Last year was a challenging year to say the least, but also one that presented opportunities for 2021 and beyond. A year ago, the mining sector was ramping up with regard to capital expenditures, with plans for about a 12% increase in capital spending for the year, continuing a trend of increased capital spending, which started at the bottom of the cycle in 2017 (metal prices had hit lows in late 2016). All of that changed when the COVID-19 pandemic threw a wrench into the global economy in March 2020. Mining firms have been recalibrating business plans since.
Companies learned, very quickly, how to operate safely in the pandemic environment. This includes working at a social distance or remotely. New technological advancements in the form of process or equipment modifications have been accelerated in this environment, which is giving way to opportunities for companies offering automation, digitalization, remote access or related services.
To conserve cash, most mining firms deferred capital expenditures and halted or slowed project activity in 2020. GDP growth, an important leading indicator for capital spending in the mining industry, is estimated by the International Monetary Fund (IMF) to have declined by about 4.9% in 2020.
As of the end of 2020, the number of metals and mining industry projects impacted by the pandemic exceeded 1,600, representing $212 billion, according to surveys conducted by Industrial Info. About 66% of that is for mining projects, with the remainder being for downstream processing and smelting sectors. The good news is that most of these projects are merely being delayed as opposed to canceled. Most delays range from three to 18 months, with a lot of project development being pushed into 2021-2022 timeframe.
Overall capital spending in 2020 ended down about 3% when compared to 2019. Now, that doesn’t seem so bad, all things considered. And indeed, the mining industry is faring much better than other sectors, such as oil and gas, during this downturn.
Improving Leading Indicators in 2021
Government financial stimulus and an early and strong recovery in China have lessened the impact and paved the way for what should be a much-improved 2021. Metals prices have improved significantly from early 2020 lows. The IMF is forecasting GDP growth for 2021 to be in the 5.4% range. This bodes well for amplified capital expenditures in 2021 and Industrial Info is expecting at least a 10% to 15% increase based on what we are hearing from mining firms.
As a safe haven investment, gold reached a historic high price in 2020, exceeding $2,000 per ounce (oz) for the first time. The price of gold has essentially doubled since hitting the bottom of the market at the end of 2016. This is incentivizing investment in gold mining projects and operating gold mines to increase production where possible to take advantage of the favorable price environment. Industrial Info is tracking more than 2,000 gold mining projects totaling $170 billion worldwide.
Prices for other metals improved as well. Copper and iron ore prices reached seven-year highs as 2020 concluded. Miners worldwide welcomed these higher prices, which will provide the impetus to invest.
There are several reasons to be optimistic about capital spending in 2021 and beyond. The long-term drivers of spending, such as population growth, urbanization, and electrification, remain intact, and will continue to drive demand for metals and minerals. And while COVID cases continue to rise, the number of vaccines being released and distributed is bringing hope that there is light at the end of the tunnel.
Globally, there are more than 13,000 active capital projects in the mining industry, representing $1.18 trillion in total investment value, according to Industrial Info’s Business Intelligence. These are projects that run from the early exploration stages, through planning, engineering and construction. Researchers have noted increased activity in projects reaching the feasibility stage, as well as projects reaching the approval/engineering stages and even those going to construction.
Last year marked the lowest number of new mines coming online since Industrial Info has been tracking these stats. Roughly 240 mines came online in 2020 compared with 520 during 2014. There are many reasons for the decline. Easy-to-access resources are dwindling. New mines tend to be more remote, expensive and difficult to permit. Where possible, mining firms are looking to life extension projects and new satellite open-pit or underground mines at existing assets rather than building new mines. There also was a significant capital outlay for new mines built during the mining boom peaking in 2014 and companies have been concentrating on optimizing production from those assets. For 2021, new mine construction, including grassroot mine and brownfields, account for 20% of current projects, while in-plant expansions, additions, retrofits, modernizations, automation and maintenance projects account for 80% of the projects in 2021.