Panama's Copper

This week we talk about renewables, open-pit mines, and the Bronze Age.

We also discuss the Cobre mine, First Quantum, and environmentalism.

Recommended Book: The Possibility of Life by Jaime Green

Transcript

Depending on whose numbers you use, and where you choose to place your chronological brackets, the Chalcolithic, or Copper Age, began around 5,000 BCE, around 7,000 years ago, with the smelting of copper at high temperatures.

The oldest confirmed and dated site relevant to the beginning of this age is in Serbia, though this capability seems to have been developed, independently, at various places around the world within a few thousand years of each other, including China, North America, in the Great Lakes region, and in what is today Pakistan, as well, among other locations.

The process of smelting copper that was practiced in Eurasia, in what we might today call Central or Eastern Europe and Western Asia, slowly moved the continent out of the Neolithic period, which was largely defined by humanity's construction of organized settlements, widespread adoption of agriculture and animal domestication, and large-scale pivot away from nomadic, hunter-gatherer-style ways of living.

Folks at that time were also getting a lot of mileage out of early ceramics and stone tools, alongside all sorts of ornaments and artworks made of these and other materials that required skill and some level of technology to use, but which didn't require metallurgy.

Humans were still using a lot of stone tools during this period, then, but started to include heat-worked copper elements into their tools, as well.

So the Copper Age saw the development of very basic metallurgy by many interconnected groups throughout this part of the world, and though some early writers on the subject grouped the use of copper and bronze together, defining a much larger period as the Bronze Age in an undifferentiated way, modern scholarship on the matter, beginning in the late 19th-century, breaks them apart into the earlier Copper and subsequent Bronze Ages because the manipulation and use, and often then the heavy reliance on copper tended to segue a society, eventually, toward bronze, the latter being more difficult to wield, and the former generally serving as a transitional sort of technology.

And that's because copper is one of the rare metals that naturally occurs in a usable form in the Earth: so folks were using copper for a variety of purposes as far back as 8,000 BCE-ish, but we tend to use the smelting of copper as a delineation for the eponymous age, because that's when humans started to really work it, having become capable of building the technologies required to reach the requisite heat levels, and to control the metal and shape it, rather than simply finding it in its raw form and using chunks or slivers of it for decoration or weaponry-related purposes.

Bronze is an alloy consisting of copper and tin, and the proper melding of these two metals makes the resulting substance, bronze, a lot more durable, resistant to environmental wear, and more capable of holding its shape: that also means it's a lot more difficult to work, if you want to make things out of it, but it also made things like armor and sword edges dramatically more effective, which is why when civilizations learned how to work it and built the infrastructure necessary to do so on scale, they tended to do pretty well, in terms of military victories and economic competition, compared to their bronze-less neighbors.

Copper, though in some ways replaced by its alloys, like bronze, for many use-cases throughout history, has continued to be incredibly useful for a broad range of purposes, and what I'd like to talk about today is the closure of a copper mine in Panama, and the predicted global copper shortage we may soon face.

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In the latter-half of 2022, the International Copper Study Group, or ICSG, reported that they expected a copper surplus of around 155,000 tonnes on the global market in 2023.

That would represent a small surplus, as about 26 million tonnes of copper land on the international market each year, but a surplus of any kind would have been notable, following a long period of deficits, largely due to a huge amount of growth and construction throughout China, and a failure of international copper mines to produce as much marketable metal as they're theoretically capable of producing.

The ICSG updated their expectation in early 2023, changing their official expected figure from a surplus of 155,000 to a deficit of 114,000 tonnes, and that's following a deficit of 431,000 tonnes in 2022.

The upside of which is that the world has been demanding more copper than has been produced for a while now, and while current deficits are low compared to the record-high deficit of about 1 million tonnes in 2014, some prognosticators are saying we could see a deficit of somewhere between 1.5 million to 9.9 million tonnes by 2035, depending on how a collection of variables play out in the coming years.

One major variable is how expansively and aggressively the world's governments and companies decide to invest in and deploy new, renewable energy-centric technologies and accompanying infrastructure.

Copper is fundamental to the production of solar panels, electric vehicles, battery storage technologies, and even the cables that, when strung together, form our electric grids.

Because of that funamentalness, copper is generally seen as being an easy bet, in terms of production investment, because it's so necessary for development and growth and building things, that—using existing technologies and systems and methods, at least—we'll always need more of it.

And there is investment in copper projects around the world, including a slew of recent takeovers, like the April 2023 approval for BHP Group to buy OZ Minerals for nearly $6.4 billion, and the attempt by Swiss multinational Glencore to buy-out Canadian-owned Teck Resources for around $23 billion, which failed, but that eventually led to a separate deal for Glencore to buy Teck's steelmaking-grade coal business for around $9 billion; so Teck held on to their copper business in that deal, but that more than $20 billion price tag gives you a sense of how big this market is, and how competitive it's getting.

The issue, though, is that while there's interest in this industry, and a lot of growth potential more or less baked into the way the world is going, with so many new renewables being deployed and grid systems needing to be upgraded essentially everywhere to account for more transmission of larger volumes of electricity to more locations, there's still a lack of sufficient mined copper—growth in mining volume has sputtered, and some analysts have suggested that with copper as cheap as it is, there's less appetite to invest in that side of the industry; as of September 2023, the average price of a key grade of copper was just over $8,500 per tonne, and some analysts have said the price needs to be something like $15,000 per tonne, nearly double that, in order to justify the necessary investment in mining volume capacity.

Thus, we're at a moment in which we're already short of copper, we're expected to, globally, need a lot more of it very soon, but the price isn't high enough to justify expanding output, and that means we could run up against a shortage before the price reaches the point it needs to be at, which may then compound the issue for several years, until that new capacity can be built-out and come online, at which point we may be way behind on this transition, but also possibly hurting across other endeavors, as well, like making repairs to infrastructure, building new buildings, and even expanding access to fundamental services like telecommunications, because all of these things require a substantial amount of copper, which could become quite expensive for a while, if a balance isn't established, soon.

That potential for a global shortage and concomitant price increase spiral is part of why news out of Panama, regarding a copper mine called the Cobre mine, is so unwelcome to many market watchers.

The Cobre mine, located about 75 miles or 120 km west of Panama City and just shy of the Caribbean coast, is a huge open-pit copper mine that spans about 53 square miles or around 138 square km, and, according to many environmentalists, is severely damaging to local ecosystems, including the jungle area where it's located, and it substantially depletes local water supplies.

The mine also accounts for about 1% of global copper output, somewhere between 3.5-5% of Panama's total GDP, and employs something like 8,000 people directly, and tens of thousands more, indirectly.

A Canadian company called First Quantum bought the land in 2013 and started building it in 2014, and it then began operation in 2019.

A concession for the land had been granted to another company by the government, and that concession was confirmed with the passing of a law in 1997.

A lawsuit was brought to the country's Supreme Court in 2009, the idea being that the concession was illegal because there hadn't been a public tender on the matter—no bidding process, basically—so the concession should be deemed illegal as the process of granting it was maybe corrupt.

In 2017, the Supreme Court agreed with that claim, but in 2019 when the government attempted, unsuccessfully, to basically just give a new concession similar to the old one, to make the mine and the company operating it legitimate in the eyes of the law, First Quantum was just beginning to make its first shipments of copper from the mine, and in 2021, when negotiations had finally started up for a new contract, since that 2019 attempt didn't work, the mine was already nearly at full production strength—so the realities on the ground behind all of this legal maneuvering became trickier and tricker, because not only was this company nearing full operational capacity, it was bringing in money for the government, it was employing gobs of people, and it had pretty firmly rooted itself in the region—to the chagrin of many, but also to the benefit of many, because of all that money and employment.

The mine ended up closing for two weeks in late 2022, leading up to a decision by the Panamanian congress, which, in October of 2023, approved a new bill that, like the old bill that was declared unconstitutional, would allow First Quantum to keep mining copper in the area, despite the environmental issues inherent in the work they have been doing there, and the alleged corruption and non-constitutionality of the process granting them mining rights.

A wave of protestors surged into the streets across the country, blocking roads and shipments and the conduct of normal business, and while there were a few skirmishes where police hit protestors with tear gas, these protests remained mostly peaceful.

Protestors said they didn't think it was constitutional to approve the mine the way the government did, and that it seemed as if the president was secretively pushing something he wanted to get done, despite the contract—like its predecessor—not being valid.

Then, in late November 2023, the Panamanian government ordered the mine closed, following the Supreme Court's ruling that, yes, this new bill granting the mining company concessions wasn't legal, either.

We're now entering a period of uncertainty in regards to the mine's future, as there's a chance international arbiters will decide that First Quantum should receive a huge payout for their troubles and investments, or, if things were to go a different direction and they were to negotiate a new, constitutionally allowable contract, allowing the mine to start back up in some capacity, things could still be tricky, as the mine has lost around half its global market share since those huge protests began back in October.

There's also a chance the Panamanian government could nationalize the mine, or that the mine will simply close forever, though that still leaves questions about what will happen to the surrounding area, much of which has been deforested or otherwise harmed by the size and open pit nature of the mine.

This issue has become a big deal in Panama, as it touches on some touchy subjects, like alleged corruption by politicians—it was assumed by many that the president and his government were behaving corruptly in this matter, because the payout the government would receive from the Canadian mining company was considered to be quite small, compared to what the company would take—but also environmentalist issues, which have become increasingly vital at a moment in which much of the wealthy world is attempting to shift their raw material needs, especially those that come with environmental damage, overseas.

And some poorer nations are attempting to fight that shift, but with mixed results, as in some cases those raw materials provide them with much of their export-related wealth, as is the case in Panama, where something like 80% of its exports reportedly came from this mine.

There are also issues of international concern here, though, because of those aforementioned global copper needs and how the surge of investment in renewables and accompanying infrastructure and technologies require a lot of raw materials like copper, but also lithium, cobalt, and other such metals and elements.

The conflict, then, is that there's still an imbalance here, as although some nations might be able to flip the switch on mining some of these newly desirable materials and selling them to wealthier nations, become something like the next-stage of a petro-state, there are also valid concerns related to the killing-off of local ecosystems and flora and fauna, in pursuit of what amounts, through the eyes of some, to a quick buck.

Is it worth attaining some amount of money if you have to trade the environmental well-being of your country to do so?

That's the question Panama has asked itself, and it has apparently decided in favor of its environment, though this is a question many other people in many other places are asking themselves right now, too, and their answers will further inform how this global transition plays out, and what sorts of trade-offs will or will not be made in the process.

Show Notes

https://apnews.com/article/panama-mining-canada-first-quantum-mineral-arbitration-6530dceccfb60fb9a06bc3136c04d2cc

https://apnews.com/article/panama-mine-copper-protest-environment-economy-6e893c48311540eeb81ce35173b9f558

https://apnews.com/article/panama-copper-mine-supreme-court-canadian-629d8a7838f23cc4ed845a1b3c7a2941

https://www.wsj.com/world/americas/panamas-supreme-court-rules-against-first-quantum-mine-bab0cfa2

https://www.bbc.com/news/world-latin-america-67565315

https://en.wikipedia.org/wiki/Cobre_mine,_Panama

https://www.aljazeera.com/economy/2023/11/30/panama-celebrates-court-order-to-cancel-mine-even-as-business-is-hit

https://www.ctvnews.ca/canada/canadian-owned-mine-will-begin-closure-in-panama-after-contract-deemed-unconstitutional-1.6668760

https://www.reuters.com/markets/commodities/top-panama-court-rules-first-quantum-mining-contract-unconstitutional-2023-11-28/

https://www.wsj.com/articles/copper-shortage-threatens-green-transition-620df1e5

https://www.eetimes.com/copper-may-be-the-next-real-shortage/

https://www.reuters.com/markets/commodities/coppers-anticipated-supply-surplus-is-proving-elusive-2023-05-10/

https://about.bnef.com/blog/copper-prices-may-jump-20-by-2027-as-supply-deficit-rises/

https://en.wikipedia.org/wiki/Neolithic

https://en.wikipedia.org/wiki/Copper

https://en.wikipedia.org/wiki/Chalcolithic

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