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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
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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
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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