Capex drop in March quarter: New mining sector capex dropped 24% in the March quarter 2024 from the $10B spent in the December quarter 2023. It is only one data point, and March quarters tend to see lower capital spend anyway, but recent terminations of projects in the nickel and lithium space, weakness in commodity prices, and an uncertain economic and political climate, suggests softer mining capex numbers may extend.
Committed project issues: If we exclude projects recently terminated (primarily in nickel and lithium sectors) from Government data (DISR) released late last year in the Resources and Energy Major Projects Report, it takes $5.5B off the total value (albeit some of this amount has already been spent). See page 2 via link above for detail.
Pipeline quality query: But more sobering is the list of “advanced” projects that show nearly half coming down the pipeline fall in nickel and “other commodities” categories, the latter being a catch all for the likes of rare earths, vanadium, heavy minerals, kaolin, and graphite, amongst others. There are disconcertingly few high-quality projects in the pipeline and a swathe of lower quality projects that require a better commodity pricing and funding environment to progress on previously projected timelines. See pages 3-4.
Constricted flow: Low commodity prices and a dearth of new projects reduces supply relative to demand, with the inevitable impact on prices (and new supply) over time. However, it takes time for supply to react. We have noted before that global exploration drilling, a precursor to new discoveries, has been on a downward trend for about three years. And once a discovery has been made, it takes ~16 years to get into production according to S&P Global Market Intelligence (~18 years taking a more recent sample).
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