Miners target $200b project spree
Commodity prices have fallen and investment levels have peaked but the third leg of the resources boom - the boom in volumes - has yet to run its course, analysts say.
In a note published on Monday, Commonwealth Bank's Andrew Hines estimates the combined capital expenditure of BHP Billiton, Rio Tinto and Fortescue Metals will top $US107 billion between 2013-20, in Australia alone.
Total capital expenditure by the big three was just $US97 billion in the first decade of the century, it will reach $US289 billion this decade, CBA expects.
The forecasts are dominated by expected investment in the Pilbara, with Rio lifting its production above 410 million tonnes per annum (mtpa), BHP investing to lift production above 240 mtpa, and Fortescue lifting capacity to 155 mtpa over the next two years.
Otherwise CBA assumes the only new projects to be approved will be Rio's Hail Creek and Mount Pleasant coal projects. BHP and Rio's other planned Australian coal projects will be shelved, CBA assumes. BHP's Olympic Dam expansion in South Australia, and its Scarborough gas development off WA, also are shelved. The CBA forecasts do not count approved and expected investment in booming sectors such as oil and gas, or investment by other foreign, private or junior mining companies.
The forecast comes as official figures released on Monday showed an 18 per cent rise in petroleum expenditure in the December quarter, although there was a 7 per cent fall in spending on mineral exploration, particularly gold and coal.
HSBC Australia chief economist Paul Bloxham said "the mining story is not over yet and the death of the mining boom has been greatly exaggerated".
He said last week's capital expenditure figures, particularly the first forward estimates for 2013-14, showed mining investment should rise further and "plateau rather than peak" - particularly with seven massive LNG projects worth $US190 billion under construction.
New CEOs at BHP and Rio, Andrew Harding and Sam Walsh, flag a renewed emphasis on capital discipline after failed acquisitions and shelved projects.
Frequently Asked Questions about this Article…
According to the article, Australia's biggest miners are expected to spend US$213 billion in capital on new and existing projects over the next seven years, with more than half of that investment occurring in Australia.
Commonwealth Bank analyst Andrew Hines estimates the combined capital expenditure of BHP Billiton, Rio Tinto and Fortescue Metals will top US$107 billion in Australia between 2013 and 2020, making these three companies the main drivers of the forecasted spending.
The CBA forecasts are dominated by Pilbara investment: Rio is expected to lift production above 410 million tonnes per annum (mtpa), BHP above 240 mtpa, and Fortescue to about 155 mtpa over the next two years — targets that are pushing large capital programs in the region.
CBA assumes the only new approvals in Australia will be Rio's Hail Creek and Mount Pleasant coal projects. It expects other planned Australian coal projects from BHP and Rio to be shelved, and specifically flags BHP's Olympic Dam expansion and the Scarborough gas development off WA as shelved in its forecasts.
The article notes commodity prices have fallen and investment levels have peaked, with official figures showing a 7% fall in spending on mineral exploration (especially gold and coal). However, analysts say the volume-driven part of the resources boom has yet to run its course, suggesting a mixed picture for investors.
HSBC Australia chief economist Paul Bloxham told investors the mining story isn’t over and that the 'death of the mining boom' has been exaggerated; he expects mining investment to rise further and 'plateau rather than peak', helped by large LNG projects under construction.
The article mentions seven massive LNG projects worth about US$190 billion are under construction. CBA’s mining-capex forecasts do not count approved and expected investment in booming sectors such as oil and gas, so those LNG investments are treated separately.
New CEOs at BHP and Rio, Andrew Harding and Sam Walsh, have flagged a renewed emphasis on capital discipline after failed acquisitions and shelved projects — a shift that could influence future capital spending and shareholder returns.
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