May/June 2013 - The ASIA Miner
May/June 2013 - The ASIA Miner
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>