Share of Group operating
profit (2008: 19%)
Record total copper production of 669.8 kt was achieved in 2009.
|$ million (unless otherwise stated)||2009||2008|
|Net operating assets||4,763||3,148|
|Share of Group operating profit||41%||19%|
|Share of Group net operating assets||12%||10%|
Copper has interests in six operations in Chile. These operations comprise the wholly owned Los Bronces, El Soldado, Mantos Blancos and Mantoverde mines, the Chagres smelter and a 44% interest in the Collahuasi mine. The mines also produce associated by-products such as molybdenum and silver. In addition, the business unit has controlling interests in two projects in Peru (Quellaveco and Michiquillay) and a 50% interest in the Pebble project in Alaska.
The majority of copper produced is used by the wire and cable markets on account of the metal's electrical conductivity and corrosion resistance. Applications that make use of copper's electrical conductivity, such as wires (including wiring used in buildings), cables and electrical connectors, make up around 60% of total demand. About 20% of demand comes principally from the construction industry which uses copper to produce plumbing pipe and roof sheeting, owing to the metal's corrosion resistance qualities. Copper's thermal conductivity also makes it suitable for use in heat transfer applications such as air conditioning and refrigeration, which constitute some 10% of total demand. Other applications include structural and aesthetic uses.
Copper is an attractive industry, with moderate concentration of customers and suppliers, relatively high barriers to entry and a track record of good average profitability over the long term. The approximate global market share of the five largest copper producers is 38%. Producers are price-takers and there are relatively few opportunities for product differentiation. No fundamental technological shifts are expected in the short to medium term, with access to quality orebodies continuing to be the key distinguishing factor. Forecast long term demand is underpinned by robust growth in copper's electrical uses, particularly wire and cable in construction, automobiles and electricity infrastructure. The key growth area will continue to be the developing world, led by China and India with their massive industrialisation and urbanisation programmes, and where per capita copper consumption remains substantially lower than that of the advanced economies of the US, Japan and Europe.
Copper's tightening fundamentals are also defined by perennial constraints on the supply side, driven by continuing declines in ore grades at both maturing existing operations and new projects in the pipeline, a lack of capital investment and under-exploration in the industry and political and environmental challenges in new copper areas. The industry is capital intensive and is likely to become more so as high grade surface deposits are exhausted and deeper and/or lower grade deposits are developed, requiring greater economies of scale in order to be commercially viable. Scarcity of water in some geographies is also enforcing the construction of capital- and energy-intensive desalination plants.
China has increased its share of first use refined metal consumption from 12% in 2000 to an estimated 35% in 2009.
Copper prices increased very strongly through 2009 - even as refined metal inventories trended higher and global demand looked weak. However, speculative and investment funds moved aggressively into commodities, thereby propelling prices higher and this was further supported by a cautious but growing confidence in the second half of the year that the global economy was showing signs of recovery. Strong Chinese imports also played a powerful role, while the numerous incidents of industrial action and technical difficulties leading to output losses also helped support the price.
Copper's strategy is to find or acquire, develop and operate long life, low cost mines in a socially and environmentally responsible manner, with a strong focus on efficient resource allocation, continuous improvement and capital and operating excellence.
The business is constantly developing and evaluating growth options from a combination of sources, including greenfield and brownfield projects, acquisitions, exploration, technology development and asset optimisation programmes. Significant future growth will come from approved expansions at Los Bronces, while studies are at an advanced stage into further growth potential at Quellaveco in Peru and Collahuasi in Chile. In addition, work continues on evaluating the potential and development options for the resources acquired in 2007 at Michiquillay in Peru and Pebble in Alaska.
In August 2009, Anglo American announced the discoveries of two high quality copper prospects at Los Sulfatos and San Enrique Monolito in Chile. These two prospects together increase the Group's copper resources (excluding reserves) by approximately 50%.
Copper generated an operating profit of $2,010 million, an increase of 6%, underpinned principally by record production and lower operating costs, as well as the benefit of a marginally higher realised copper price and the weaker Chilean peso. This was partly offset by the impact of a lower molybdenum price.
|Average market price (c/lb)||2009||2008|
Copper prices rose steadily during the year, reflecting improving global economic conditions, and ended the year at a high of 333 c/lb. This price increase was driven initially by speculative and investment fund inflows and Chinese stock building, before gaining further ground in the second half as a number of operating incidents and industrial action impacted global supply.
Despite the price increase from 132 c/lb at the end of 2008, the average price for the year was 26% lower than in 2008, although 2% higher on a realised price basis, partially due to the favourable final settlements of sales prices into a rising market.
|Attributable production (tonnes)||2009||2008|
Record total copper production of 669.8 kt was achieved in the year, an increase of 5%, driven by annual production records at both Los Bronces and Collahuasi. Los Bronces production was affected in the first half by lower sulphide grades and recoveries, before improved operating efficiencies and ore grades in the second half lifted full year production to a record high. At Collahuasi, despite production having been impacted for 44 days following the failure of a conveyor electrical control centre, attributable production rose by 15% to 235.8 kt.
Operating costs benefited from improved operational efficiencies and price reductions achieved for key consumable items such as sulphuric acid, diesel and power. Lower freight costs were offset by higher concentrate treatment and refining charges.
Construction of the Los Bronces expansion project is progressing according to schedule, with its target date for commissioning in late 2011. Engineering design was substantially completed by the end of 2009 and construction work on the various sites is on schedule. A significant milestone, the opening of the Los Bronces section of the conveyor tunnel from the mine through to the grinding plant at Confluencia, was achieved in November 2009. Production at Los Bronces is scheduled to increase to 490 ktpa over the first three years of full production (an average of over 400 ktpa over the first 10 years). At peak production levels, Los Bronces is expected to be the fifth largest producing copper mine in the world, with highly attractive cash operating costs and reserves that support a mine life of 30 years. Resource and mineralisation studies carried out by Anglo American's technical teams support further potential expansion.
At Collahuasi, an expansion project is under way to increase sulphide processing capacity to 150 kt per day by early 2011, while the significant potential for subsequent phased expansions continues to be evaluated.
At Mantoverde, pre-feasibility studies are currently under way for a sulphide ore life extension.
In Peru, good progress was made in the year on a revised feasibility study for the 225 ktpa Quellaveco project. This study is targeted for completion during 2010.
The focus at the Michiquillay project, also in Peru, has been on building relationships with the local communities and, in this respect, land access negotiations were completed in June 2009. The geological exploration programme that began in July had completed 16,000 metres of drilling by the end of the year. Drilling was suspended in late 2009 pending resolution of issues currently under discussion with local communities. Baseline environmental and hydrological studies also commenced during the second half of the year. Conceptual engineering studies have been completed and a decision to award the pre-feasibility engineering studies will be taken during 2010.
Activities at the Pebble project in Alaska advanced on all fronts during 2009. In 2010, the project team will work towards finalising the engineering design, completing the environmental baseline document and carry out additional exploration drilling within the claim area.
Increased throughput is not expected to fully compensate for lower ore grades putting pressure on production levels in 2010 prior to the commissioning of the Los Bronces expansion project, which together with targeted throughput improvements at Collahuasi and El Soldado, will deliver a step increase in attributable copper production in 2011. While a continued strong copper price through 2010 would put pressure on the Chilean peso and labour costs, further cost and operating efficiency benefits are expected to be delivered through the Group's global supply chain and asset optimisation initiatives.
Demand for copper from China is expected to continue growing at a healthy rate, while demand in North America and Europe is also showing signs of recovery. On the supply side, production is anticipated to continue to be constrained by industrial action, declining grades, increasing social and environmental demands and other political risks. Notwithstanding Chinese government measures to restrict short term credit and the high level of restocking in 2009 giving rise to potential price volatility in 2010, the strong long term fundamentals for copper remain in place.
Development work at the Los Bronces expansion project. The expansion is due to come on stream in late 2011, with production increasing to an average of over 400 ktpa of copper during the first 10 years of its expected 30 year life.
Stacker/reclaimer in action at the Mantoverde mine, which produced over 60 kt of copper cathode in the year.