Global mining projects pipelines will remain under pressure in '16 and '17 as low mineral prices force miners to cut costs and lower capital expenditure for projects.

Despite this, a number of countries will continue to see strong mining project pipelines, due to significant investment into both Brownfield and Greenfield projects, bolstered by a combination of low production costs, high-grade reserves and favourable regulations.

This is according to research company BMI Research, a Fitch Group company.

Key trends

Globally, subdued metal prices will lead to continued capital expenditure (capex) declines in the years ahead as miners seek further cost cuts and pursue greater operational efficiencies.

According to Bloomberg Intelligence, capex by the top 10 miners fell to USD$65.6 billion in 2015, after coming in at $82.5 billion in 2014. According to Bloomberg consensus, capex will further decline by 25% and 12% to $49.2 billion and $44.1 billion in 2016 and 2017, respectively.

Firms will focus on increasing productivity at existing mines and shift spending towards innovation over the coming quarters, in contrast to previous years when rising metal prices encouraged spending growth without a concurrent focus on increasing productivity or operational efficiency.

Countries including Australia, India and Peru will be the key growth bright spots in terms of capex and new projects coming online over the coming years.

Peru, India and Australia to hold strong project pipeline

We expect Australia, Peru and India to be project growth bright spots, with the countries currently holding 306, 48 and 25 announced Brownfield and Greenfield mining projects in the pipeline, respectively.

Peru

Peru’s mining sector will continue to be boosted by major projects coming online over our forecast period to 2020. Peru’s impressive mining project pipeline, dominated by copper, will provide key growth opportunities in a weak price environment.

Multinational miners will continue investing in Peru due to the country’s ample mineral reserves, subdued production costs and favourable regulatory environment.

Among others Southern Copper Corporation, Freeport McMoRan (through its 53.6% s take in the Cerro Verde mine) and Glencore are seeking to boost output through expanding existing operations and undertaking new investment projects.

Freeport is embarking on an expansion programme at the company’s Cerro Verde mine to make it one of the five largest copper mines in the world.

Cia Minera Antamina’s Antamina copper mine, a joint venture among BHP Billiton, Glencore, Teck Resources, and Mitsubishi, remains on track to produce approximately 402 000 t in 2016.

Mid-size mining firms are also expanding operations in Peru. For instance, current projects include Hudbay Minerals’ Constancia mine, which began production in Q2,15.

Besides miners, Peru’s project pipeline will provide much-needed growth opportunities for mining equipment firms facing declining profits in most markets.

For instance, Ferreycorp, a Peru-based distributor for Caterpillar Inc, saw its net income in Peru increase significantly over 2015, due to high demand from mining firms such as MMG and Freeport McMoRan.

According to Deputy Mines Minister Guillermo Shinno, mining investments in Peru will reach approximately $6.5 billion in 2016, following an estimated $7.5 billion in 2015.

India

India’s mining sector will experience solid growth due to a strong project pipeline, which is primarily boosted by the country’s positive reforms and vast mineral reserves.

For instance, India’s iron ore project pipeline will be supported by the government’s removal of export taxes for low grade ores in the 2016 budget and the country’s Mines & Minerals Development & Regulation (MMDR) Act, which will streamline licensing and reopen closed mines.

Iron ore: As of 20 May 2016, Steel Authority of India Limited is driving the country’s iron ore project pipeline with four Brownfield expansions; namely the Kiriburu, Meghatuburu, Bolani Gua mines and the Rowg hat Greenfield project.

Zinc: Hindustan Zinc will drive India’s zinc mine project pipeline over the coming years. Currently, the firm is investing in expanding output at the firm’s Rampura Agucha, Sindes ar Khurd and Rajpura Dariba mines.

In addition, the National Thermal Power Corporation holds the sector’s largest Greenfield project, namely the Pakri Barwadih deposit, which holds estimated reserves of more than 500 Mt of zinc.

In light of the above, India’s mining industry value will grow robustly from $23.4 billion in 2016 to $35.8 billion by 2020, averaging annual growth of 10.3% during this period.

Australia

Although Australia holds the world’s largest project pipeline, we expect a number of these projects will not come to fruition over our forecast period.

The majority of the projects in the sector’s pipeline are in the announced/feasibility study stage, and a proportion of these projects will not be expected to be followed through on the back of miners’ strategy to cut down costs and lower capex.

Despite this, a few project bright spots remain in the sector. For instance, Australia’s tin production outlook will be bolstered by several key mining projects coming online over the coming years. For instance, Metals X will continue expanding through Brownfield investment, and has reported new high-grade reserves at Renis on Bell mine, the largest tin mine in Australia.

Other high-grade tin mine expansions include Stellar Resources’ Heems kirk project, which boasts an estimated 4.4 Mt reserve. In addition, we expect MMG’s $1.4 billion Dugald River mine to be the bright spot in lead production over the coming years as a declining zinc sector will drag down lead production with mine halts.

Furthermore, the country’s copper sector production will be buoyed by projects such as BHP’s expansion at its Olympic Dam, and Sandfire Resources’ DeGrussa copper mine, which will produce 300 000 tpa at full capacity.