Rising Capital Costs Threaten New Copper Mine Developments
The rising cost of capital is emerging as a major challenge for the development of new copper mines, driven by resurgent inflation and soaring infrastructure expenses, according to First Quantum Minerals CEO Tristan Pascall.
Speaking at the London Indaba conference, Pascall highlighted that the mining industry is now facing some of the highest capital costs among global sectors.
“We now face one of the highest capital costs available,” said Pascall. “The reality is we have to turn to financial markets to develop these large-scale projects, and even the biggest mining company in the world—BHP—faces a cost of capital in the range of 8% to 10%.”
He contrasted this with other global corporations, noting that tech giants such as Google may operate with a cost of capital as low as 4% to 5%, while some industry competitors benefit from funding models with costs as low as 1%.
As mining projects grow in scale and complexity, generating the required return on investment necessitates a higher incentive price for copper, Pascall explained.
“I would argue the copper price hasn’t moved significantly in real terms,” he said. “We need to reframe our thinking around inflation.
After an extended period of low inflation before the COVID-19 pandemic, we became accustomed to viewing prices in absolute terms instead of inflation-adjusted ones.
“For example, today’s copper price of around $4.50 per pound is equivalent to approximately $3.50 per pound in real terms from three years ago. That’s the effect of inflation on project development costs.”
Supporting this view, Vedanta Base Metals CEO Chris Griffith noted that capital intensity for new copper projects has risen significantly.
“The cost has increased from around $15 million per kiloton (kt) to an average of $25 million/kt today,” said Griffith.
“That means a large copper mine with an annual production of 250kt would require between $5 billion and $6 billion to develop.”
These insights underscore a growing concern across the mining industry: the escalating costs of project development, coupled with inflation and high capital requirements, are threatening the viability of new copper ventures at a time when global demand is surging.
