May 17, 2020

Analysts: Mining industry needs $150 billion to meet demand or face shortages

Operations
Wood Mackenzie
Report
iron
Admin
3 min
Analysts: Mining industry needs $150 billion to meet demand or face shortages
Analysts from commercial intelligence firm Wood Mackenzie believe the mining industry needs to invest $150 billion to meet the medium to long-term deman...

Analysts from commercial intelligence firm Wood Mackenzie believe the mining industry needs to invest $150 billion to meet the medium to long-term demand for commodities.

In a prepared presentation last week at LME Week in London, Wood Mackenzie’s Vice Chairman of Metals and Mining research, Julian Kettle, cited challenges of lower commodity prices, pressure from shareholders to curtail investment and a new reality of lower demand growth.

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"Across base metals, iron ore and steel Chinese consumption growth rates are set to fall dramatically in the next five years, compared with the previous half decade. However, we caution against this being interpreted as a bleak outlook – Chinese consumption hasn't hit a great wall,” said Kettle.

“The scale effect, ie the sheer volume, still translates into significant incremental demand and good growth in tonnage terms. China will account for between 58-69 percent of global total demand growth for base metals over the next decade.”

To combat this, Kettle believes the industry would need to invest more than $150 billion or face shortages.

Deloitte Access Economics noted the slump in commodity prices and related profits meant “the chance of new mining and energy construction projects getting the go-ahead any time soon continues to fall.”

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The massive job-creating construction phase of Queensland’s LNG projects were also finishing up, he said.

“This need for investment is becoming desperate in zinc and lead and will become an issue in copper in the next few years. Unfortunately there is little appetite to invest with prices cutting into the cost curve, low free cashflow, surpluses building, difficulty in financing and shareholders demanding dividends.”

Wood Mackenzie analysis revealed that, across base metals, further production cuts were needed to ensure output was economic at current prices.

Aluminum

"In aluminium, we have the all-in price showing around 60 percent of the Chinese smelters are lossmaking at current price levels. But, in China, State support and the need to generate value-added tax receipts and power cross-subsidies will mean cutbacks will be a long time coming,” said Kettle.

Nickel

“In nickel, we conclude that 55 percent of the industry is loss making on a cash basis at current price levels, but there appears to be little appetite to cut,” Kettle said. The market is focusing on the slow pace of Indonesian nickel pig iron development and nickel stock drawdown over the next three to four years rather than high above ground stocks unavailable to the market.

Copper

“We're expecting a further 400,000 tons to 500,000 tons of cuts to offset the ramp-up of projects and to prevent surpluses building significantly. If more curtailments are not forthcoming, prices will test marginal (ninetieth percentile) costs of $2/lb,” he cautioned.

Zinc

"In Zinc, prices had held up much better with only a very low percentage (around 10-15 percent of zinc miners are losing cash at current price levels) losing money on a cash basis at current prices. Prices would have to be much lower to precipitate more cuts yet the market is relatively balanced and trending to deficits until 2019 so one questions the need for cuts from a fundamental perspective," said Kettle.

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May 5, 2021

Barrick profit beats expectations as copper, gold prices up

Barrick Gold
Copper
Gold
goldfields
2 min
Barrick Gold reports a 78% jump in Q1 profits thanks to strong performance in Zambia and Tanzania

Barrick Gold has reported a 78% jump in first-quarter profit, beating analyst expectations thanks to rising gold and copper prices, and said it was on track to meet annual forecasts.

Production in the second half is expected to be higher than the first, the gold miner said, thanks in part to the ramp-up of underground mining at the Bulyanhulu mine in Tanzania and higher expected grades at Lumwana in Zambia, reports Reuters

Barrick Gold

Barrick’s first-quarter gold production fell to 1.10 million from 1.25 million ounces due partly to lower grades at its Pueblo Viejo mine in Dominican Republic.

Adjusted profit surged 78% to $507mn in the quarter ended March 31, from $285mn a year earlier, and Barrick announced a 9 cent per share quarterly dividend.

Stronger prices helped boost Barrick’s revenue from its copper mines in Chile, Saudi Arabia and Zambia by 31% from the fourth quarter. Overall earnings per share were $0.29, ahead of analysts’ estimate of $0.27.

“We expect a positive stock reaction to the earnings beat and strong cash flow,” said Credit Suisse analysts.

Potential for South Africa merger

Barrick CEO Mark Bristow, who has championed mergers across the gold industry, said he backed the idea of South Africa-listed miners Goldfields and AngloGold Ashanti combining.

Speculation has been swirling around the two companies and Sibanye-Stillwater, whose CEO Neal Froneman floated the idea of a three-way merger.

“I’m a South African, and this country has such a great mining history and it would be great to see a real gold business come out of the many failed discussions that we’ve seen,” said Bristow.

Goldfields

Goldfields declined to comment. In a statement, AngloGold Ashanti said it was focused on delivering on its growth plan to unlock value from its portfolio of gold assets.

Bristow also said he had met with the Democratic Republic of Congo’s new mines minister and other officials and was continuing to work on getting $900mn belonging to its Kibali mine joint venture out of the country.

“We have a solution, it just needs to be sanctioned by the appropriate authorities which haven’t been around for a while,” he said, referring to a recent government overhaul by President Felix Tshisekedi.

Lumwana

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