Performance risk for copper mine supply in 2012

Performance risk for copper mine supply in 2012

 We are forecasting 2012 to be the strongest year of growth in copper mine supply for the past
eight years. In today’s Commodities Comment we look at which mines are the largest contributors
to the output growth and the risks to our expectations of a 4% YoY increase in copper contained
mine production.

 Fig.2 shows the top 20 contributing mines to our global copper production forecasts. We are
expecting a 1505kt increase in copper contained mine production, before accounting for an
890,000t disruption allowance.

Top 20 contributing mines to the forecast copper supply growth in 2012

 In 2012 an expected rebound in production from two mines affected by labour disputes accounts
for over 50% of our forecast total mine supply growth: we are forecasting a 330k tonne combined
increase in production from Escondida and Grasberg.

 At first glance, increasing copper mine output at Escondida, without further labour disputes, should
be straightforward. However it is important to highlight that, in addition to the strike, bad weather
and declining run-of-mine ore grade (Fig.3 overleaf) contributed to Escondida’s lower YoY copper
output in 2011. We are forecasting that Escondida output will increase by 260kt in 2012, but it is
worth noting the challenge the mine operators face outside of the headline grabbing labour issues.

 We are not factoring in any production impact from the recent legal dispute between Anglo and
Codelco regarding the sale of a 24.5% stake in Los Bronces to Mitsubishi. The risk to our view
would be that, if the dispute is not resolved in a reasonable time frame, future capital expenditure
would be reduced by uncertainty over ownership; but we think it is unlikely to impact production in
2012.

 On paper the projected copper mine supply growth looks quite probable – the larger labour disputes
from 2011 are now resolved ,and capacity ramp-up is well distributed across a number of different
mines. However, Fig.4 shows that copper concentrate output has only exceeded the 5% disruption
allowance in one year out of the past 10, despite the high incentive prices shown in Fig.5.

 While many investors appear to have been preoccupied with risks to copper demand in recent
months, especially regarding risks to growth in China, once again the copper market is likely to
turn focus ultimately on copper mine supply, or the lack of it.