Why water risk management is becoming a key differentiator in copper mining

“Climate models tell us that the regions supplying the world’s most critical transition metals are also among the most vulnerable to water variability. For investors, this means water governance isn’t a peripheral consideration — it’s a leading indicator of operational resilience and capital efficiency.”

Dara O’Rourke, Associate Professor at UC Berkeley’s Rausser College of Natural Resources

Water risk is becoming a critical lens through which investors can assess the resilience, execution quality, and long-term value creation potential of copper producers. As assets grow more complex and operating environments become more constrained, credible water strategies, and the ability to govern and deliver upon these strategies are emerging as key drivers of differentiation across the sector.

Drawing on direct engagement with seven major copper producers, we have found that differences in water governance, execution, and transparency are becoming an increasingly important source of differentiation — with direct implications for production reliability, cost competitiveness, and long-term investment returns.

Copper demand-and-supply imbalance

Copper is a critical metal that is facing rising demand. It is an essential enabling component in the shift towards clean energy (such as wind turbines, solar panels, power grids, electric vehicles, construction, industrial activity and data centres). Additionally, it is also needed in digitalisation and connectivity, (mobile devices, smartphones, and laptops); and as the global population becomes more developed, demand should grow in tandem. However, supply is struggling to keep pace with demand: the International Energy Agency (IEA) estimates a copper supply shortfall of around 30% by 2035. ¹ A key constraint on new supply is declining ore grades, which make copper extraction more difficult and costly.

How does water risk impact copper mining?

Water is gradually influencing the economics of copper production, interacting with underlying asset quality and project design. New water solutions such as desalination plants, long distance pipelines, and advanced water treatment systems can now require investments in the billion-dollar region, often with long lead times. While the quality of the ore remains the main driver of costs, these additional requirements can materially increase capital intensity and introduce significant execution risk across new and existing projects.

At the same time, as copper producers move into lower grade and more remote assets, access to credible and socially acceptable water solutions is becoming a precondition for project approval and expansion. Projects that are unable to demonstrate robust water strategies face heightened regulatory, social and financing risk regardless of ore quality. This narrows the pool of viable growth options and constrains effective supply.

Investor implications: Water risk and copper supply

The implications are clear. Copper supply growth may be more constrained than headline project pipelines suggest, as water availability narrows the pool of economically viable assets. As a result, returns are increasingly determined by asset-level resilience, governance strength and delivery capability, while sustained investor engagement remains a critical tool in reinforcing discipline around financially material risks.

Given copper’s essential role in the energy transition, these dynamics have direct implications for supply security. While investors have long recognised that water shortages, flooding and contamination can disrupt production, what has changed is the degree to which these risks are now intensifying, converging and simultaneously constraining the global copper supply chain.

Recent company experience illustrates this dynamic. In the US, Capstone Copper cited drought-related water constraints as a driver of production downgrades at Pinto Valley. In Chile, producers such as Anglo American and Antofagasta increasingly rely on large‑scale desalination and long‑distance water infrastructure to sustain operations and enable growth. Conversely, flooding, water‑quality incidents, and regulatory intervention, seen at Freeport McMoRan’s Grasberg asset, and legacy operations within Glencore’s portfolio, demonstrate that excess water and insufficient controls can be just as financially material as scarcity, particularly where governance and oversight are weak.

Why engagement on water governance matters

Over the past six months, Janus Henderson’s Responsible Investment & Governance Team, alongside portfolio managers covering commodities and natural resources, and analysts from wider teams engaged with multiple global copper producers. We sought to understand how water related risks are managed in practice, and how rising regulatory, community and climate pressures influence capital allocation, operational resilience and long term supply outcomes. A clear conclusion is that differences in water governance, execution and transparency are becoming an increasingly important source of differentiation between copper producers, with direct implications for production reliability and cost competitiveness.

Our research and engagement efforts were driven by the growing visibility of water as a systemic constraint on copper supply. Drought related disruptions, flooding, and water management disputes have long been known risks, but the frequency and scale of these events is now increasing, just as copper demand is rising due to structural themes such as the energy transition.

As a result, our focus was less on whether companies acknowledged water risk, and more on risk management in practice. In particular, we explored:

• How companies determine when water risks become financially material at asset level
• How chronic scarcity and acute extreme‑weather risks are differentiated and managed
• How water considerations influence mine design, operating rules and capital allocation
• What governance and escalation mechanisms exist when water risks intersect with safety, permitting and community trust

Our engagements focused on large, diversified copper producers and growth-oriented medium-sized companies with meaningful exposure to water-stressed or climate-volatile regions, including Chile, Peru, North America and parts of Africa and Asia. These companies account for a significant share of global copper supply. They also sit at different points on the cost curve, making water risk highly relevant to both near-term performance and long-term growth potential.

The discussions extended beyond investor relations teams to include technical and operational leadership, enabling a more granular assessment of how water is managed as an operating constraint rather than how it is described in reports.

“How mining companies manage water directly affects communities, ecosystems, the durability of their operations and their cash flows. Meaningful engagement on water access, usage and stewardship is fundamental to sustainable mining and to our investment process, particularly as it relates to the production of metals such as copper or lithium that are critical for the energy transition.”

Tal Lomnitzer, Portfolio Manager, Responsible Resources

Scarcity and excess: two interconnected water challenges

A central takeaway from our engagement work is that water risk is not new, but it is becoming far more consequential as constraints tighten. Two distinct, but increasingly interconnected, challenges dominate:

1. Chronic water scarcity

   Typically, in arid regions such as Chile, Peru and the US Southwest. Regulatory restrictions, competing community needs and long‑term climate trends have steadily reduced availability of freshwater sources. In response, companies described large‑scale investment in desalination, seawater use and recycling infrastructure as essential to maintaining production and securing expansion approvals. In practice, this has meant up to multi‑billion‑dollar commitments to coastal desalination plants and long‑distance pipelines, with implications for capital intensity, operating costs and project returns.

2. Excess water and extreme weather

   Flooding and groundwater ingress pose acute risks to mine safety, tailings stability and operational continuity, particularly at underground or mature assets. Recent events have triggered regulatory intervention, operational downtime and, in some cases, board‑level reassessment of risk frameworks, underscoring how climate volatility is testing historical design assumptions.

In both cases, the financial consequences are well understood, leading to lost output, delayed ramp ups, unplanned capital expenditure and higher operating costs.

Governance, disclosure and execution as sources of differentiation

Our engagements also highlighted widening differentiation across the sector. More resilient operators shared several common characteristics. First, site level water balance models incorporating climate scenarios fed directly into operational planning. Second, water management was embedded within core operational and enterprise risk frameworks alongside safety and capital discipline. Third, decision useful disclosures allowed investors to distinguish between actively managed risks and residual exposure.

“A key advantage of equity ownership is stewardship: as shareholders, we can press for better disclosure, stronger standards and more disciplined capital allocation. In commodity derivatives, that lever simply isn’t available — so responsible investors have traditionally relied on exclusions or small tilts, which can be blunt tools in a narrow and interconnected market. An active, hybrid approach combining natural resource equities with commodity derivatives could offer the advantages of both approaches while staying aligned with clients’ responsible investment objectives.”

Robert Shimell, Portfolio Manager, Diversified Alternatives

Taken together, these dynamics underscore that water risk is no longer a peripheral sustainability issue. It is a central determinant of capital intensity, operational resilience and long‑term value creation across the copper sector. In the second half of 2026, we plan to extend engagement to a broader set of diversified miners to encourage sector-wide progress on water governance and disclosure. Our engagement efforts align with Janus Henderson’s belief that insight-led investing focusing on deep fundamental research across the firm allows the integration of financially-material ESG considerations to better manage risks and help achieve attractive outcomes for our clients.

References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.