The recent uptick in mining mergers and acquisitions (M&A) is masking the slowdown in greenfield exploration projects. Companies are increasingly relying on acquisitions rather than the expensive and risky process of discovering new deposits.

After making a new all-time high in May, copper has declined and stepped down from the headlines, leaving gold in the top spot. Despite copper's price decline, its looming shortages continue to trouble analysts, who project significant discrepancies between supply and demand in coming years.

BHP Group Ltd.’s BHP Oak Dam project in Australia, discovered in 2018, presents one of the few large-scale greenfield copper prospects in development today. The exploration target is an estimated 500 million to 1.7 billion tons of ore with a copper grade of 0.8-1.1%, an exceptionally promising find.

Globally, there would be few companies conducting drilling campaigns of this scale, to this depth," BHP's leading geologist Michael Fonti said for Bloomberg.

Buy, Don't Build

Yet, despite Oak Dam's promise, even BHP, the world’s largest mining company, focuses more on acquisitions than new developments.

The company bought OZ Minerals for $6.4 billion while failing to complete a $49 billion acquisition of Anglo American, which owns significant copper assets in South America.

Still, BHP expanded its foothold on that continent by recently acquiring the Filo copper project on the Argentina-Chile border in partnership with Lundin Mining.

The acquisition trend is evident across the industry, as rising costs, long permitting timelines and geopolitical uncertainties make greenfield exploration unattractive. Less than a quarter of mining projects approved between 2019 and 2023 were greenfield developments.

Digging Through the Past

The economics of new mining developments showcase the slowdown. The initial capital expenditures (capex) to build a mine have skyrocketed.

For instance, the Dundee Precious Metals project in Serbia has an estimated capex of $381 million, a hefty price tag for a mine expected to produce just over 129,000 ounces of gold annually.

The cost per ton of copper production has exceeded $44,000 already in 2022 AOTH estimated, with projects such as Cobre Panama exemplifying this trend. Built at a capex of $6.7 billion, its production capacity started at 175,000 tons, yielding a capital intensity of $38,000 per ton — significantly higher than historical averages.

Moreover, many current copper deposits were discovered in the 20th century. Escondida, the world's largest copper mine, was found in the late 1970s, and most of the copper being mined today comes from that era.

"Everything being produced now is from that era of discoveries," BHP's Fonti pointed out.

AI-Powered Capex

Despite the problematic state of greenfield exploration, the latest technological advancements offer hope. Artificial intelligence (AI) can help comb through historical geological data, identifying opportunities a human eye might have missed. Even Oak Dam was nearly missed, as cutting-edge geophysical methods uncovered it.

Startups like KoBold Metals have gone AI from their inception, using advanced data analytics to target new deposits. Its high-profile investors include Bill Gates, Jeff Bezos and Jack Ma. The company might go public in the near future, with speculations about a valuation of $2 billion.

The External Factors

Growing geopolitical instability, driven by conflicts in Eastern Europe, Asia and Africa, can disrupt even the most promising projects.

Recent unrest in Pakistan is threatening to throw the country into deep political turmoil, with the newly minted government losing control over the disgruntled population grappling with an economic crisis, the New York Times wrote last month. Large-scale protests were particularly notable in Balochistan, a province that houses one of the most notable copper projects, Barrick's Reko Diq $7 billion mine.

Meanwhile, a regulatory shift prompted the Panamanian government to close the Cobre Panama mine, a project that accounted for around 1.5% of the global copper supply. This action left a historical reminder that external factors can nullify years of exploration and billions in investments.

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