Copper: The Irresistible Rise in the Cost of Capital

It is always instructive to observe sector trends through the lens of industry players — those insiders who possess a granular understanding of the markets in which they operate. In this respect, Darwinism still appears alive and well within the copper industry, as illustrated by the recent announcement of a merger between Teck Resources and Anglo American. To recall, the former was the target of a takeover attempt by Switzerland’s Glencore in 2023, and the latter by Australian miner BHP in 2024.

The main reason for this union is the need to extract operational synergies in a highly inflationary environment, driven notably by rising labor costs, declining ore grades, and tightening environmental constraints. Confronted with these structural headwinds, the newly formed entity — to be named Anglo Teck — will have 70% exposure to copper and aims to create value by optimizing capital use. This will involve pooling operations at geographically close Chilean assets (Collahuassi and Quebrada Blanca). According to both companies’ management, the merger could generate up to $800 million in synergies.

Historically, consolidation waves have occurred periodically in this industry. Unsurprisingly, analysts expect further corporate activity, given that developing a large copper mine producing 250,000 tonnes — about 1% of global output — is estimated to cost between $5 and $6 billion, according to the CEO of mining group Vedanta. Adding to this, the fact that it takes an average of 17 years between the discovery of a new deposit and its actual production highlights the need for financially robust players in the sector.

Even without new projects, the industry is currently struggling to optimize existing assets. Production figures from Latin America illustrate the point: as of the end of August, the combined output of Chile and Peru was up by only about 1%, far below the targets set for late 2024. The situation is unlikely to improve — quite the opposite — since a mudslide in late September forced the shutdown of the world’s second-largest copper mine. Meanwhile, operations at Grasberg in Indonesia — run by Freeport-McMoRan and accounting for 3% of global copper production — are not expected to return to normal before mid-2026.

Despite these recurring operational challenges, demand prospects remain robust, driven by the well-known megatrends: grid electrification, data centers, and the energy transition (electric vehicles and renewables). These new, copper-intensive uses add to more traditional ones such as construction — to the extent that BHP forecasts copper demand to rise by 70% by 2050, reaching 50 million tonnes per year.

Looking to a nearer horizon, the International Energy Agency (IEA) estimates that current and planned capacity will cover only 70% of theoretical demand by 2030. This naturally raises the question of what price level would be required to stimulate supply. Goldman Sachs addressed this partly in its latest report on the metal: its analysts view $10,000 per tonne as the lower bound of their new price range, reflecting both supply constraints and structural demand from critical sectors (excluding recession scenarios).

The announcements and subsequent reversals by the U.S. administration regarding tariffs on copper imports triggered a market dislocation whose peak occurred last summer, followed by a 20% price drop on the COMEX (New York) as prices realigned with those on the LME (London). With that idiosyncratic episode now behind us, investors can once again focus on sector fundamentals. The growing imbalance between supply and demand over the medium term is likely to lead inevitably to a higher price regime — the price signal being the only force capable of prompting ever-larger players to invest in new capacity for what is increasingly known as the gold of the 21st century.

Pierre Pincemaille, General Secretary of Investment at DNCA. This article was finalised in November 6th, 2025.

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