Rio Tinto to favour building new copper mines over M&A, exec says

Rio Tinto (NYSE: RIO; LSE: RIO; ASX: RIO) will prioritize developing new copper mines over acquiring new ones to achieve its goal of producing 1 million tonnes of the metal annually within the next five years, copper boss Bold Baatar has said.

Speaking at the CRU World Copper Conference in Chile, the executive noted that to boost production from the roughly 700,000 tonnes of copper it currently churns out, Rio is looking mainly at organic growth.

Most of the planned output expansion, Baatar said, will be driven by Rio Tinto’s expansion in Mongolia, Utah, and global exploration efforts, including a partnership with Chile’s Codelco, the world’s largest copper producer.

The company’s focus will be on organic growth, not acquisitions, Baatar told Bloomberg News in Santiago.

Baatar, who was recently appointed as Rio’s next chief commercial officer, said Rio would invest more in Chile if the country streamlines its permitting process, not only for new developments, but also for projects to optimize current operations.

Cost-effective

Despite the increasing cost and time required for project development, Baatar believes that building mines is still more cost-effective than buying existing one, a stance that may disappoint industry watchers betting on a new wave of mergers and acquisitions. 

Consolidation in the industry is only logical if it increases the supply of the metal used in wiring, considering the anticipated acceleration in demand growth due to the world’s ongoing energy transition, Baatar noted.

The cost of building new copper mines has significantly increased over the years. In 2000, the average capital needed for a new copper mine sat between US$4,000-5,000 to produce a tonne of copper. By 2012, this had risen to US$10,000 per tonne, and recent analyses pegged current costs to up to US$44,000 per tonne of production.

Robert Friedland, founder and chairman of Ivanhoe Mines (TSX: IVN), recently estimated the price of copper needed to reach close to US$15,000 a tonne and remain there for a long period of time, before the industry can really gear up and build much needed new copper mines. 

Baatar, who joined Rio in 2013 and was appointed copper chief in 2021, played a key role in leading the company to successfully complete the underground expansion of the Oyu Tolgoi copper mine in Mongolia. 

He takes the post of chief commercial officer in September and industry insiders say he is likely to become Rio Tinto’s next chief executive officer.