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May/June 2013 - The ASIA Miner

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International Project Survey<br />

ANNUAL SURVEY OF<br />

Global Mining Investment<br />

Last year’s survey questioned whether the long boom in mining investment was starting to fade, or just experiencing a temporary<br />

market adjustment. This year’s verdict: the boom has peaked.<br />

By Magnus Ericsson and Viktoriya Larsson<br />

THE investment boom in the global mining sector slowed down during<br />

2012. <strong>The</strong> annual growth rate of the project pipeline was only 9%<br />

in 2012 compared with 20% and 21% in 2011 and 2010. <strong>The</strong> number<br />

of projects in the pipeline even decreased between 2011 and<br />

2012—only by 1%, but marking the end of a continuous increase over<br />

the past years. <strong>The</strong> slowdown, which continued throughout the year<br />

but accelerated in the last quarter, has included a number of project<br />

deferrals such as the postponement of the high-profile $8-billion<br />

Olympic Dam project by BHP Billiton. Other examples are the<br />

Prioskolskoye iron ore project and the Sukhoi Log gold project, both<br />

in Russia; Grupo Mexico’s El Arco copper project in Mexico; Vale’s<br />

Vermelho nickel project in Brazil; and others.<br />

During 2012, 130 new mining projects with an estimated total cost<br />

of $47 billion were registered in Raw Materials Group’s (RMG) Raw<br />

Materials Data Metals (RMD Metals) ‘Mines/Projects’ database. Project<br />

investment in 2012 was considerably lower than in 2011, when<br />

the number of new projects registered was 165 with an estimated<br />

total investment cost of $110 billion. <strong>The</strong> final figures for 2012 will<br />

most likely increase somewhat as a number of projects from the end<br />

of 2012 will only be registered in the database early in <strong>2013</strong>. This correction<br />

has been as much as 15%–20% in some years, but most<br />

probably will be less than that this year. Although it is too early to draw<br />

any detailed conclusions it is clear that the peak in investments in the<br />

present cycle has been reached and we will most likely see a slight<br />

decline in investment activities in <strong>2013</strong>.<br />

However, this decline will not represent the start of a long-term trend.<br />

Mining and mining investments have always been and will remain cyclical<br />

businesses, and RMG remains optimistic for the long-term outlook of<br />

Mining Project Investment Pipeline, 2012<br />

Investment Share Share Trend<br />

( x US$ B) (Percent) (2011 to 2012)<br />

Greenfield Projects<br />

Early Stages<br />

Conceptual &<br />

Prefeasibility 269 037 ÷<br />

Feasibility 204 028<br />

Construction 082 011 ÷<br />

Brownfield Projects<br />

All Stages 180 024<br />

TOTAL 735 100<br />

Source: All table data provided by Raw Materials Data, Stockholm, Sweden, December 2012.<br />

’<br />

’<br />

the sector. Population growth, urbanization and general economic development<br />

in the emerging economies are still positive and provide a<br />

strong base for continued growth in metal demand and hence the need<br />

for increased mine production and for new investment projects.<br />

Economic Weakness, Lower Expectations<br />

As 2012 drew to a close, the total value of announced investment in<br />

the project pipeline of the global mining industry was $735 billion, as<br />

registered in the RMD Metals ‘Mines/Projects’ database. <strong>The</strong> deepening<br />

financial crisis in Europe and the slow recovery in North America<br />

seem to have slowed growth in 2012. Metal prices during the past<br />

year have, on the whole, not performed badly, with gold prices higher<br />

than in 2011, copper and iron ore on slightly lower levels while nickel<br />

and zinc have been trending downward for about two years.<br />

Industry expectations for <strong>2013</strong> are cautious and might have depressed<br />

investments toward the end of the past year. <strong>The</strong> number of<br />

projects announced in the third and fourth quarters of 2012 is down<br />

compared with both the first half of the year and the same two quarters<br />

in 2011. However, it is important to remember:<br />

1) there is always a delay in reporting new projects; and 2) this analysis<br />

is based only on figures captured up to late November/early December.<br />

<strong>The</strong> upward trend of increased project costs, highlighted in the 2011<br />

survey, continued in 2012. We previously noted that many projects<br />

have been enlarged in both announced cost and capacity when moving<br />

from the feasibility to the construction phase and this tendency<br />

continues. Of all of the gold projects in this year’s list, 10 experienced<br />

cost increases totaling more than $8 billion, from an original total of<br />

$15.4 billion. <strong>The</strong> average increase was 54%. Only one project managed<br />

to cut its cost, by a marginal 5%. Six projects are new to the list<br />

and no comparison is possible.<br />

Project cost increases are not entirely due to increasing unit costs<br />

but also to rapid growth in metal demand. Other important cost drivers<br />

include more complex ore bodies, deeper lying deposits with<br />

lower grades and increasingly remote locations of new mines. Equipment<br />

prices and construction costs are increasing and many equipment<br />

suppliers are working at near full capacity. Problems caused by<br />

lack of experienced mining staff, which disappeared in 2009 and<br />

2010, have re-emerged although not at the same serious level as in<br />

late 2007 and early 2008. In some regions—Western Australia, for<br />

example—recruitment of staff has become a serious problem and<br />

salary and wage levels are getting out of hand.<br />

54 | <strong>ASIA</strong> <strong>Miner</strong> | <strong>May</strong>/<strong>June</strong> <strong>2013</strong>

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