CHART: Demand is soaring, but global mining is not expanding
Global mining’s enthusiasm for brown and greenfield projects has fizzled over the last decade despite near universal agreement that in the coming decades demand for metals and minerals will boom due to the green energy transition.
BMO says while companies “have started to talk more openly about investment,” so far they are “doing little about it”.
Over the past 20 years, expansion capital spending across the industry has typically run above 20% of EBITDA, which is to be expected in an industry with depleting assets and falling grades (click here for a copper ore grade graph).
The authors of the report point out that the past couple of years have seen this metric slip to around 10%, “with shareholder returns favoured even as free cash rose.”
Buying not building
“Moreover, given it has never been harder to build a new mine owing to capex escalation concerns, shareholder resistance and environmental/ESG challenges, we see companies looking towards buying rather than building any growth,” says BMO.
Given this, the investment bank sees the need for medium-to long-term pricing to trade at a premium to the cost curve “given the need to substitute or thrift demand in a number of metals, particularly those exposed to the fuel to materials transition.”
Also in the report, where BMO has upped its price forecast for most of the commodities it covers (notably molybdenum +59%, gold +13%, and copper and zinc both +10%), is a section on changes to China’s raw materials model.
If mining companies in the West are planning to buy their way out of years of underinvestment in new assets, they will have stiff competition, not just at home:
Frik has 20 years’ experience as a business journalist across a range of industries including automotive, technology and entertainment markets. Frik has an entry in Global Mining Observer’s Who’s Who of Mining 2018, and contributions to publications and conferences including Business Insider, Investing.com, Mines & Money London and New York, Vancouver Resources Investment, Progressive Mine Forum in Toronto and Canadian Mining Symposium in London, UK. He’s been interviewed on CBC Radio and Korea State TV and quoted in the Financial Post.
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