Mining Investment May Jump to Record $113 Billion in 2011, Bernstein Says

Industry News 2010-08-20 10:41:47

Source : Bloomberg

Published : Aug 11, 2010  

Growth plans at BHP Billiton Ltd. and competing mining companies may help to boost industry spending worldwide by about 50 percent next year to a record $113 billion, Sanford C. Bernstein said. 

Spending “is set to rise significantly as cash flows are strong and balance sheets are being rapidly repaired, and CEO/board confidence levels increase,” London-based analysts Paul Galloway and James Luke said in a report dated yesterday. The current record is the $110 billion spent in 2008, they said. 

Leading mining companies are boosting budgets and revisiting growth plans scuttled by the global recession on optimism China-led demand for raw materials will continue to rebound, boosting prices. BHP, the world’s biggest mining company, Rio Tinto Group and Xstrata Plc all plan to spend more money on mines and expansion next year. 

“Assuming commodity prices remain elevated and demand does not collapse, new projects will be approved and 2012 will in all likelihood be a record” year for capital spending by the industry, Bernstein said, without being more specific. 

The LME Index of the six main industrial metals traded on the London Metal Exchange is down 0.8 percent this year, rebounding from a drop of as much as 18 percent. Gold for immediate delivery climbed to a record $1,265.30 an ounce on June 21. Copper stockpiles tracked by the LME shrank for a fifth month in a row in July. 

Budgets “will reach similar peak 2008 levels once again in 2011 as the industry activates a supply response to ongoing elevated demand levels,” the Bernstein analysts said. Average annual spending by the industry from 1989 to 2003 was $36 billion, according to the report. 

Rio and Xstrata this month reported profit more than tripled after higher demand for iron ore and coal boosted prices. Rio, the world’s third-biggest mining company, said spending next year will jump 50 percent to $9 billion, while Xstrata is spending $14 billion to boost output by half by 2014. BHP in February said it would increase spending by 63 percent next year to $20.8 billion.



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