New research by S&P Global Market Intelligence has found that among more than 400 mining companies examined, actual capital expenditures fell 8% in 2020 regional lockdowns forced work stoppages and placed global supply chains under unprecedented stress.
At the beginning of 2020, the miners’ group was forecasting capex of US$162 million, a 9% year-on-year increase of 2019. But as the pandemic impacted the sector, miners revised their spending plans 4% lower to US$156 billion for the year, still well above 2019 levels.
But as the pandemic tightened its grip on miners, they struggled to hit the revised plans, with actual spending in 2020 coming in at US$149.5 billion, 8% and 4% lower than pre-Covid-19 and Covid-19-revised forecasts, respectively, and slightly lower than 2019 reported spend.
However, S&P points out global economic recovery is already underway, forecasting global gross domestic product growth of 5.5% in 2021. As the world begins to navigate its way out of the pandemic, capital spending is expected to increase significantly.
The 2021 forecast of US$176 billion is up 18% from 2020 and 2019 spends. This results from delayed programs resuming and a general ramp-up in activity spurred by solid metal prices.
There are clearly identifiable leaders in the recovery, with Chinese companies exceeding the original capex guidance for 2020. The initial capex guidance for 2020 of China-based companies was 8% lower than their 2019 spend, which partially reflects the lockdowns and restrictions that China imposed early in the year, according to S&P.
Nevertheless, revised guidance, up 8% on 2019’s spend, through the middle of the second quarter, painted a sign of recovery. The actual reported capex in 2020 was up 15%.
Precious metals companies, which had set a 13% lower capex guidance for 2020 before the pandemic, reported spending in 2020 on par with 2019 levels, with companies based in Australia and China leading the recovery. In 2021, precious metals companies are expected to increase their capex by one-third compared with 2019 levels, led by Newmont (TSX: NGT; NYSE: NEM) and Gold Fields (NYSE: GFI).
S&P further expects the large-cap mining companies above the US$50 billion market cap to have surpassed the lower-tier companies in guidance and reported capex. Before the pandemic, the group’s 2020 guidance was for an increase of 35% compared with 2019. Following events brought on by the pandemic, capex guidance was revised to just 28%, and actual spending was 22% in 2020.
Estimated capex in 2021 further widened the gap between the largest market-cap group and the other three groups, expected to be 51% higher than 2019 spending, while guidance for the other three groups remained similar, averaging 12%.