The investment in global mining has decreased significantly. Around ten years ago, the combined capital expenditures of 40 biggest mining industries reached $ 130 billion. That was around four-fifths of their earnings before interest, tax, depreciation and amortization. Back then the mining industry assumed that the surge in commodity prices would persist. That however did not happen and the commodity prices subsided. The surge in commodity prices was mainly due to the growth of the Chinese economy, as the China growth trends did not follow the forecasts, the price of most commodities diminished as well.
Nowadays, the capital expenditures of mining companies are much lower compared to a decade ago. The capital expenditures of 40 giant global mining firms are about a quarter of their earnings before interest, tax, depreciation and amortization. That is not good news for decarbonization progress. Although most attention has been paid to lithium and nickel for battery production. That is not the whole story, vast amounts of Steel and copper is needed in order to manufacture wind turbines, solar panels, EVs, and electricity grid. However, today’s low investment will definitely reflect tomorrow’s production levels.
Mining contributes to greenhouse gas production significantly. And mining firms are being asked to diminish diesel consumption and to install solar panels for the projects. That adds up to the costs as well. Currently the return on new mining projects is around 10 percent. It is hard to attract investors when the yield on corporate grade bonds are above 5 percent.
The western governments, alarmed by the Chinese dominance in the commodities most needed for energy transformation, have stepped in signing agreements between themselves and commodity rich countries to invest more intensively in commodity mining and production. Yet a price boost is likely due to increased demand and lack of sufficient investment in the last decade.
Source: The Economist
