BHP-Anglo Saga Highlights Copper Shortage

After many attempts to acquire Anglo American by BHP, the deal seems to have been unsuccessful. During a six-week negotiation period, offer prices were increased twice with BHP urging Anglo-American’s shareholders and executives to sell its copper resources.

Despite this, the deal still fell through. Sources posit that this was primarily because BHP mainly wanted Anglo-American’s copper operations. This deal highlights the current scarcity of the red metal. Just last week, the price of copper hit a new high, going for more than $11,000 a ton.

It is expected that sooner or later, the red metal’s market will go into a deficit. Copper’s demand is set to surpass supply as the transition to clean-energy use gains traction in North America and Europe. A prediction from Goldman Sachs also suggests that copper demand will take off due to defense spending and artificial intelligence (AI) development. The bank forecasts that the metal’s prices could reach $12,000 a ton.

New supply isn’t available, however, as demonstrated by BHP’s attempts to secure copper assets via the recently failed acquisition. Clareo’s chairman, Peter Bryant, stated that the deal demonstrated that the only way miners could increase their revenues with copper was via acquisition, since there were no new copper assets available.

Bryant added that even if they existed, miners would need close to two decades to acquire permits and build. He noted that even brownfield expansion wouldn’t help obtain new and adequate copper supply due to increasing depths of available resources, declining grades, and growing distances from processing facilities, among other factors.

It doesn’t help that investments in new copper production have been low for about 10 years now. This is primarily a result of poor returns on investments in the previous decade.

BHP’s chief executive, Mike Henry, estimates that about $250 billion in investments is needed to increase the supply of copper to a degree that would allow it to meet demand by 2030. In addition, data from the International Copper Study Group suggests that the copper market is in a surplus. According to the organization, the worldwide copper market was balanced last year, with roughly 26 million refined copper tons.

However, the data also projects that in 2024, the market will have a surplus of more than 160,000 tons. This figure is then expected to drop to less than 100,000 tons in 2025. This environment, the organization notes, isn’t conducive for investment in copper supply. Reducing ore grades and mine closures are also impeding supply growth.

As the predicted market squeeze materializes, copper producers such as Southern Copper Corporation (NYSE: SCCO) could see interest in their shares reaching feverish levels.

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