Outlook for Copper is “Still Very Bullish” | Robert Wares

Key Concepts

• Copper Demand Drivers: Green energy transition, Electric Vehicles (EVs), data centers, Artificial Intelligence (AI), and increased electrical networks.
• Critical Minerals: Essential for national defense and modern military equipment, with a focus on rare earths.
• Supply Chain Issues: Supply destruction from incidents (Grasberg, El Teniente, Cobre Panama), lack of processing capacity, and long permitting timelines for new mines and smelters.
• Processing Capacity: China's dominance in rare earth and copper processing, and the lack of comparable capacity in North America.
• Permitting Process: Lengthy and arduous permitting in North America (10-15 years for smelters/refineries) compared to China's established long-term plans.
• Smelting and Refining: The importance of domestic smelting and refining capacity for copper, with limited facilities remaining in Canada.
• Negative TC's (Treatment Charges): China's practice of offering negative treatment charges for processing, making it difficult for North American smelters to compete.
• National Defense and Critical Minerals: Long-term commitment to critical minerals for defense purposes, potentially providing a stabilizing force for prices.
• US Initiatives: US government exploring building refining capacity on federal land/military bases to secure supply.
• Canada-US Trade: Potential for Canadian mines to export concentrates to the US for processing, and the role of critical mineral deals.
• Osisko Metals (Gaspe Project): Ongoing drill program, upcoming mineral resource estimate, Preliminary Economic Assessment (PEA), and plans for resource expansion.
• TSX Uplisting: Osisko Metals' move to the TSX from the venture exchange, increasing liquidity and access to capital markets for larger funds.
• Copper Market Outlook: Bullish outlook for copper due to persistent demand and supply deficits.

Demand Side: Shifting Focus and Persistent Drivers

The demand for base metals, particularly copper, remains strong, though the primary drivers have seen a slight shift. While the green energy transition continues to be a significant factor, the conversation has broadened this year to include critical minerals and the burgeoning demand from AI and data centers.

• Green Energy and EVs: Although EV sales have not met all expectations, they still represent a notable demand for copper. However, the initial outlook for copper demand from the transportation sector has seen a slight decrease.
• AI and Data Centers: A resurfaced and significant driver is the immense energy consumption of data centers and AI technologies. These require substantial increases in electrical networks, directly translating to higher copper demand for production and infrastructure.
• National Defense and Critical Minerals: The focus on critical minerals is heavily linked to national defense. For instance, an F-35 fighter jet requires approximately 400 kg of rare earths. While copper may not be a direct component in all military equipment, the production of these critical minerals necessitates significant refining capacity, which in turn relies on electricity and, consequently, copper. Bob Wes, CEO of Osisko Metals, states, "the the really the fundamental al basis for all any technological environment is rooted in more electrical energy and hence • more networks bigger networks and all that points to increased copper demand."

Supply Side: Disruptions and Deficits

The supply side of the copper market is facing significant challenges, exacerbated by recent disruptions and a fundamental lack of new production capacity.

• Supply Destruction Events: Several major incidents have led to a substantial drop in global copper production. These include events at Grasberg, El Teniente, and Cobre Panama, the latter of which has an uncertain return to production.
• Production Drop: From what has been reported, these events have resulted in approximately a 7% drop in global copper production over the last 18 months.
• Impending Deficits: These supply disruptions are pointing towards severe deficits in the market, which are already beginning to manifest and are expected to worsen.
• Recycling Limitations: While improved copper recycling could offer some relief, there is insufficient data to suggest it can adequately compensate for the current shortfall.
• Permitting Delays: A critical bottleneck is the lengthy and complex permitting process for new mines. Even if copper prices were to rise significantly, it would take considerable time to bring new production online due to these regulatory hurdles.
• Government Initiatives: The Canadian federal government's initiative through C5 to accelerate the permitting process for "nation building projects" is welcomed. However, concrete impacts on earlier development projects, which require the most urgent timeline compression, have yet to be fully realized.

Critical Minerals and National Defense: A Stabilizing Force?

The renewed focus on critical minerals, particularly in the context of national defense, is seen as a potential stabilizing force for the market.

• Long-Term Commitments: Unlike green energy initiatives, which can fluctuate in priority with government changes, defense-related priorities tend to involve longer-term planning horizons (10-20 years). This predictability can offer a more stable demand outlook for critical minerals.
• China's Dominance: A significant challenge is China's near-monopoly in the processing of many critical minerals, especially rare earths (90%) and a substantial portion of copper (50%). China has been strategically building its processing capacity for decades.
• North American Processing Deficit: In contrast, North America faces extremely long and arduous permitting processes for new smelters and refineries, often taking 10-15 years. This lack of domestic processing capacity presents a significant security risk.
• Smelting and Refining in Canada: The majority of copper concentrate produced in British Columbia is sent to Asia for smelting. Canada has very limited domestic smelting and refining capacity, with the Horn smelter and CCR in Montreal being the last remaining facilities. These facilities struggle to compete with China, which offers negative treatment charges (TCs) for processing.
• Need for New Facilities: To secure North American supply, it is estimated that at least three more smelters, equipped with port facilities for importing custom concentrates and processing domestic ones, are needed.

US Initiatives and Canada-US Cooperation

The United States is exploring strategic moves to secure its critical mineral supply chain, which could create opportunities for Canada.

• US Refining Capacity: The US has proposed building refining capacity on federal land and military bases, leveraging existing infrastructure and strategic locations.
• Canadian Policy Alignment: It is anticipated that US priorities in securing supply and refining capacity will influence Canadian policy, driven by mutual necessity.
• Trade Opportunities: A potential trade deal could involve Canadian mines exporting concentrates to the US for processing. This would be mutually beneficial, as the US requires these materials.
• Critical Mineral Deals: The US has already signed critical mineral deals with countries like Ukraine, Australia, and Malaysia, indicating a willingness to secure supply, primarily driven by defense needs for rare earths.

Osisko Metals and the Gaspe Project

Osisko Metals is actively advancing its Gaspe copper project, with recent drill results and upcoming milestones.

• Drill Program: The current drill program is nearing completion, with continued news flow on drill results expected into the new year due to laboratory backlogs. Approximately 15,000 meters of core are currently in labs for assaying.
• Mineral Resource Estimate (MRE): A new MRE is slated for the end of February. The deposit is shaping up well, with real-time redefinition of the ME model boundaries as results come in.
• Preliminary Economic Assessment (PEA): The MRE will serve as the basis for the PEA.
• Resource Expansion: Drilling is planned to recommence in late April 2026 to expand the resource further south and southwest towards Needle Mountain, an area of previous production. This expansion drilling aims to add inferred resources to the current measured and indicated categories.
• Mine Life and NPV: The company is focused on adding measured and indicated resources that can support a mine life of at least 18 years, as anything beyond that does not significantly impact the Net Present Value (NPV) in discounted cash flow models. Additional resources may be classified as inferred for future potential production.
• Project Growth: The Gaspe project is proving to be larger than initially anticipated, which is positive news for investors.
• TSX Uplisting: Osisko Metals was uplisted to the TSX from the venture exchange in August, which provides increased liquidity and greater exposure to capital markets for larger institutional funds.

Outlook for Osisko Metals and the Copper Market

• Key Milestones for 2026: The MRE and the subsequent PEA are the major milestones for Osisko Metals.
• Continued Drilling: The company is budgeting for an additional 40,000 meters of drilling in 2026, ensuring continuous drilling throughout the year.
• Resource Growth: The objective is to continue growing the resource base.
• Bull Market for Copper: The company anticipates a continued bull market for copper throughout 2026 and beyond, driven by the persistent demand and supply deficits.

Conclusion

The outlook for copper and critical minerals is robust, driven by the ongoing green energy transition, the exponential growth of AI and data centers, and the strategic imperative of national defense. However, significant supply-side challenges, including production disruptions and a critical lack of domestic processing capacity in North America, are creating severe deficits. China's established dominance in processing poses a considerable hurdle. Initiatives by both the US and Canada to bolster domestic refining and smelting capabilities are crucial for securing future supply chains. Osisko Metals, with its advancing Gaspe project and recent TSX uplisting, is well-positioned to capitalize on these market dynamics, with upcoming milestones expected to further de-risk and enhance the project's value. The company's commitment to resource expansion and its alignment with the bullish copper market forecast suggest a promising future.