Major mining companies set to spend big on expansion

September 5, 2013

According to forecasts compiled by Bloomberg for the 20 largest mining companies by market value those companies are set to spend about $244 billion on expansions to 2015, which is a 2.4 percent drop from the $250 billion in capital expenditures made in the previous three-year period.

This comes as Glencore Xstrata Plc chief executive officer Ivan Glasenberg’s calls for austerity to end an oversupply in mineral markets. Glasenberg joined other investors pushing for spending cuts after the companies had to make $60 billion of writedowns over 18 months.

However, some of the largest companies are telling investors they’ve become more optimistic for demand growth in the U.S. and China, the biggest minerals buyer, and that future capex will be more disciplined. The Bloomberg World Mining index has jumped about 16 percent from a four-year low in July.

“Institutional shareholders still feel that management need to prove to them that over the long term the discipline associated with capital allocation is there,” Catherine Raw, co-manager of BlackRock Inc.’s $7 billion World Mining Fund, said in an interview with Bloomberg. “They could always do more. Shareholders are not releasing the pressure.”

Glasenberg’s own Baar, Switzerland-based Glencore, in which he holds a 8.3 percent stake, estimates spending of $29 billion on new projects over the next three years before outlays drop to $4 billion to $5 billion annually, the company said in May.

London-based Rio is looking to cut capital spending 20 percent to about $14 billion this year, with a similar drop the following year.

Annual expenditure by the top 20 is forecast to drop by about a third to $66 billion in 2015 from 2012 levels, in line with Glasenberg’s push. The three-year comparison is little changed, because of the number of projects put in motion in recent years that have helped create an oversupply of commodities including copper.

Glasenberg in an Aug. 21 interview applauded his peers for responding to his call to restrain spending and had set the tone for the new “age of austerity” for miners, Bank of America Corp. analysts said in May. In the past 18 months, BHP, Rio and Anglo American Plc are among the mining companies to appoint new CEOs and began to rein in future capex budgets, sell assets and cut workers.


 

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