Tianfeng: Copper supply increment falls short of expectations again, focusing on mining companies continuously expanding their map.

Tianfeng released a research report stating that the incremental supply of copper mines in 2025 is once again lower than expected, with a year-on-year growth rate continuing to decline compared to 2024. It is estimated that the global copper mine production will decrease by 23,000 tons in 2025, with a year-on-year decrease of 0.12%. Considering the extremely low interference rate, the incremental copper mine production in 2026 is estimated to be about 410,000 tons (2%). Resources are king, and attention is focused on mining companies that are constantly expanding their territories. China's copper mining enterprises have extended their territories to resource-rich areas in Africa, South America, etc. Under the pressure of high costs and resource protectionism, they have increased their reserves through mergers, acquisitions, joint ventures, etc. This includes Zijin Mining's cooperation with Ivanhoe Mines and the Congolese government to develop the large Kamoa-Kakula copper mine and hold a 39.6% stake, as well as Minmetals' ownership of the large Las Bambas copper mine in Peru, and Luomou's primary focus on copper mines in the Democratic Republic of the Congo. In recent years, copper mine profits have been high, but supply growth has been contrary. The supply increment of copper mines in 2025 is once again lower than expected, with a year-on-year growth rate continuing to decline compared to 2024. It is estimated that the global copper mine production will decrease by 23,000 tons in 2025, with a year-on-year decrease of 0.12%. Considering the extremely low interference rate, the incremental copper mine production in 2026 is estimated to be about 410,000 tons (2%). According to the Q2 financial reports and updated information of mining companies, Tianfeng expects that the production of copper mines in 2025 will increase and decrease by offsetting each other. Tianfeng predicts an overall growth rate of about -0.12% and a decrease in the supply growth rate of copper mines compared to the beginning of the year, and a decline compared to 2024. In terms of incremental supply, contributions come from projects such as Rio Tinto's OyuTolgoi expansion, MMG's high production pace, China National Gold Group Gold Jewelry's expansion of the Jiamacopper mine and the copper mine production expansion of Tongling Mirador; while reductions come from seismic events at the Kamoa-Kakula mine, accidents at El Teniente and Grasberg, etc. In 2025, the significant reduction of the TC benchmark has loosened the cost of mines, and the copper price has risen significantly. The copper mine profits in 2025 may continue to maintain the high level of 60% since 2024. However, the supply growth rate of copper mines is contrary to this trend and is turning downwards. Sources: SMM, Hithink RoyalFlush Information Network, Boliden company announcement, Tianfeng Research Institute Global macroeconomic challenges have weighed down on the momentum of copper mine supply. 1. New expansion: Since 2015, the mining sector has entered a phase of defensive capital expenditure, with CAPEX skewed towards conservatism; low copper ore grades, high financing costs, and significant resource protectionism have hindered supply expansion. 1) The mining sector is already in a phase of defensive capital expenditure, which is difficult to compare with the period between 2000 and 2015. After 2020, even with record-high copper prices, disruptions from factors such as declining ore grades and copper-producing countries implementing mine protection policies have slowed down the growth of CAPEX compared to the past. On the other hand, the CAPEx/EBIT index is showing a marginal rise in the willingness of companies to spend capital, but it is relatively lower than before. Source: Bloomberg, Tianfeng Research Institute 2) The global trend of declining copper ore grades is one of the constraints on the willingness for supply expansion. With a long history of copper mining and the acceleration of modern industrialization, the exploitation of shallow high-grade ore deposits has been hastened. Stockpiled high-grade resources are gradually depleting, and new mines are located in deep or remote areas, making exploration difficult, resulting in a long-term downward trend in the ore grades of mines discovered so far. 3) In a high inflation and high-interest-rate environment, the macroeconomic background brings higher project financing costs, weakening the willingness of mining companies to spend capital. After 2021, disruptions in the supply chain due to events like the pandemic and wars, the massive fiscal stimulus in the US leading to total demand expansion, along with labor shortages due to the "great resignation," raising wage inflation levels, and overseas areas experiencing high-interest-rate environments imply higher financing costs. Therefore, the investment-to-output ratio is declining, which in turn limits the extent of capital expenditure by companies. 4) Global copper mine protectionism is becoming increasingly prominent. For example, new mining laws in Mexico may weaken foreign investment interest, and the Panamanian government's closure of the Cobre copper mine is affecting mining companies' investment enthusiasm. Source: Bloomberg, Hithink RoyalFlush Information Network, Tianfeng Research Institute 5) Many large copper mines worldwide are developed through joint ventures, mainly due to high development costs and resource protectionism: (1) Copper mining and beneficiation is a capital-intensive industry, especially for large mines, and the costs of development and expansion are extremely high. Joint ventures help to diversify cost inputs and collectively resist price fluctuations; (2) In some countries (such as Indonesia, Congo, etc.), local companies or governments form joint ventures with foreign capital. 2. Production: In recent years, the increase in C1 (Cash Cost) has been attributed to the rise in TC, transportation, energy, and labor costs, showing the vulnerability of supply; production costs are high, supporting a high interference rate in global copper mines, and long-term growth prospects are not optimistic. Tianfeng has built a model based on five factorstransportation costs, labor costs, by-product prices, energy costs, and processing feesto fit the 90th percentile costs of copper mines over the years, resulting in a regression model with an R-squared value of 0.941. Among them, processing fees, labor costs, energy costs, and transportation costs all share positive coefficients, while the coefficient for gold by-product prices is negative, which aligns with the formula for C1 costs. After 2020, various factors have driven copper mine costs to rise significantly. The global rise in energy costs and labor costs have driven up the 90th percentile copper mine costs, increasing by approximately 46% from 2020 to 2024. Cash costs at the tail end of the cost curve for high-cost mines exceed $9,000 per ton. After 2020, copper prices have been highly influenced by macroeconomic factors, leading to sharp increases and decreases, exacerbating the instability of supply from high-cost mines. Source: Standard & Poor's, Hithink RoyalFlush Information Network, Boliden, Tianfeng Research Institute Copper prices lead the copper mine cycle by about 1 year, and the high-profit situation from 2024-2025 should logically support an increase in copper mine production from 2025-2026. However, under the backdrop of a high interference rate, the growth rate may not be optimistic. Repeated disappointing supply outcomes could provide long-term support to prices, and the inability to smoothly transmit increased supply could further consolidate prices at relative lows. Sources: Hithink RoyalFlush Information Network, Wood Mackenzie, Boliden, Tianfeng Research Institute Resources are essential, and focus is on mining companies that are constantly expanding their territories. Global copper reserves-to-production ratios are relatively healthy, with China's resources and production unbalanced; global copper mines are mainly controlled by foreign investments, while Chinese companies continue to expand their portfolios overseas, enhancing their capabilities. Global copper reserves show a trend of gradually increasing, with reserves currently being sufficient. According to data from the US Geological Survey (USGS), global copper reserves in 2024 were 980 million tons, with a static recoverable period of about 42.6 years, relatively healthy. The majority of world copper reserves are distributed in countries such as Chile (19%), Peru (10%), Australia (10%), the Democratic Republic of the Congo (8%), and Russia (8%), with Chile as a major copper-producing country maintaining a leading position in copper production. China's reserves account for only 4% of the global total, but its production share is 8%, indicating an imbalance in resource extraction and the scarcity of resources. Sources: Hithink RoyalFlush Information Network, Tianfeng Research Institute Global copper reserves are mainly held by a few large mining companies, resulting in a high industry concentration level, with the CR10 estimated to be around 38.5% in 2025. Chinese copper mining enterprises have extended their portfolios to resource-rich regions in Africa, South America, etc. Under the pressure of high costs and resource protectionism, they have increased their reserves through mergers, acquisitions, joint ventures, etc. This includes Zijin Mining's cooperation with Ivanhoe Mines and the Congolese government to develop the large Kamoa-Kakula copper mine and hold a 39.6% stake, as well as Minmetals' ownership of the large Las Bambas copper mine in Peru, and Luomou's primary focus on copper mines in the Democratic Republic of the Congo. In addition, Chinese companies are continuously strengthening their overseas copper mine infrastructure, further improving production and transportation efficiency to achieve long-term cost reductions.