John, tell us a little bit about yourself and what led you to Capstone Copper.
I am a mining engineer by education. In terms of my career, I spent my first 25 years with Anglo-American. Yet, in many respects, I had six different mini careers, as I worked in six different commodities. I moved from gold, to iron ore, to coal, to nickel, to zinc, and finally headed up Anglo-American's copper business for some years.
I always harbored the ambition to set up a new mining company. My experience gave me insight into what is involved in building and running mines, as I was involved in running many and building several large mines. From this, I concluded that copper had by far the best fundamentals from the point of view of both demand and supply. So, when I left Anglo-American to set up a new company, it was with a view to establishing a copper company, anticipating a structural deficit in the copper industry and aiming to feed the future demand for copper.
Why do you consider copper’s fundamentals to be so solid?
Renewable energy, being on the rise, requires about eight times as much copper per megawatt for offshore wind power compared to oil or gas power. Additionally, electrification, including electric vehicles, will drive copper demand. Data centers, such as those required for AI technologies like ChatGPT, consume enormous amounts of power, which also boosts copper demand due to its superior conductivity—only silver conducts electrons better, but it is far more expensive.
On the supply side, however, copper is constrained. There have been very limited new discoveries of copper over the past 20-30 years. Existing mines are seeing significant grade decline, and new deposits face increasing complexities, such as environmental, social, and infrastructural challenges. This results in high barriers to entry for new copper mines, making it difficult to generate a margin with the current long-term pricing.
Given these supply constraints, do you believe the demand resulting from the green transition can actually be met with corresponding supply?
When you have oversupply, inventories grow. Today, global inventories are relatively low, so when supply does not meet demand, inventories are quickly depleted. This means demand and supply must balance out, which could slow down the move towards decarbonization if copper shortages become too severe.
In the long term, higher prices might incentivize additional copper mines, but it is not just economics that restrict new developments. Environmental, social, and infrastructural factors also play a significant role. Whereas it used to take 2-5 years to bring a new deposit to production, today it can take 8-12 years. Thus, even if a deposit is deemed economic, it still takes a considerable amount of time to start producing copper.
Is the extension of these timelines justified? Could these be shortened in a responsible manner?
I think there are opportunities to shorten them. We need to ensure mining is done responsibly to avoid causing more harm while trying to save the planet. The processes have significantly improved, including public consultation, environmental baseline studies, and the whole permitting process, all of which are necessary to manage environmental and social impacts.
That said, there are opportunities to make these processes more efficient. Governments in Chile and Peru, for instance, are seeking to streamline permitting. However, as social and environmental expectations continue to rise, efforts to streamline permitting often become a balancing act. It is about making processes more efficient while keeping up with expanding expectations and requirements.
Could you run us through your current operations at Capstone Copper?
Yes, absolutely. Capstone Copper itself is a result of a merger in March 2022 between Mantos Copper, which I founded in 2015, and Capstone Mining. This merger brought together significant assets and created a world-class copper district between Mantoverde and Santo Domingo, achieving diversification and risk mitigation with more operating assets.
In Arizona, we have the Pinto Valley mine, originally acquired from BHP. It is a huge resource, though fairly low grade, making scale important. We have plans to consolidate the district, which will substantially increase the scale of the operation. This area has been mined for over 100 years, so as we expand, we can also address environmental legacy issues, continuing operations for another 30-40 years while mitigating historical environmental impacts.
In Mexico, we operate the high-grade underground Cozamin mine in Zacatecas. It is a consistent cash generator, crucial as we expand our other mines. Its reliable production and positive cash flow through cycles are vital. We are also conducting drilling and exploration to extend its operational life.
Finally, we have important operations in Chile. Mantos Blancos, operating in Chile since the late 1950s, is known as the University of Mining due to its extensive range of mining and processing methods that have been utilized over the years. When Anglo-American bought it in 1980, it had five years of life left; today, it has 15 years, and we continue to find more resources through drilling. We have doubled the concentrator's size, nearing its full capacity of 20,000 tonnes a day, with potential for further expansion and district consolidation.
Mantoverde, also in Chile, is our crown jewel. Acquired from Anglo-American in 2015, we focused on developing the sulfide project, completing an $870 million construction project in December 2023. Now, we are commissioning and ramping up, after producing our first copper concentrate in June. This transformation turns Capstone Copper into a larger, lower-cost producer. The Mantoverde project benefits from high-grade deposits, advanced recovery rates, and existing infrastructure, making it incredibly capital efficient and delivering excellent returns.
Lastly, our neighbouring Santo Domingo project, 35 km east of Mantoverde, has the opportunity to unlock district scale synergies and provides another growth lever for Capstone and for copper production from the Atacama region in Chile. We released an updated feasibility study for Santo Domingo in July that shows very attractive economics, and now we would like to bring in a 30%-partner for the project, prior to a potential construction sanctioning decision later in 2025.
Why is producing copper concentrate significant?
There are three main factors. First, the grade of the sulfides we are mining over the next 10 years is more than double the grade of the oxides we have been producing. Second, recovery rates are higher with the concentrator, around 90% compared to 75% with leaching. This combination of grade and recovery significantly reduces costs, making Mantoverde a $1.50 per pound producer compared to $3 per pound previously.
Additionally, Mantoverde benefits from scale and new technology. The first 10 years' copper grade is around 0.7%, plus additional gold, totaling a high-grade 0.8% copper equivalent. The existing infrastructure, such as desalination plants and power substations, further enhances capital efficiency, delivering tremendous returns. We have also over-designed the crusher and mills, preparing for future expansion. The upcoming Mantoverde optimization will increase capacity to 45,000 tonnes a day with minimal additional investment, further enhancing the project's capital efficiency and returns.
Do you have long-term plans for expanding to other geographies?
For the next 10 years, we see huge organic growth opportunities within our existing portfolio. We are currently bringing on the Mantoverde Development Project (“MVDP”), and next year we will implement Mantoverde Optimized. Following that, our project team will shift focus to the Santo Domingo project.
Last year, we produced 164,000 tonnes of copper at copper cash costs of $2.88 per pound across the portfolio. Post ramp-up of the MVDP, we will be operating at close to a 260,000-tonne run rate at cash costs closer to $2 per pound. With Mantoverde Optimized, we aim to add another 20,000 tonnes, reaching a 280,000-tonne run rate. The Santo Domingo project, requiring $2.3 billion in capital expenditure, will further increase our production to 400,000 tonnes per year at C1 cash costs closer to $1.50 overall .
Our long-term vision includes potentially expanding the Mantoverde project significantly beyond its current capacity. We could develop it into a much larger operation, possibly 90,000 tonnes a day, compared to the current 32,000 tonnes a day. Additionally, we see opportunities for district consolidation and expansion in Arizona, keeping us busy for the next decade. Strategically, we focus on good jurisdictions in the Americas and would consider future operations or projects in Canada and Peru. However, Chile remains a key area with substantial resources and good grades for ongoing development.
What is your view on the price of copper as an indication of the health of the global economy?
Historically, copper has been closely correlated with global GDP, earning the nickname Dr. Copper. However, I believe we will see a growing disconnect between copper and global GDP as copper consumption for decarbonization increases. Even with tepid economic growth in areas like Europe and China, copper consumption continues to grow at attractive rates due to the push for renewable energy. Last year, China significantly contributed to copper demand through substantial solar and wind energy installations despite its modest economic growth.
While China has driven copper demand over the past two decades, future demand will likely be more balanced globally. Major economic regions such as North America and Europe are also focusing on decarbonization, requiring extensive copper for energy infrastructure. The need to generate and transmit green energy will drive copper demand regardless of economic cycles. Although some aspects of copper use, like in construction, will still correlate with GDP, we expect a more pronounced divergence driven by the global imperative for decarbonization.
We have talked about permitting as a significant challenge for mining. What else would you emphasize as an issue slowing the development of copper mining?
Informing and educating the public is crucial for aligning the mining industry with societal goals. People need to understand the link between decarbonizing the economy and the necessity of mining. Mining must be done the right way, incorporating best practices in permitting and consultation with local communities and authorities. This alignment ensures that the benefits of mining operations contribute to the long-term development of the region.
The connection between the consumer, the commodity, and the community is often overlooked. It is essential for everyone to understand this relationship. By fostering this understanding, we can ensure that mining operations not only meet economic needs but also support community development and environmental sustainability. This comprehensive approach is key to the industry's success and acceptance.
What would you single out as the highlight of your career as a CEO?
I would single out the opportunity to build projects like Mantos Blancos and Mantoverde. These mines would have been shut down by now if we had not invested in them. Our efforts in exploring, studying, permitting, and developing these deposits have given these mines multi-decade lives. These operations directly employ close to 5,000 people and indirectly support 50,000 to 80,000 more, driving local economies and providing essential services. This impact on employment and local development is immensely important to me.
