Copper is increasingly becoming one of the most valuable assets in the global economy. Due to its superior ability to conduct electricity, demand for copper is expected to surge in the coming decades as the world shifts away from fossil fuels toward renewable energy sources. This anticipated demand is a driving factor behind BHP’s $46 billion bid to acquire Anglo American. However, there’s a significant disconnect between the attractive long-term prospects for copper and the current profitability challenges faced by private sector mining companies.
BHP’s interest in expanding its $156 billion copper portfolio is clear. Electric vehicles, wind turbines, and batteries—all critical components of the green energy transition—require large amounts of copper due to its cost-effective conductivity. The International Energy Agency (IEA) estimates that global annual copper demand will need to rise from 26 million tons in 2023 to 41 million tons by 2050, while S&P Global predicts a potential increase to 53 million tons. By 2030, a significant supply-demand gap is expected, with S&P forecasting a shortfall of 9.9 million tons per year by 2035.
Despite high copper prices, which recently reached around $10,500 per tonne, global copper mine production is projected to grow by only 0.5% in 2024. This is far below the 2.6% average growth rate of the previous three years and the initial forecast of 3.7% expansion for this year. Factors such as the closure of the Cobre Panama mine due to a dispute between the Panamanian government and Canada’s First Quantum Minerals have contributed to this sluggish growth.
Mining companies face rising operational costs, with average operating expenditures increasing from $3,100 per tonne to $3,600 between 2020 and 2023 due to inflated energy bills. Additionally, the cost of building new mines or expanding existing ones has skyrocketed. The IEA estimates that the cost per tonne of new production has risen from $20,000 in 2017 to $30,000 or even $35,000 according to some sources. This cost inflation is driven by factors such as the need to dig deeper in existing deposits and the extraction of lower-yield ores.
For mining projects to be financially viable, copper prices need to rise further. Industry analysts suggest that prices must reach $5 per pound (approximately $11,020 per tonne) to cover the capital costs of new projects. When copper prices hovered around $8,500 per tonne in 2023, new investments were financially unfeasible, leading to financial losses for companies approving such projects. JP Morgan analysts note that BHP and Rio Tinto, which have faced significant losses from past mergers and acquisitions, are cautious about disappointing shareholders.
This caution is evident in the actions of industry leaders like BHP’s Mike Henry and Anglo American’s Duncan Wanblad. BHP has not rushed to accelerate the next phase of its Escondida copper mine in Chile, and Freeport-McMoRan has delayed expanding its Bagdad deposit in the U.S. Analysts from Goldman Sachs calculate that recent copper mergers have closed at a price equivalent to $25,300 per tonne of annual production, which is cheaper than the estimated cost of expanding some mines.
The preference for acquisitions over new builds is clear, as seen in BHP’s pursuit of Anglo American. However, as Barrick Gold CEO Mark Bristow points out, mergers do not guarantee increased production. A larger company might pause supply to protect margins, potentially producing less than two smaller entities would have.
Large miners might better manage inflated capital costs. A mine capable of producing 500,000 tonnes a year could cost $15 billion, less than half the annual production of BHP’s Escondida. To approach the 9.6 million tons per year of new capacity needed by 2035, as estimated by consultancy CRU Group, mining companies must scale up to absorb the risks of megaproject delays or setbacks.
Yet, investors may doubt the justification for high copper prices, assuming governments might not meet their energy transition targets. Exorbitant prices could also lead to a shift from copper to cheaper alternatives like aluminum, which trades at about $2,600 per tonne.
Despite the challenges, mining leaders like Wanblad and Henry are hedged against the dysfunctional copper market. If a shortfall drives copper prices higher, their shareholders could benefit, even if the broader market struggles. However, the ultimate impact on the planet and the success of the energy transition remains uncertain. 
