Industry executives: Copper projects hindered by spiraling capital costs

As inflation intensifies and factors such as infrastructure construction drive an increase in capital expenditure, capital costs are increasingly becoming a challenge for the construction of new copper mines.

Tristan Pascall, CEO of First Quantum Minerals, told attendees at the London Indaba that miners face significantly higher capital costs than other global industries.

"As an industry, we are now facing one of the highest capital costs. The reality is that we do have to go to the market to develop these large capital projects. For BHP, the world's largest miner, capital costs are probably in the range of 8% to 10%," Pascall said.

He added, "In comparison, Google's capital costs might be 4% or 5%, while other competitors in this field might adopt different models, with capital costs around 1%."

As mining projects scale up, the ability to achieve the necessary return on investment drives the pursuit of higher incentive copper prices.

"I don't think the actual copper price has changed much. We need to re-understand inflation. Before the outbreak of COVID-19, we experienced a long period of low inflation, so much so that we were used to talking in absolute terms, whereas we should be talking in inflation-related terms," Pascall said.

"The current copper price of around $4.50/lb is equivalent to approximately $3.5/lb about three years ago. This is the incremental inflation we've seen in developing projects."

Chris Griffith, CEO of Vedanta Base Metals, stated in his speech that the capital intensity of new copper projects has increased from approximately $15 million per kilotonne to an average of around $25 million now.