Guolian Minsheng Securities: Copper mine supply faces long-term insufficient capital expenditure, optimistic about investment opportunities in the copper sector

According to the Zhitong Finance APP, Guolian Minsheng Securities released a research report stating that as the world's second-largest copper producer, Peru currently relies on established copper mines for its overall output, with few new mines coming online in the past five years. Additionally, established mines are facing declining ore grades and limited output growth. Looking globally, the copper supply is constrained by long-term insufficient capital expenditure in mining, which restricts medium- to long-term copper supply. With limited incremental supply on the supply side and the expectation of interest rate cuts by the Federal Reserve likely catalyzing a new round of copper price increases, investment opportunities in the copper sector are promising.

Guolian Minsheng Securities' main points are as follows:

The world's second-largest copper producer, with an annual output stable above 2.4 million tons

Peru has rich mineral resources and is an important producer of base and precious metals globally. Currently, Peru is the second-largest copper producer in the world and a major producer of gold, silver, and zinc. According to the latest data released by the U.S. Geological Survey, Peru holds 12.0% of the world's copper reserves, 3.9% of gold reserves, 15.3% of silver reserves, 9.5% of zinc reserves, 5.3% of lead reserves, and 2.8% of tin reserves. From the disclosed data, Peru's copper output has remained above 2.4 million tons annually, except for the pandemic-affected years of 2020 and 2021.

Predominantly established mines, with few new greenfield projects in the past five years

Based on the analysis of 10 mines, only the Quellaveco and Mina Justa mines were newly commissioned in the past five years, coming online in 2022 and 2021, respectively, with a combined capacity of about 300,000 tons/year. The remaining operating projects have been in production for a long time, some dating back to the mid-1920s. This reflects that Peru's earlier capital expenditure on copper mine development was relatively low, resulting in few new greenfield projects in the past five years.

Peru's economic environment is favorable, with infrastructure construction in full swing

Before the pandemic in 2020, Peru's GDP had been steadily growing, but due to the pandemic, the GDP growth rate was -10.9% in 2020. After the pandemic, Peru's economy quickly recovered, achieving GDP growth of 13.4% and 2.7% in 2021 and 2022, respectively. In 2023, negative growth occurred due to climate disasters, but GDP growth is expected to turn positive in 2024, at 3.1%. In 2019, Peru launched its latest National Infrastructure Plan (PNIC), aiming to fill a long-term infrastructure gap of about $110 billion from 2019 to 2038. Under the PNIC framework, Peru prioritized 52 infrastructure projects totaling $28.5 billion, with the goal of completion by 2025.

Chinese enterprises hold mines with a combined capacity of about 600,000 tons/year, with the Toromocho project being the first large-scale copper mine project built by Chinese enterprises overseas

Currently, there are two mines in Peru that are controlled by Chinese companies: the Toromocho project of China Aluminum Corporation and the Las Bambas project of Minmetals Resources. China Aluminum Corporation acquired 100% equity of the Toromocho mega copper mine project in Peru in 2007 and established Chinalco Peru Mining Company to be responsible for the project's construction, development, and operation. The Toromocho project is the first world-class copper mine built from scratch by Chinese enterprises overseas, with the main engineering of the first phase completed and put into trial production in December 2013, producing over 200,000 tons of copper concentrate Achieve stable profits. The second phase expansion project of the Toromocho copper mine started in 2018, and after completion, the annual production of copper concentrate will increase to 300,000 tons of copper content. Las Bambas is a joint venture project operated by MMG (62.5%), a wholly-owned subsidiary of GuoXin International Investment Co., Ltd. (22.5%), and CITIC Metal Co., Ltd. (15.0%). The mine began commercial production in July 2016 and is one of the largest copper mines in the world, with an expected annual production of copper concentrate of approximately 280,000 to 320,000 tons of copper content.

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