global mining investment_survey 2013

8/12/2019 Global Mining Investment_Survey 2013

1/7

PROJECT SURVEY 2013

Mfs

Annual Survey of Global

Mining Investment

L a s t y e a r s s u r v e y q u e s t io n e d w h e t h e r th e lo n g b o o m

in

m in in g in v e s t m e n t w a s

s t a r t i n g to fa d e , o r ju s t e x p e r ie n c in g a t e m p o r a r y m a r k e t ad jus tm en t Th i s y e a r s

verd ict : th e b o o m h a s

p e a k e d

By Magnus Ericsson and Viktoriya Larsson

The investment boom in the global mining sector slowed down dur-

ing 2012. The annual growth rate of the project pipeline was only

9% in 2012 compared with 2 0% and

2 1 %

in 20 11 and 201 0. The

number of projects in the pipeline even decreased between 2011

and 2012 only by 1 % , but marking the end of a continuous

increase over the past years. The slowdown, which continued

throughout the year but accelerated in the last quarter, has includ-

ed a number of project deferrals such as the postponement of the

high-profile 8-billion O lympic Dam project by BHP Billiton. Other

examples are the Prioskolskoye iron ore project and the Sukhoi Log

gold project, both in Russia; Grupo Mexico's El Arco copper project

in Mexico; Vale's Vermelho nickel project in Brazil; and others.

During 20 12 , 130 new m ining projects with an estimated total

cost of 47 billion were registered in Raw Materials Group's (RMG)

Raw Materials Data Metals (RMD Metals) 'Mines/Projects' database.

Project investment in 2012 was considerably lower than in 2011,

when the number of new projects registered was 165 with an

esti-

mated total investment cost of 11 0 b illion. The final figures for

2012 will most likely increase somewhat as a number of projects

from the end of 2012 will only be registered in the database early

in 2013. This correction has been as much as 15%-20% in some

years, but most probably will be less than that this year. Although it

is too early to draw any detailed conclusions it is clear that the peak

in investments in the present cycle has been reached and we will

most likely see a slight decline in investment activities in 2013.

However, this decline will not represent the start of a long-term

trend. Mining and mining investments have always been and will

remain cyclical businesses, and RMG remains optimistic for the

long-term outlook of the sector. Population growth, urbanization

and general economic development in the emerging economies

are still positive and provide a strong base for continued growth in

metal demand and hence the need for increased mine production

and for new investment projects.

Economic W eakness Lower Expectations

As 20 12 drew to a close, the total value of announced investment

in the project pipeline of the global mining industry was 73 5 bil-

lion, as registered in the RMD Metals 'Mines/Projects' database.

The deepening financial crisis in Europe and the slow recovery in

North America seem to have slowed growth in 2012. Metal prices

during the past year have, on the whole, not performed badly, with

gold prices higher than in 2011, copper and iron ore on slightly

lower levels while nickel and zinc have been trending downward

for about two years.

Industry expectations for 2013 are cautious and might have

is down compared with both the first half of the year and the

same two quarters in 2 0 1 1 . However, it is important to remember:

1) there is always a delay in reporting new projects; and 2) this

analysis is based only on figures captured up to late November/

early December.

The upward trend of increased project costs, highlighted in the

2011 survey, continued in 2012. We previously noted that many

projects have been enlarged in both announced cost and capacity

when moving from the feasibil ity to the construction phase and

this tendency continues. Of all of the gold projects in this year's

list, 10 experienced cost increases totalin g more than 8 billion ,

from an original total of 15 .4 billio n. The average increase was

54%. Only one project managed to cut its cost, by a marginal 5 %.

Six projects are new to the list and no comparison is possible.

Project cost increases are not entirely due to increasing unit

costs but also to rapid growth in metal demand. Other important

cost drivers include more complex ore bodies, deeper lying deposits

with lower grades and increasingly remote locations of new mines.

Equipment prices and construction costs are increasing and many

equipment suppliers are working at near full capacity. Problems

caused by lack of experienced mining staff, which disappeared in

2009 and 2010, have re-emerged although not at the same seri

ous level as in late 2007 and early 2008. In some regions-

Western Australia, for examplerecruitment of staff has become a

serious problem and salary and wage levels are getting out of hand.

The number of projects at the feasibility stage has increased

strongly, to 28% of total investment. This growth is to be expect-

ed given the high numbers of new projects announced in 2010

and 2 0 1 1 , which now have matured and evolved to the next stage

in the development process. At the same time, the number of pro-

jects at the conceptual and pre-feasibility stages has decreased

because of a drop in new, early-stage projects, reflecting the

declining investment appetite and increasing financial problems

Mining Project Investment Pipeline, 2012

[Greenfield Projects

Early Stages

Conceptual

Prefeasibility

Feasibility

Construction

rownfield Projects

[

Stages

Investment

(xUS B )

Share

(Percent)

h re

Trend

(2011 to 2012)

26 9

20 4

82

37

28

11

18 0 24

t


2/7

PROJECT SURVEY 2013

of the junior companies that initiate most of these projects. This

will likely cause some problems in the future, as there will not be

enough conceptual- or prefeasibility-stage projects in the pipeline

to meet the inevitable rising demand for metal.

The share of projects at the construction stage increased mar-

ginally compared with 2011. However, the investment value of

this sector grew strongly in 2012. The average cost of projects

under construction In 20 12 was 93 0 mill iona large difference

from the average of 64 5 m ill ion in 2 0 1 1 . The same situation is

noticeable for brownfield projects, although for those the average

project cost is generally mu ch lower, at 45 0 m illion , than for a

greenfield project.

It is difficult to accurately monitor the progress of brownfield

projects from project studies to construction because they are often

carried out internally and quickly, without public disclosure. Thus,

the total investment figure for projects under construction is un-

doubtedly an underestimate, particularly for this project category.

All of this year's survey statistics are based on projects with an

announce d investment estima te. The RMD Metals database also

includes approximately 1,900 projectsmostly in the conceptual

stagefor which no investment figure has been announced. The

investment total for all mining projects, including projects for

which no investment estimate has been published, is therefore

larger than the 73 5 b il l ion recorded at the end of 201 1 but it

is difficult to estimate how much larger. If it is assumed that the

projects without published investment estimates have a similar

cost structure to those projects whose costs are known, the total

figure would increase considerably. It could, however, also be

argued that unannounced-project costs are lower, as most mega-

projects are conducted by public companies that must publicly

disclose all significant expenditures. If this is indeed the case, the

total figure would be smaller. Projects involving metals not covered

in this survey but included in the database also represent a spe-

cific investment total but one that is estimated at a much lower

level than the major metals represented in the survey

Given the continued strong metal demand from China, India

and other emerging economies, RMG expects metal prices to mild-

ly decline in 2013 before possibly rising again in 2014.

Many of the early stage projects included in this year's total

investment figure will not pass from the conceptual study phase to

the construction stage for a number of reasons. However, histori-

cally RMG has observed that 6 0% -7 5% of all projects announced

will materialize during a three-year period.

Iron Ore Grabs

a

Bigger Share

As in previous years iron ore, copper, gold and nick el, in that order,

are the largest investment targets for mining companies. These

four metals account for 86% of the total project pipeline, a small

increase from 84% in 2011. They also dominate the mining busi-

ness in terms of total value of its output, which for these metals

only is 60 6 bil lion or 7 1 % of the total value of all mine produc-

t ion of metals during 2011.

Iron ore project investment remains firmly in the top spot, as it

has since 20 10 , and even increased its share in 20 12 with a pro-

ject pipeline of 24 5 b il l ion; while copper, in second place,

accounted for 20 0 billio n. Gold and nickel are at muc h lower lev-

els ( 12 5 bil l ion and 60 bil l ion respectively), followed by a sig-

nificant drop to the 15 - 25 bil l ion level where uranium,

lead/zinc and the PGMs, in that order, are to be found. The aver-

Mining Project Investment by Metal, 2012

Iron ore

Copper

Gold

Nickel

Uranium

Lead/zinc

PGMs

Diamonds

Silver

Other

Total

Investme nt Total

(US billion)

24 5

20 0

125

60

25

17

16

9

8

00

7 3 5

Share

Percent)

34

27

17

8

4

2

2

1

1

6

100

Share Trend

2011

to 2012)

t

4-

4-

more than four times the average investment cost of gold projects,

at 30 4 million wh ile average copper and nickel project costs

are 81 6 mill ion and 77 7 mill ion , respectively.

The project grovrth rate for iron ore and gold both decreased con-

siderably in 2012, dropping to 14% and 13%, respectively, from

201

l's rate of 33% and 34%. The

rowth

rate of the gold pipeline

had started to recover in 2011 after a weak year ih 2010, which had

a growth rate of only 11%. New gold projects in 20 12 totaled 14 bil-

lion compared with 28 billion in 20 11 and only 7 billion in 20 10 .

Given gold's on-going high price, these swings are difficult to explain.

The iron ore sector had only 13 billion of new investme nt

enter the pipeline in 20 12 compared with 53 bil l ion in 2 0 1 1 ,

while copper's 10 billion of new investment in 20 12 fell well

below 20 1 l 's 24 bi l l ion.

Gold's per-project investment, on average, is relatively sm all bu t

the number of gold projects is

high.

In 20 12 , 64 new gold projects

were announcednot at all surprising considering the record high

gold prices of 2012compared with 53 in 2011. A total of 16

new iron ore projects and 21 new copper projects also were

announced in 2012, compared with 21 new iron ore and 24 new

copper projects in 2011. It is obvious that copper is the metal that

has done best in terms of the number of new projects in 2012.

Somewhat surprisingly the number of new nickel projects

increased in 2012 after a downturn in 2011, with six new projects

announced atatotal investment of 3.7 billion. The rare earths con-

tinued to attract interest afteraslowdown in 2011 aswell:eight new

projects at a total of 3.6 billion were announced. If all of them are

carried through to construction an over-supply situation will quickly

develop. Also unexpected was a revival of interest in silver during

2012, with six new projects at a total announced investment of 1.2

billion. Lead/zinc, uranium and PGMs continued to decline in 2012,

with only one, three and two new projects announc ed, respectively.

Lat in America St i l l No.

1

Latin America remained in top position in 2 01 2 w ith a 29 % share

of the global investment pipeline, which is below its highest previ-

ous share of 32% in 2010. North America is the only region show-

ing strong, continuous growth for the past three years, up from 15 %

in 2010 to 20% in 2012, with total investment value rising from

86 bil l ion in 20 10 to 14 6 bil l ion in 201 2. Africa's share of total

mining project investment was down slightly to 14%, but increased

in value to 10 6 billio n. Europe, including all of Russia, ma in-

tained its position but Asia's share fell from 1 1 % to 10 % ; Asia

reached its peak of 14% in 2009 but has been falling since.

The investment pipeline in North Ame rica grew by 24 billion


3/7

PROJECT SURVEY 2013

Mining Project Investment by Region, 2012

Africa

Asia

Europe

Latin America

North America

Oceania

TOTAL

I n v e s t m e n t

(US hiUion)

1 6

75

77

21

146

12 1

73 5

Share

(Percent)

14

10

10

29

18

17

100

Share Trend

(2011 to 2012)

i

I

t

t

global mining investment_survey 2013

Documents