In the dusty, treeless outback of Southern Australia, a brand new mining camp is home to a hundred workers, putting in 12-hour days, two weeks at a time. Dozens of trucks are scattered across the vast acreage, mounted with towering rigs drilling more than 2 km underground. All are focused on the hunt for one of the world's most coveted minerals: copper.
Oak Dam, discovered by BHP Group geologists in 2018, is a glimmer of hope for CEO Mike Henry, who sees global copper demand doubling over the coming decades as the energy transition takes hold, and wants his company to produce more of it. The deposit is also a rarity - if all goes to plan, a new operation will be built here by the world's largest miner, from scratch.
"Globally, there would be few companies conducting drilling campaigns of this scale, to this depth," said Michael Fonti, BHP's main exploration geologist at the site, pointing out a diagram of the cone-shaped deposit.
Fonti has spent more than two decades on sites much like this one, working most recently at the miner's nearby Olympic Dam, a vast, challenging copper and uranium operation. But even for BHP - a $140-billion company which generated almost $12-billion in free cash flow in the last financial year - large, greenfield projects are scarce, and becoming more so. Deals, not discoveries, are grabbing the headlines.
Copper's bull narrative, which helped prices hit an all-time high in May, is well understood. Electrification, wealthier populations and an expanding, energy-hungry technology sector are vast new sources of demand. An electric vehicle requires roughly three times the copper that goes into a conventional car, and the energy transition won't happen without enough red metal for grids, batteries and chips.
This should all be prompting a surge in prospecting and digging, to ensure supply keeps up, especially as large, established mines age. It isn't - and that risks making this much-needed metal punitively expensive.
Miners have been in spending purgatory for over a decade, atoning for the excesses of the last boom. For years, investors demanded generous returns, not production growth and certainly not risk. But now that diggers can open the purse strings again, high costs, slow permits and other hurdles are pushing the largest metal producers to buy - not build.
BHP, even with its effort to build out the copper belt of South Australia, is no exception.
Asked at its earnings briefing last month, Henry said the company was opportunistic about deals and not pursuing them at the expense of exploration, nor was BHP making a blanket decision on cost. There was no rule of thumb on buying or building, he said.
Still, in less than two years, BHP has bought copper and gold producer OZ Minerals for $6.4-billion, betting on South Australia's copper province; tried and failed to buy peer Anglo American for $49-billion, in large part for its South American copper mines; then in July agreed to buy copper miner Filo jointly with Lundin Mining, a bet on a project in development on the Argentina/Chile border.
"Mining is cyclical, and a key factor driving the trend of buying over building is the point in the cycle," said Campbell Cooper, a Melbourne-based advisor at Greenhill & Co., an investment bank. "Recent years have also seen an acceleration in the cost of building new mine capacity. Arguably that cost may not be fully reflected in equity valuations, making buying more attractive."
Building from zero, in short, is both worryingly risky and unappealingly pricey.
No wonder, then, that only roughly a quarter of the sector's sanctioned - or approved - projects between 2019 and 2023 were of the greenfield variety, according to analysts at Jefferies. That's down from more than half in the 2009 to 2013 period. The size of new projects is also shrinking.
"There was a raft of copper discoveries in the 1950s, 60s, 70s, and 80s," said BHP's Fonti. "Everything being produced now is from that era of discoveries." Escondida, t...
