• Home
  • Commodity
  • Commodity prices have skyrocketed, but miners are not investing

Commodity prices have skyrocketed, but miners are not investing

By on May 25, 2021 0

Despite a commodity boom boosting profits, miners are not throwing money into new projects, raising concerns about future shortages of some metals.

So-called technological metals, such as cobalt, copper and lithium, are expected to experience particularly large deficits, analysts say, amid growing demand from manufacturers of batteries, electric cars and wind turbines. Supply constraints threaten to slow down countries’ plans to cut emissions and make them more expensive, they say.

Although off their peaks, many mining commodities have hit record prices this year as the global economy rebounds from Covid-19, governments are increasing infrastructure spending and providing stutters for some resources. For example, the price of copper – used in construction and to conduct electricity – has nearly doubled over the past 12 months to a record high of $ 10,762 per tonne at the start of the month.

But miners have been reluctant to invest in new projects, analysts and executives say, as their investors have wanted higher dividends in recent years after watching the sector burn cash in the latest commodity bull run. This hesitation now raises the specter of supply tightening.

“We are starting to see pinch points appear in the main energy transition metals, copper and platinum group metals for example, where there are very few new supplies ready to fill the void,” says Anglo American NGLOY -1.06%

PLC Chief Financial Officer Stephen Pearce.

“You have to continually reinvest to keep filling your resource cabinet, and it takes many years for new mines to materialize,” he adds. Anglo, listed in London, has been among the biggest spenders on new and existing projects in recent years.

Overall, however, industry spending is not keeping pace with demand and is expected to lead to shortages for many resources, analysts say. Capital spending is expected to fall 6% among large diversified mining companies and 10% among copper miners this year, according to analyst consensus.

Meanwhile, total copper demand is expected to increase 40% by 2030 – with so-called green demand surging 900% – according to Goldman Sachs Group, leaving a supply shortfall of 8.2 million tonnes. Even though copper prices have recovered in the past 12 months, no major new mines have been approved, he added.

Serious shortages of lithium, a key component of batteries for electric cars and energy storage, are expected by analysts. Brine basin from a lithium mine in the Atacama Desert in Chile.


ivan alvarado / Reuters

At current metal prices, Rio Tinto RIO 0.05%

PLC, BHP Group Ltd., Anglo American and Glencore GLNCY 0.57%

PLC could this year generate combined earnings of $ 140 billion before interest, taxes and depreciation, according to the Royal Bank of Canada. This compares to $ 44 billion in 2015, a year when metal prices were at or near their lowest.

True, there have been investments in some areas of mining, especially in the iron ore market. But the miners focused on returning the money to investors.

Capital spending, including money spent on current and future production, rose 30% to $ 75 billion last year among 45 of the world’s largest miners, according to investment bank Liberum, while that dividends nearly doubled to $ 66.1 billion. Capital spending was a third lower than in 2012, at the end of the last commodity bull run, while dividends were 125% higher, according to Liberum.

Miners are returning more money to investors, analysts and executives, after spending too much on projects and acquisitions in this latest decade-long operation. Investors then deserted the sector, some miners went bankrupt and many managers lost their jobs.

“Investors remain keenly aware that the last bear cycle was driven by overbuilding new capacity,” said Robert Crayfourd, who invests in miners at London-based CQS New City Investment Managers. “The point here is, maybe they are being too careful.”

Some miners admit that there is not enough money spent on new projects.

“The discipline of capital in our industry and the decline in exploration success over a number of years means there are fewer high quality growth projects in the industry pipeline to meet this demand.” BHP CEO Mike Henry said at an industry conference last week.

Barrick Gold Corp.

GOLD -0.08%

CEO Mark Bristow recently complained that investor clamor for dividends means the industry is not replacing what is exploited.

While analysts expect miners to start investing more in new projects if commodity prices remain high, mines typically take 10 to 15 years to develop. This has prompted some analysts and executives to worry that deficits could hurt governments’ attempts to cut carbon emissions.

A mining operation in Finland, whose roller conveyor for mined ore is shown, supplies nickel for electric car batteries.


alessandro rampazzo / Agence France-Presse / Getty Images

To meet the goals of the 2015 Paris climate agreement, the supply of minerals needed for clean energy technologies must be quadrupled by 2040, according to the International Energy Agency. The Biden administration this year joined the deal, which calls for reducing emissions enough to limit global temperature rise to less than two degrees Celsius above pre-industrial levels.

“The data shows a looming mismatch between the world’s heightened climate ambitions and the availability of critical minerals that are essential to achieving those ambitions,” Fatih Birol, IEA executive director, said in a report last month.

For example, the Paris-based energy watchdog says the expected supply from existing mines and projects under construction is only expected to meet half of the projected lithium and cobalt needs by 2030. two metals are key components of batteries for electric cars and energy storage.

“This will likely mean that decarbonization could cost more than what is currently estimated and that it will be a structurally inflationary force for some time,” said Tyler Broda, analyst at the Royal Bank of Canada.

Neodymium is essential for spinning the wheels of a Tesla or creating sound in Apple Airpods, and China dominates the extraction and processing of this rare earth element. So the United States and its allies are building their own supply chain. Photo illustration: Clément Bürge / WSJ

Write to Alistair MacDonald at [email protected]

Copyright © 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

Leave a comment

Your email address will not be published.