rates while our eastern cousins play catch up.

    Copper use parity isn't going to happen, it can't.

    It's this author's opinion the developing world will not get a third of the way to our development levels here in the west before we all run out of USGS stated copper resources to mine.

    Consider that this game of 'Copper Catch Up' is not going to happen in 100 years, it's happening now.

    The world's exploding population, the massive shift from rural to urban, the growth of a very consumption minded middle class in developing countries, it's all happening now.

    Add in finite, increasingly hard to source resources.

    The effects will felt long before we actually start to run out of copper and there will be severe consequences:

    • Rising energy and commodity prices
    • A decline in the global economy
    • Civil unrest


    Are the coming consequences of living in a finite world on your radar screen?

    If not, they should be.

    Richard (Rick) Mills

    Richard is the owner of Aheadoftheherd.com and invests in the junior resource/bio-tech sectors. His articles have been published on over 400 websites, including:

    WallStreetJournal, USAToday, NationalPost, Lewrockwell, MontrealGazette, VancouverSun, CBSnews, HuffingtonPost, Londonthenews, Wealthwire, CalgaryHerald, Forbes, Dallasnews, SGTreport, Vantagewire, Indiatimes, Ninemsn, Ibtimes, Businessweek, HongKongHerald, Moneytalks and the Association of Mining Analysts.

    If you're interested in learning more about the junior resource and bio-med sectors, and quality individual company's within these sectors, please come and visit us at www.aheadoftheherd.com

    If you are interested in advertising on Richard's site please contact him for more information,rick@aheadoftheherd.com

    ***

    Legal Notice / Disclaimer

    This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

    Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified.

    Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

    Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report."

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