The Zhitong Finance App notes that BHP Billiton (BHP.US) is trying to acquire Anglo-American Resources Group, which highlights a core disconnect at the core of the industry: mining companies are not building enough mines.

The biggest producers all want to increase copper production to take advantage of the growing demand for electric vehicles, grid infrastructure, and data centers. BHP Billiton proposed a $39 billion plan to acquire Anglo-American Resources Group, in large part because the world's largest mining company wants to expand its copper business.

However, this optimism has yet to translate into the huge investments involved in developing new mines and associated infrastructure. If the acquisition is successful, BHP Billiton will become the world's largest copper producer, accounting for about 10% of the market share, but it will have no impact on meeting global supply needs.

According to CRU Group, production from existing mines will drop drastically over the next few years, and to meet the industry's supply needs, miners will need to spend more than $150 billion between 2025 and 2032.

If miners don't increase spending, copper supply will drop drastically

“Copper appears to be the last remaining supply risk for the electric vehicle industry,” said Bernard Dahda, a senior commodity analyst at the French Foreign Trade Bank. “In a net zero emissions scenario, we'll need lots of copper, and we'll need a different strategy to increase supply.”

Supply issues have been the driving force behind the 16% rise in copper prices this year. Unlike the last time the copper price hit 10,000 US dollars, demand for copper is currently relatively moderate, and there is sufficient supply in the spot market.

Instead, investors are betting on an impending shortage and anticipating that mining executives and their shareholders aren't ready to finance and build enough new projects, but would rather buy shares from rivals, driving iron ore prices to soar.

The reasons behind underinvestment aren't new, but they're all getting worse: high-quality deposits are getting harder to find, small exploration companies are getting less funded; social and environmental resistance to mining is getting stronger, and the costs of labor, equipment, and raw materials are soaring. The few miners that are still building have recently gone through a difficult period.

Speaking at the copper industry's annual Cesco Week conference earlier this month, Laura Whitton, head of copper and potash strategy at BHP Billiton, assessed how copper mining has become more difficult and expensive. A day ago, BHP Billiton privately lobbied Anglo-American Resources Group.

She said that compared to the past, the world is more dependent on old mines with lower ore grades. “On the supply side, there are real challenges.”

Copper miners need to spend more to fill the supply gap

Although the current copper market supply is relatively adequate, investment banking analysts and more and more hedge fund investors are increasingly optimistic about the outlook, believing that as the market faces increasing shortages, the copper market may rebound to an unprecedented level in the next few years.

A key challenge is that the construction of new mines takes years or even decades, so decisions need to be calculated based on whether the price of copper in the distant future is worth investing in.

Olivia Markham, co-manager of BlackRock World Mining Fund, said that miners need $12,000 in copper to justify investing in new mines. Even so, their investors may be reluctant to fund them.

He said, “On a geological level, we have projects; what we need is funding. “The last time the copper price was 10,000 US dollars, miners didn't increase their expenses, but rather increased their dividends.”

The lessons of the past decade suggest that if money does flow, it may come from China, but there is also resistance there. According to McKinsey's data, all miners in China have contributed about 40% of net supply growth in the past 10 years, but this percentage appears to drop to 16% in the next 5 years.

China's large-scale investment in overseas mining assets has disrupted the market for key battery metals such as nickel, lithium, and cobalt, leading to an excess of all of them. Copper is also a key component in electric vehicle batteries and motors, but the global market is so large that China cannot solve the industry's supply challenges alone.

“It is clear that there is an urgent need to increase mine production capacity,” said William Tankard, chief analyst at CRU base metals. “The challenge is already at the feet of the miners, and it will be very challenging to achieve this goal.”