Abstract
Economic returns for the copper industry have been assessed by building cash flow models for each of the 100 new mines brought into production over the past 20 years. Ninety-one of the 100 new mines returned the assumed 8% cost of capital and generated a positive net present value (NPV) at the development decision point. Economic criteria for individual mines are highly variable with NPV ranging from −$111 million (−$111M) to +$3850M (all money values are presented in United States dollars) and internal rate of return (IRR) ranging from −8% to +95%. The copper industry collectively would generate approximately $39 billion dollars in NPV through the development of the 100 new mines.
The returns to exploration ($174M per deposit) were measured by deducting the cost of exploration per deposit ($221M) from the returns to development per deposit ($395M). Overall, the copper business has provided positive returns to exploration. However, the variability in returns across deposits means that only 41 of the 100 new mines can carry the average cost of exploration. The long lead times and high costs associated with exploration result in only those deposits with large amounts of contained copper being able to cover the average finding cost of the industry.
The returns to development and exploration are shown to be highly sensitive to the cost of capital and metal price assumptions. With respect to deposit type, porphyry deposits are both larger (NPV) and exhibit lower profitability (IRR) than the nonporphyry deposits. On a geographic basis, returns to development and exploration are higher in Chile than elsewhere, reflecting the larger average deposit size and lower average exploration cost per deposit.
