INSIGHT: Mining megadeals are poor fix for copper shortage

There aren’t many things that mining CEOs agree on. But most reckon the world is speeding towards a deficit of copper. The real question is what to do about it.

At first sight, Anglo-Teck’s recently announced $54 billion merger looks an encouraging solution to a worrying gap between supply and potential demand of the red metal, which is central to the green energy transition. In fact, the deal is just the exception that proves the rule. Production boosts may only happen when the deficit actually bites – and prices begin to soar.

Last year, copper miners – like Australia’s BHP, Chile’s Codelco and US group Freeport-McMoRan – collectively dug up almost 23 million metric tons of the metal globally, according to the International Energy Agency. Announced projects should get this to 24 million tons by the late 2020s. But after that, annual output could then drop below 20 million tons by 2035, unless fresh supply opportunities are identified, the IEA reckons.

That’s a problem. Copper’s conductive qualities make it essential for electrifying the world economy: demand could approach 33 million tons by 2035, based on the IEA’s estimates. A projected jump in the use of recycled scrap metal over the next decade will struggle to plug the looming chasm between supply and demand.

There are more immediate pressures, too. Freeport-McMoRan shares recently fell over 15% in a single day after the miner said its giant Grasberg site in Indonesia had halted production, following the deaths of two workers. Rivals’ sites in Panama and the Democratic Republic of Congo have hit problems too. The upshot is that global copper output growth is likely to be negligible this year and only 1.3% in 2026, Citigroup analysts reckon, compared with a 25-year average of over 2.5%.

Economic theory dictates that these kinds of setbacks contain the seeds of their own solution. In a normal market, the copper price would rise enough for bosses like BHP’s Mike Henry or Anglo American’s Duncan Wanblad to dig more. The first stage of that process is happening: at around $10,500 per ton, copper prices are 40% higher than three years ago and not far off the 20-year record reached last May.

Unfortunately, pandemic-era inflation has pushed up production costs even faster. The IEA reckons that the capital expenditure required to get new supply up and running in Latin America, the world’s key production location, has increased by 65% since 2020. That’s the case even on “brownfield” sites, which are supposed to be cheap because they involve adding to pre-existing projects rather than starting anew on “greenfield” production.

Nor is there much agreement between miners on what either type of project actually costs. BHP estimates $23,000 per ton of annual production on average, including both new builds and expansion. But Teck’s Quebrada Blanca site in Chile cost $29,000 per ton, according to the company’s own disclosure. Antofagasta’s Centinela project in the same country sits at $30,000 per ton. For a new 200,000-ton-a-year copper mine, the upper end of that range implies a hefty upfront outlay of $6 billion.

To make an acceptable return on such a site, big miners would require a copper price of over $12,000 per ton, according to one mining investor. Throw in the fact that it takes 17 years to get a mine from discovery to production, and that permitting is getting harder, and it’s easy to see why bosses are generally reluctant to put much more money in the ground.

All of which explains the appeal of Anglo Teck. The nil-premium merger structure of the deal means the London-listed group is splicing itself together with a Canadian company initially valued at $17 billion including net debt. Factor in over 500,000 tons of copper and associated metals Teck mined in 2024, and Anglo is acquiring new mining capacity at around $30,000 a ton – but without the delay or risk of building new sites.

That’s only the start. Anglo and Teck reckon they can create 175,000 more tons of annual copper production by 2030, thanks to the benefits of owning nearby mines. The outlay to get this extra capacity is just $1.9 billion. That works out at less than $11,000 per ton of extra production. Relative to the alternatives, that’s a steal.

If all mining M&A were like this, megadeals and the greater balance sheet heft they entail could help solve the supply crunch. Unfortunately, Anglo Teck looks like a one-off. The two Chilean sites in which they hold sizable stakes are unusually close together. And Teck is an outlier in another sense. Before the deal, the Canadian group’s share price had fallen 25% in a year, due to production issues in Chile. Had that not happened, the headline deal cost from Anglo’s perspective might have worked out at more like $40,000 a ton, assuming the same nil-premium structure. In other words, the share-price stars just happened to align.

Another problem with M&A is that newly enlarged miners aren’t certain to boost production. Consultant Wood Mackenzie reckons Anglo Teck could even see less overall output than if the companies had remained separate, because it can now cherry-pick the highest-return mines. Meanwhile, the likes of Rio Tinto suffered lasting scars from poor deals like 2007’s Alcan purchase. Sometimes it’s easier to stay in investors’ good books by buying back shares instead.

If M&A is tricky and fresh projects too costly, it’s hard to see where all the extra supply comes from. Of the 239 copper deposits discovered between 1990 and 2023, only 14 took place in the final decade of that period, the IEA says. Miners’ exploration budgets sank below 3% of copper EBITDA in 2024, Bernstein analysts reckon, compared to over 6% in the early part of the 2010s.

It all points to spiralling prices. Following the industry’s recent production problems, Bank of America analysts raised their copper price forecasts to $11,313 per ton next year and $13,500 a ton in 2027. If that pans out, mining bosses may finally have an incentive to stop sitting on their hands and get digging.

The flipside is that any extra supply would take years to come online, meaning much higher material costs in the interim for producers of electric cars and other copper-dependent products. For mining bosses to start solving the copper shortage, the rest of the world will have to feel it first.

(By George Hay, EMEA Editor, Reuters Breakingviews)

(Editing by Liam Proud; Production by Oliver Taslic)