The mining giant Rio Tinto [ASX:RIO] announced today that it intends to invest US$800 million (AU$1.18 billion) into its Kennecott operation to boost US copper production.
Shares of Rio were down by 0.72%, trading at $116.56 per share today.
Rio Tinto has performed well despite low commodity prices this past year — with shares up by 12.18% in the past 12 months.
Today, we will look at what this means moving forward for Rio Tinto and copper production globally.
Source: TradingView
Rio Tinto strengthens future production
Rio Tinto says it will invest more than US$800 million to increase copper production and processing at its Utah Kennecott operation.
The metals giant has committed US$498 million to expand the underground mine and promised a further US$120 million to upgrade processing at its new smelter near the site.
Rio greenlit US$300 million in May to rebuild the smelter, which currently produces approximately 148Kt of refined copper per year.
The total operation rebuild is the largest in Kennecott’s history and will see production increase to approximately 250,000 tonnes of additional mined copper over the next 10 years — including nearby open-cut operations.
Rio Tinto Copper chief operating officer, Clayton Walker said today:
‘We are investing to build a world-class underground mine at Kennecott and strengthen our processing facilities, to meet the growing demand for copper in the US, a key material for domestic manufacturing and the energy transition.
‘This investment will position Kennecott to continue the strong contribution it has made as part of the Salt Lake Valley community for 120 years, injecting about $1.5 billion annually to the local Utah economy.’
The mining giant’s current share price may not be affected, but the future supply of copper will be impacted — as Kennecott remains the second-largest copper mine in the US.
What this means for the future of copper
Copper is vital for the world’s plans to electrify and move towards a net-zero future.
But the supply of the metal has not been keeping up with demand.
Source: Precious Metals Commodity Management
Additionally, research has indicated that the ore currently being found is consistently of lower quality compared to previous production.
This study from 2016, for example, showed ore grades have decreased by approximately 25% in 10 years.
In that same period, total energy consumption had increased at a higher rate than production.
So, each metric tonne of copper we produce today is lower grade and costs us more.
On top of these supply issues, we also see a massive concentration of production in a handful of countries.
Chile and Peru are responsible for 40% of global copper output combined.
The largest copper mine in the world, Escondida, is thought to have reached its peak production — while the Chilean government has threatened to shut down the mine for water usage.
Output is also impacted by political instability in the region.
For instance, Escondida experienced lengthy strikes in May last year. Additionally, Peru has witnessed a series of presidents being ousted and ex-presidents being imprisoned for corruption.
So what’s next for the red gold?
The red drought and what to do with it
James Cooper — our resident expert here at Fat Tail — has 15 years of experience in the mining industry.
He’s been sounding the alarm on this vital metal for years, and better yet — he’s found solutions for everyday investors.
If you subscribe to Fat Tail Commodities, you will have access to James’ most recent insider report on the subject — all for free.
James will give you instant tips on investment ideas for the copper industry. He’ll also explain the copper supply crisis and how you can position yourself to take advantage of incoming changes in the industry.
Click here to learn more about making money from the red drought.
Regards,
Fat Tail Commodities
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