By John Kemp
LONDON, Feb 28 (Reuters) - Copper producers have struggled to raise production even though prices for the metal have quadrupled since the turn of the century, an embarrassingly poor performance for the industry.
Producers tend to blame falling ore grades at ageing mines for the industry's failure to produce more of a supply response in the face of soaring prices.
But the real barriers to expansion of copper production, as with crude oil, live above rather than below ground.
There is no shortage of potential copper deposits, even if output from some of the older worked ore bodies is starting to decline.
New estimates from the influential U.S. Geological Survey (USGS) put undiscovered copper resources at 3.5 billion tonnes, more than double the already-identified resource base of 2.1 billion tonnes.
The potential resource base is enough to last 300 years, at current consumption rates of 20 million tonnes per year, and recycling could extend that many more centuries into the future ().
The challenge is getting the copper out of the ground in the face of an often hostile political environment.
Between 2000 and 2012, prices for the red metal rose at a compound average rate of 13 percent per year but output was up by just 2.6 percent a year (and just 2.0 percent if the impact of increased recycling is excluded).
By contrast, primary aluminium prices rose just 2.4 percent per year over the same period while output increased 5.6 percent.
Copper was more like oil, for which prices increased by 12 percent per year on average while production rose by an anaemic 1.1 percent.
At present, just five countries (Chile, China, the United States, Peru and Australia) produce 60 percent of the world's mined copper.
Chile alone accounts for around a third of world mine output, according to USGS and the International Copper Study Group (ICSG).
Africa's copper belt, which has some of the world's most attractive ore bodies, remains largely off limits because of political and economic instability.
Traditional producers have struggled to sustain, let alone increase, output as ore grades fell and costs increased.
But undiscovered resources are thought to be more widely distributed than today's reported reserves.
Based on a careful assessment of geological conditions, USGS estimates there could be major copper-bearing ore bodies near the surface in the Russian far east and eastern Siberia; Mongolia; Kazakhstan; China; and down through Indochina and Southeast Asia.
There are also likely to be substantial undiscovered resources in North and South America, according to USGS, even though the areas have been well surveyed and worked over already.
Asia could contain anywhere between 770 million and 2.4 billion tonnes of undiscovered copper resources, USGS assesses, in a giant arc stretching from the Arctic coast and Kamchatka down through eastern Siberia and China into Southeast Asia and the Indonesian archipelago.
The region's current identified resources are modest when compared with Africa and the Americas, but much of it is under-explored.
USGS notes that four giant copper deposits have already been discovered on the Tibetan plateau.
Even in areas that have been comparatively well-explored, such as Indonesia, undiscovered resources are likely to exceed those that have already been identified, according to USGS.
Copper production uses enormous quantities of energy. Every tonne of refined metal consumes the energy equivalent of 22 barrels of crude oil in its production, according to Ajay Gupta and Charles Hall of the State University of New York ("Energy cost of materials" in "Fundamentals of Materials for Energy and Environmental Sustainability", 2012).
In comparison, producing a tonne of steel uses the energy equivalent of 4.75 barrels of oil, while lead takes around 5 barrels and zinc around 12. Only aluminium, at almost 31 barrels, is more energy-intensive.
Copper smelting and electrolytic refining are obviously energy-hungry processes, requiring enormous amounts of electricity.
But the most energy-intensive parts of the process are actually the earlier mining, milling and concentrating stages because of the much larger quantities of material handled at this point (including the value-less overburden and gangue).
Electricity is used for ventilation, water pumping, crushing and grinding, while diesel is used mostly for hauling and other transportation requirements.
Two-thirds of the energy used at the mining stage is due to crushing and grinding, according to Gupta and Hall, because of the enormous amounts of material handled at this point.
The availability of sufficient quantities of reliable and affordable electricity and diesel have therefore been a major headache for copper producers.
Energy costs, together with falling ore grades at more mature mines, are highlighted by the ICSG as among the financial and operational constraints on copper mine supply.
But ICSG identifies a host of others, including financial (the cost of project finance and wages); fiscal (tax and royalty issues); operational (water availability, environmental regulation and labour relations); and political (resource nationalism and political unrest).
Given that aluminium production is even more energy-intensive, yet output has grown almost three times as fast, energy is clearly not the major constraint. Nor is the capital cost of projects, according to ICSG.
Instead the constraints appear to be mostly a host of problems industry insiders describe as "above ground" to distinguish them from geological issues "below ground".
These include taxes and royalties, relations with workers, local communities and environmental groups, resource nationalism, and political and legal instability.
In that respect, the problems in the copper industry are like those that have held back oil production outside North America.
Much of the world's identified and yet-to-be-discovered copper resources lie in middle-income and poor countries where there is little political, contractual or financial stability.
Rio Tinto's recurrent problems developing its giant Oyu Tolgoi mine in southern Mongolia, a world-class copper-gold-silver high-grade ore body, are emblematic of the above-ground issues that have bedevilled attempts to expand copper production into new frontier areas.
The world is not running out of high-grade copper resources. There is enough copper out there to last hundreds of years. The challenge is to extract it from complex political environments.