AFP, April 29 (Editor Xia Junxiong) As mining giant BHP Billiton attempted to acquire rival Anglo-American Resources Group, copper prices broke through the $10,000 per ton mark last week, highlighting the industry's biggest problem: miners are not building enough raw ore production capacity.

BHP Billiton proposed a $39 billion acquisition of Anglo-American Resources Group last week. After being rejected by the latter, the company is allegedly considering raising the offer.

Meanwhile, the 3-month copper price on the London Metal Exchange (LME) broke through 10,000 US dollars per ton. The last time it broke through the 10,000 US dollar mark dates back to early March 2022. Affected by the outbreak of the Russian-Ukrainian conflict, the price of copper hit a record high of 10,845 US dollars per ton at that time.

The price of copper remained stable above 10,000 US dollars on Monday.

(Source: Yingwei Financial)

The purpose of BHP Billiton's bid for Anglo-American Resources Group is to further expand the copper business. If the acquisition is successful, BHP Billiton will become the world's largest copper producer, with a market share of about 10%, but this will not have any impact on the overall global supply situation.

Since this year, copper prices have risen 16%. Supply issues are the main driving force, but unlike the last time the copper price soared to 10,000 US dollars, demand for copper is currently relatively moderate, and there is sufficient supply in the spot market.

However, investors are betting that there will be an imminent shortage of copper supply and expect miners to still be unwilling to build new mines and prefer to increase market share through acquisitions, thus driving up copper prices.

Investment bank analysts and hedge fund investors are generally optimistic about the future of copper prices, believing that as supply shortages worsen, copper prices may rise to unprecedented levels in the next few years.

The mining industry is underinvesting in new mines

Copper is a key metal for decarbonization, and is widely used in various fields such as cables, electric vehicles, and construction. However, in recent years, the mining industry has seriously underinvested in copper mines.

According to CRU Group, production from existing copper mines will drop drastically in 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.

The reasons for underinvestment are not new, but these factors are worsening, including: high-quality mines are becoming more difficult to find; smaller exploration companies are getting less and less funded; social and environmental resistance is increasing, and the costs of labor, equipment, and raw materials are surging.

Earlier this month, Laura Whitton, head of BHP Billiton's copper and potassium strategy, said at an industry conference that compared to the past, the world is more dependent on old, lower grade mines. “There are real supply challenges,” she said bluntly.

A key challenge, however, is that the construction of new mines will take years or even decades, so miners need to make decisions based on whether future copper prices are worth investing in.

Olivia Markham, co-manager of BlackRock World Mining Fund, believes that miners need a copper price of $12,000 per ton to justify investing in new mines; even so, their investors may be unwilling to provide capital.

Markham added, “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.”

William Tankard, chief analyst at CRU Basic Metals, said: “It is clear that the market urgently needs to increase mine production capacity. The challenge is already before the miners, and it will be very challenging to achieve this goal.”