Mining production increases spell good news for suppliers

For companies servicing the mining sector, project opportunities have declined significantly in the past few years.

But, with production increasing, the opportunities presented by operating mines are growing.

The decline in project opportunities is in line with the decline in capital expenditure in mining and oil-and-gas, as shown in the following graph. (Separate figures for mining and oil-and-gas respectively are not available.)

Private New Capital Expenditure Graph

Much (although not all) capital expenditure in mining is related to projects, that is, planned new mines or expansion of existing mines. There may be a turnaround in capital expenditure and thus project activity over the next couple of years, but this is unlikely to be rapid.

By contrast, as shown in the graph below, the production of nearly all major minerals will increase over the next 18 months, according to forecasts published this month by the Federal government (Office of the Chief Economist).

Forecast Change In Mineral Production Chart

Assumptions behind these forecasts are reasonably conservative; they include a pick up in US economic growth in the period concerned, but a slight fall in Chinese economic growth and a fall in the strong recent growth in iron-ore and metallurgical-coal prices.

Overall, the forecasts entail growth in mineral production of around 5% in the two years to June 2018. This is similar to the growth in mineral production in the previous two years, that is, up to June 2016. (The figure of 5% takes account of the contribution of each individual mineral to overall production.)

In short, as a source of opportunities for mining-service companies, operating mines have increased in importance in relation to mining projects in recent years, with this situation likely to continue for the next couple of years at least.