Top copper supplier Codelco expects disruptions from the Middle East war to lift its production costs by about 5%, offering one of the first quantified inflation estimates from a major mining company.

Higher diesel prices, more expensive supplies and the Chilean government’s proposed suspension of a fuel tax credit would together add roughly 10 cents per pound to Codelco’s cash costs, CFO Alejandro Sanhueza told reporters in Santiago on Friday. Currently, the cost stands at about $2 a pound.

“We are closely monitoring this situation,” Sanhueza said during an earnings presentation. “We haven’t yet been directly affected by the Middle East situation, but we are exposed to international prices.”

The Iran conflict poses a triple threat to global mining profits — driving up energy costs, disrupting supply chains for inputs such as sulfuric acid, and weighing on commodity prices amid concerns over stagflation. Copper prices have fallen almost 9% since the war began.

Still, Codelco struck a constructive tone on the outlook for copper prices, saying that while short-term volatility has increased due to geopolitical risks, the underlying supply–demand balance remains supportive.

“The long-term price fundamentals are quite strong. We have growing demand and supply that is increasingly difficult to expand,” Sanhueza said. “That gives us a positive view from a fundamental standpoint.”

Last year’s price surge helped drive a 23% increase in Codelco’s earnings before items, even as production stayed fairly flat. The company expects to produce slightly more copper this year as management strives to put a string of operational and project setbacks in the rear-view mirror.

Executive chairman Máximo Pacheco is battling to revive output after production sank to a 25-year low amid declining ore grades and delays and cost overruns at several projects designed to tap richer areas of deposits. Making that task more challenging are ongoing restrictions around a section of its biggest mine that collapsed in July, killing six workers.

Pacheco, the 73-year-old former energy minister whose term as chairman ends in May, wants to get output back to pre-pandemic levels of about 1.7-million tons, potentially reclaiming the mantle of the world’s top copper producer from BHP Group.

That recovery would be welcomed by a copper market in which supply is expected to struggle to keep pace with demand amid an artificial intelligence-driven data center boom and the shift toward electric vehicles.