CapEx outlook for the mining industry in 2021 and beyond

In this article, the focus is another important aspect of the mining industry: capital expenditure (CapEx). CapEx is the mining companies' investments in the products and technologies as part of their operations. It includes facility improvements, new mining equipment, and beyond.

The annual capital expenditure (CapEx) of the world’s top 40 mining companies is $78 billion¹. This is about the same as the annual gross domestic production of Kenya or the Dominican Republic. In other words, every year these 40 mining companies invest into their operations the equivalent of a medium-sized country’s annual economic output. 

In this article, you will find insights around the mining industry’s CapEx outlook for 2021 and beyond. 

2021 and beyond outlook: Increasing GDP and mining production

Global GDP to increase

Many economists agree that the world's GDP will bounce back in 2021 by a 4% to 6% increase, then continue to stay positive in the following years. This means more production and an increased need for minerals and metals. 

Mining production to trend upwards

The strong GDP growth will likely translate into an increased need for minerals and metals, resulting in an increase in their production. Commodity prices in 2021 have already broken records or hovering near record levels last seen during the 2011-13 super cycle boom. There is always the question around whether there will be a lag between increased economic activity and increased mineral production. We expect the lag to be minimal and the overall mineral production to closely follow the increase in GDP. A key reason for this expectation is miners' ability to leverage the existing capacity as the need for production emerges. One potential risk that could slow down miners bringing the capacity online is any regional restriction around employees coming back to sites due to the pandemic. 

Let’s now switch to CapEx forecast given these expectations in GDP and mineral production.

Mining CapEx to be up starting 2021 with varying pace and focus 

There is a much clearer linkage between GDP growth and increased mineral production. Meanwhile, the impact of increased mineral production on CapEx is not as clear. For instance, the amount of minerals produced have mostly been increasing since 2012. Yet, the mining industry has successfully decreased its CapEx four out of eight years. 

In other words, the mining industry kept producing more while managing its capital expenditures. There were many means to accomplish this. Improving financial performance and reducing maintenance costs, increasing mining equipment productivity and boosting mining equipment’s efficiency have been three of these levers. 

For 2021, it is much likely the mining industry will increase its CapEx, but with a varying pace of CapEx recovery. 

Beyond 2021, the shift in the focus of the mining industry’s CapEx will also be more prominent. The change in the mining industry’s CapEx would likely not be uniform across the production of different minerals. We expect the change in CapEx associated with the production of tech metals and rare earth elements to outpace the that of fossil fuels, such as coal. These tech metals and rare earth elements are frequently used in high tech devices that bring us the newest technologies. In fact, the global production of rare earth elements went up by 9% in 2020. Production of many other minerals went down or stayed flat during the same period. 

Interested in deepening and broadening your expertise in the mining industry? Sign-up below to receive periodic insights, trends and news customized for the mining industry.

References: 
¹PwC (2019). Mine 2019: Resourcing the future [PDF document]. Retrieved from https://www.pwc.com/
²United States Geological Survey (January 29, 2021). Mineral Commodity Summaries [PDF file]. Retrieved from https://pubs.usgs.gov/
³S&P Global Market Intelligence (July 2020). Miners' Guidance Indicates 12% Capex Drop in 2020 Due to COVID-19 [Web article]. Retrieved from https://www.spglobal.com/