Electric Vehicle Boom Brings $95B Investment to Latin American Copper-Mining Projects

Bloomberg Línea — A key metal in infrastructure and manufacturing, copper is acquiring a new status with the accelerated growth of electric car sales worldwide. In addition to mining companies, the automotive industry is increasing its interest in copper projects in Latin America to secure the raw material to supply such vehicles, and, despite the expansion, investments may be insufficient to meet future demand.

Estimated investments in 68 copper projects in the region will total $95.4 billion from 2023 to 2029, according to a KPMG study commissioned by Bloomberg Línea. Chile, Peru and Argentina lead in terms of the value of investments, respectively, followed by Mexico, Ecuador and Brazil.

According to the global consulting firm’s study, a global drop in copper production is expected from 2024 due to the reduction of volumes produced in operating mines - a phenomenon known as depletion - which should generate a deficit of 5.1 million tons by 2030 against an annual demand of 28.4 million tons worldwide.

According to KPMG, the top 20 copper projects under development in Latin America have the potential to offset a significant part of this deficit, but not to eliminate it completely.

For Adriano Levi, strategy and transaction advisory partner for KPMG’s natural resources and energy sectors, there has been a lack of synchronicity between recent waves of investment in copper projects and current demand, which stems from a relatively rapid energy transition movement.

“Historically, copper is used in construction, telecommunications and industrial equipment. Now we see a strong demand push with the energy transition, as the metal has high conductivity and has been applied in renewable energy projects and electric vehicles,” he told Bloomberg Línea.

Mining giants are carrying out copper projects of significant magnitude in Latin America. One case is that of Brazil’s Vale (VALE3), which in addition to having the main assets of the metal in Brazil, is looking for opportunities in Peru. British mining company Anglo American, Australia’s BHP and the Chilean state-owned mining company Codelco are also in this race.

In Brazil, niche companies such as Ero Copper, with operations in the Brazilian state of Bahia and headquarters in Vancouver, Canada, and British company Appian Capital, with operations in the Brazilian state of Alagoas, are also betting on the copper business.

“Mining has a relatively long cycle, starting with research and then evolving to reserves testing and licensing. Regardless of the country, it is a challenge. For a project to effectively enter the production phase it can take 10 to 15 years,” explained KPMG’s lead mining partner Ricardo Marques.

Marques said that market conditions for mining are not as favorable, which could affect new copper prospects. “The supply of various types of ore is not necessarily going to keep pace with the demand generated by the energy transition.”

Otavio Costa, portfolio manager at Denver, US-based Crescat Capital, pointed to another challenge: the lack of skilled labor, pointing out that there is currently a shortage of geologists in the global market, a reflection of the mining recession of just over a decade ago.

Costa explained that the mining industry is divided into three parts: exploration, development and production, and geologists are vitally important to get projects off the ground.

“The lack of manpower causes inefficiencies in the industry, which are exacerbated by the shortage of capital in the market,” he said.

But despite the difficult environment, copper operations are increasingly valuable. Levi noted that Vale decided to sell part of its base metals unit looking ahead to the sudden increase in demand from the automotive industry. Swiss commodities giant Glencore is also eyeing the base metals division of Canadian miner Teck Resources for the same purpose.

Auto industry also investing

According to the director of Bright Consultoria Automotiva, Murilo Briganti, copper represents about 10% of the minerals present in electric car batteries. He explained that copper is responsible for conducting electricity from the external part of the battery to the internal part, and vice versa, hence its importance.

Major automakers have also entered the race for copper supply as the demand for electric vehicles grows. At the end of February, car maker Stellantis (STLA) announced a $155 million investment in a copper project in Argentina.

The group’s CEO for South America, Antonio Filosa, said in an interview at the time with Bloomberg Línea that the plan to expand the supply of electric vehicles considers the search for more copper and lithium assets, raw materials used in fleet electrification.

“As well as copper, lithium is also of great interest to us in the future. We are looking at all opportunities, doing risk analysis on the supply of these raw materials needed directly in battery production,” Filosa told Bloomberg Línea.

Stellantis has agreed to acquire a 14.2% stake in McEwen Copper, a subsidiary of Canadian mining company McEwen, which owns the Los Azules project in Argentina and the Elder Creek project in Nevada in the US. With the operation, the automaker becomes the second largest shareholder of McEwen Copper, together with Anglo-Australian mining giant Rio Tinto.

Filosa also said the group is evaluating reserve opportunities in Brazil, Chile, Argentina and other South American countries.

KPMG’s Levi said that there is, in fact, a verticalization movement in the automotive industry to secure raw materials not only through the direct purchase of participation in mining projects, but also by establishing long-term contracts for supply. “In the past we didn’t see this movement as much, but today it is much more common,” he said.

In February, General Motors announced a $650 million investment in a company that promises to explore for lithium in the US state of Nevada. Tesla is also evaluating Sigma’s lithium mining assets in Brazil, according to Bloomberg News.