Mining companies urged to increase project budgets to meet future metal demand

MINING companies needed to boost exploration and development budgets in order to keep pace with demand for critical metals such as copper, said Reuters citing analysts.

“Clearly for a few years not spending on projects was warranted, because you didn’t have a lot of demand growth but what we are facing now is demand rapidly outpacing what miners can produce,” Reuters cited Bank of America analyst Michael Widmer as saying.

By 2025, miners need to spend $80bn annually on extracting cyclical metals to meet demand and contain shortages compared to expectations of around $45bn this year among the world’s top 10 miners, BofA analysts said last month.

Commodity analyst CRU Group projects miners need to commit over $100bn on new projects to avoid a supply gap of 5 million tons (Mt) by 2030.

Looking further out, Wood Mackenzie sees a shortfall of around 16Mt by 2040 if substantial investments aren’t made, said Reuters. Capital spending on projects and mines peaked in 2012 and has not recovered, BofA said.

However, Reuters said some shareholders were uneasy with a ramp up in development of project capital.

“We would be wary of mining companies expanding capex too aggressively, as it would potentially harm the positive supply/demand dynamics were production to grow too quickly,” said Richard Marwood, senior fund manager at Royal London Asset Management.

“If the electrification demand comes through, with supply somewhat constrained in the near term, copper prices could remain well supported.”