London, England — 04 September 2013 – The biggest mining companies in the world are set to spend about US$244 billion on expansions between now and 2015, showing themselves as slow to heed Glencore Xstrata plc CEO Ivan Glasenberg’s call for austerity to end an oversupply in mineral markets.
That’s just a 2.4% drop from the US$250 billion in capital expenditures made in the previous three-year period, according to forecasts compiled by Bloomberg News for the 20 largest mining companies by market value. Glasenberg joined a chorus of investors pushing for spending cuts after the companies had to make US$60 billion of write-downs over 18 months.
From BHP Billiton Limited, the world’s biggest, to Rio Tinto Group, industry members 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% from a four-year low in July.
“Institutional shareholders still feel that management needs to prove to them that over the long term the discipline associated with capital allocation is there,” Catherine Raw, co-manager of BlackRock Incorporated’s US$7 billion World Mining Fund, said in a phone interview from London. “They could always do more. Shareholders are not releasing the pressure.”
Glasenberg’s own Baar, Switzerland-based Glencore, in which he holds an 8.3% stake, estimates spending of US$29 billion on new projects over the next three years before outlays drop to US$4 to US$5 billion annually. Spokesmen for Glencore and Rio declined to comment. London-based Rio is looking to cut capital spending 20% to about US$14 billion this year, with a similar drop the following year.
“Investors are happy with growth, if it’s high-returning growth,” said Paul Young, a Deutsche Bank AG analyst in Sydney with buy ratings on Rio and BHP. He cites shareholder approval of their iron ore and copper expansions. “Capex relative to history is still high, but the growth is all good growth.”
Annual expenditure by the top 20 is forecast to drop by about a third to US$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.
Source: Bloomberg News. For more information, click here.