Hydrometallurgical copper enterprises should not be viewed as conventional smelters but rather as "invisible copper mines," according to a research report by Industrial Securities Co., Ltd. While traditional smelters typically exhibit low gross margins and extended investment payback periods—leading to subdued valuations—this perception fails to distinguish between hydrometallurgical and pyrometallurgical technologies.
Hydrometallurgical copper production generates profits through "free copper ore," with earnings closely tied to copper prices rather than treatment charges (TC) or refining charges (RC), resulting in higher gross margins. In contrast, pyrometallurgical smelting relies on TC/RC and byproduct recovery, yielding lower profitability. Industrial Securities argues that hydrometallurgical firms' elevated margins justify their classification as "invisible mines," necessitating a valuation reassessment.
**Key Insights:** 1. **Slowing Global Copper Output, Rising Hydrometallurgical Share** Global copper mine production growth has stagnated at a 2% CAGR from 2014–2024, with average ore grades declining from 4% in 1900 to 0.52% in 2022. Meanwhile, hydrometallurgical output—once negligible before the 1960s—now accounts for 4.8 million tons (21% of 2024’s total mine production).
2. **Energy Efficiency and Cost Advantages** Hydrometallurgy consumes less energy, bypassing high-temperature smelting and reducing fuel costs. It is particularly suited for low-grade oxide ores and complex polymetallic deposits, eliminating expensive beneficiation steps required in pyrometallurgy. With capital costs of ~¥15,000/ton (versus ¥65,000/ton for pyrometallurgy), hydrometallurgical plants offer faster ROI and operational flexibility.
3. **Profitability Driven by Discounted Ore Pricing** Hydrometallurgy thrives on procuring low-grade oxide or primary ores at steep discounts, creating a "low-cost-in, high-margin-out" pricing gap. This model delivers gross margins around 30%, far exceeding pyrometallurgy’s sub-10% margins. Chinese firms like Shengtun Mining and Tengyuan Cobalt exemplify this advantage, with copper segment margins consistently near 30%.
**Risks:** Global recession, less aggressive Fed rate cuts, and hedging losses.
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