How much is China buying right now? What's your what's your view?
Even last year was China having all the Covid problems and supply chain
problems? Copper demand grew at a lower rate than
historical rates, but it still grew. China consumes half the world's copper.
We're the world's largest exporter of copper concentrates and China smelters
are important customers of ours. We diversify our customers.
So we have customers in Japan and South Korea and
Taiwan. But the demand is just been consistently
strong. What happens now?
By percent, they grow their opening up. What's going to happen to competition?
Copper markets globally. Not beyond China are tight.
Back in the second half of twenty twenty two on our earnings calls, I kept
talking about the disconnect between the financial markets views when investors
were running away from companies like ours
and what we were seeing in dealing with customers, not just in China but even in
the U.S., there is strong demand for downstream copper products.
So if I can come up with scenarios going
either way about the direction of the world in the short term, but if things
are better than many expect, it's going to be interesting because the market's
so tight. So to that point, before we get to the
tightness, do you see any recessionary signals yet in different areas of the
economy, different areas of the globe, I should
say? We see copper demand
remaining strong even in Europe. Inventories ticked up before the Chinese
New Year, but they're still at historically very low levels.
We sell everything we produce. We have competition for our copper
globally. And
we're just in a world that absent some major economic or geopolitical event,
there is a coming major deficit in between copper demand cops.
BLOCK Well, to that point and again, short term and then we'll go to the
medium term if China reopens with a bang or even just reopens with with a
whimper. What happens to copper demand and prices
like what kind of upside could we possibly see in the short term?
It could be significant. What's significant?
There's one thing to think about prices today versus historically with
inflation. There has been a disconnect in the
previous, quote, correlation between cost of producing copper and copper
prices. So costs are higher.
Inflation has come down some. We think that historical relationship
will ultimately be restored. So in thinking about Ford, our copper
today, you've got a higher cost structure under it.
It's not like Ford either. Copper was several years ago.
And many people commenting on the industry just focus totally on prices.
So it's got to be a combination of those two.
My long history and natural resources living through the oil industry of the
80s, I don't I don't allow myself or others in our
company to try to predict near-term copper prices.
We prepare ourselves for it. We have a very strong balance sheet.
We use scenario planning for our operations so that we can adjust to
whatever prices are. We have a very positive long term view
and that drives our strategy. We're not traders, so
it must be very difficult when like the price versus what you see on the ground
is very difficult. It's the same thing for oil where maybe
the demand for oil is not reflected in the curve in the same way or not
reflected in spot prices in the same way.
That must be hard. You know, our business is real hard
business. Yes.
I mean, it's tough. And you can see that globally with
companies struggling to meet their production guidance and falling short
for lots of reasons. Have geo political issues in Peru and
Chile. They're very important.
We have communities. So it's everything's hard.
But I feel great about our business. We perform very well.
And in achieving our big step of converting
our big Grasberg mine in Indonesia to an underground mine, we invested 20 years
on that averaging a billion dollars a year.
And so during Covid and with everything else in the world, we have reached our
production targets there and we've positioned the company.
So I feel great. I mean, in.
OK. To that point.
Medium term to long term. Is there enough copper in the world
that is being produced to supply the energy transition?
No. What does it need to be?
Well, how big is that disconnect? So high price inevitably absent these
major black swan events that are possible.
Copper prices will rise. And when copper prices rise, a series of
things are going to happen. Conservation is going to step in.
A degree of substitution, although coffers very hard to substitute for its
basic scrap, will become increasingly an
important part of the market. And then that will trigger copper mines,
supply development around the mines, a black or brown?
Well, all of these things together. Yeah.
Higher prices like our company, we have an incredible inventory of resources for
brownfield expansions. Brownfield expansions are much more
straightforward in every respect than a greenfield project.
When you get to greenfield projects, there's just an absence of projects for
the industry to undertake. So high prices
will trigger all of these things and none of them in and of themselves can
solve the problem. But it's just not going to be the the
world's not going to run out of copper technology to advance the world.
Respond to it. But it all will be in the context of a
much higher copper price than we have today.
So what kind of copper price you think needs to incentivize these greenfields
projects? Well, that is a humungous problem is
beyond price today.
Today was our brownfield projects. It's the price of copper water triple
overnight. We would still be six to 10 years away
from being able to add significant production with greenfield projects.
There's just an absence of actionable projects, such changes that
higher prices will trigger not just greenfield projects, but it will cause
companies to go out and do exploration to try to find things
today. And this is going to change because
there are a couple of big mines coming on stream.
But today, if you look at the top 10 producing copper mines, the most recent
discovery was our Grasberg mine in 1988. Yeah,
there's a world of difference between copper and for example, we're here at
Sierra Week with the oil industry. This is just a world of difference about
the geology and actionable projects that are available that are not triggered
automatically by higher prices. Right.
So to this point, we've been hearing a lot about automakers making deals with
metal guys because they really need to secure the supply for their evenings.
Are you talking to automakers? No, they haven't approached, you know,
and copper is different than battery materials.
You know, it's a much bigger market. And
quite frankly, we're not capital constrained.
So we have the financial resources to undertake our projects.
Do you think the smaller guys will be taking stakes in the smaller guys mean
business? It could well be.
Now, I remember I'm old enough to remember when Mobil or Bob Montgomery
Ward, the retail company Exxon, invested in Emerson.
There was a big after the Arab oil embargo.
There was a big move for oil companies to divest.
And so it's going to be these other things that
that now I'm talking about copper. Yeah, I'm not talking about the battery
metals and that sort of thing. But
every major mining company has copper at the top of their strategic list for
growth. That's it was that way 20 years ago.
And it's telling that hasn't changed as a cent of growth has been so limited to
that point. Do you think we're going to see a lot of
money in eventually? We need the organic growth and that's
the oil. And you can't find it or it.
The price signal isn't there. You gotta go buy it.
Right. And you get to a certain size.
And this is a difference from some of the gas industry.
You get to a certain size and you need to have scale to have an impact on your
company. And so acquiring a smaller company
is. And there's just not a series of them to
aggregate them and make it impactful. So to have an impact and for us,
when we look at smaller companies to fire them, you have to pay their
shareholders a premium. We have this big log of
undeveloped assets that are not currently reflected with
any value in our share price. And if we develop those, we capture all
of that value for our shareholders rather than having to pay other
shareholders for the acquisition cost of buying it.
That doesn't mean that a deal might come along.
But there is a big barrier for those deals to happen.
So to be impactful in the industry is size of companies.
Our industry has grown so much over the past 20 years
that that, you know, to make a big impact would take big deals.
And yet there's barriers to doing big deals.
And so. All of these things are the last report
strategy is focused on copper has been for a long time and we increasingly feel
that's the right answer for us. Last question I'm asking everybody this
yes in 10 years, what's going to power my car?
And that can be what's going to turn on the light in my house to like charge my
Eevee or it can be anything. What do you think?
The far automobile.
Yes. Well, there's been some efforts to look
at hydrogen, bad battery technology and battery
technology will improve, improve over time.
And so that is in 10 years. We're looking to have battery powered
cars. I just saw Caterpillar
showed us a demonstration of a prototype for an electric haul truck.
Today's huge part of our business.
That's one of the two biggest sources of carbon emissions from our business.
And so we're committed to working with it.
The prototype we saw had eight thousand pounds of copper in it.
Today's truck has less than 500. They have batteries.
They tell us the initial commercial batteries will weigh.
I think sixteen thousand pounds have short lives.
There's gonna be trolley type assisted as as time goes by.
Technology is going to advance. It's gonna advance people to find ways
of doing things more efficiently and cheaply.
And prices will drive that.