Further Capex Declines On The Horizon
BMI View: We expect delays and reductions in capital expenditure to continue as mining companies face slowing growth in China and lower metal prices. This view has been playing out already with Xstrata and BHP Billiton looking to rein in spending.
In line with our expectations, several mining companies have announced declines in capital expenditure as lower prices and a weaker growth outlook have dampened expectations. BHP Billiton looks set to cut the first stage of its US$10bn iron ore expansion in half and Xstrata has announced it is looking to sell its stake in the Frieda River copper project in Papua New Guinea as the company seeks to rein in spending. This follows Rio Tinto's withdrawal from the US$9bn Abbot Point port expansion due to 'a weaker global economy and rising costs'.
We previously highlighted the Frieda River mine as a project which could be subjected to delays in capital expenditure as metal prices head lower. (See BMI Online 'Commodity Correction: Capex At Risk' May 31). On the back of our below consensus views across base metals as well as Chinese economic growth, we expect further declines in capital expenditure and highlight projects in Peru and the Philippines which are most at risk from delays or cutbacks. In addition, we note that iron ore projects in Guinea are particularly at risk as much of the mining investment emanates from Vale and Rio Tinto, companies which have lower risk projects in Brazil and Australia, which they could fall back on.