Mining investment plunges to record lows

Investment in new mining projects is at its lowest level in 10 years.

In the six months to October, just three projects worth $597 million received a final investment decision and moved to the committed phase.

This is the lowest number and value of projects committed in the sector in ten years, The Bureau of Resources and Energy Economics (BREE) said.

The report stated that as of October there were 44 resource and energy projects with a combined value of $228 billion in the committed stage.

This compares to 48 projects with a combined value of $229 billion six months earlier.

The slower rate of project progression is also evident at earlier stages of development, with eight projects worth $22.2 billion failing to progress from feasibility in the six months to October.

A further 17 projects which had been publicly announced have been taken off the major projects list after being dumped by companies.

Exploration also suffered, decreasing by 12 per cent total spend of $6.9 billion in 2013-14.

“Declining commodity prices have continued to weigh on investment decisions with many developers revisiting project feasibility studies amid weaker than expected prices,” said Wayne Calder, deputy executive director of BREE.

“The renewed industry-wide focus on improving productivity and lowering costs has extended to new projects. developers are reassessing their plans and considering less capital intensive options to improve the economics of their projects.”

At the end of October, there were 138 projects at the feasibility stage with a combined value of $146.7 billion – with the development and expansion of coal mines topping the project list.

Queensland is the primary location for coal projects in the feasibility stage with 26 projects under development worth around $49.2 billion.

New South Wales had 11 coal projects at the feasibility stage worth $4.6 billion.

While there are 18 iron ore projects at the feasibility stage with a combined value of $27.8 billion.

However there is no guarantee these projects will come online, and BREE expects project investment will fall from just under $250bn in 2015 to less than $100bn in 2019.

LNG, oil and gas projects accounted for around 87 per cent of the value of projects at the committed stage or $197.1 billion worth.

There were six iron ore projects worth $12.0 billion at the committed stage – with Gina Rinehart’s Roy Hill mine making up 90 per cent of this total value.

There were nine coal projects worth a combined value of $5.5 billion at the committed stage – five in NSW and four in QLD.

The new Eagle Downs mine in Queensland is the highest value coal project at $1.3 billion and is scheduled for completion in 2017.

BREE said while world demand for raw materials and energy is projected to grow over the medium term, the surge in global investment means a wave of new supply and volumes is entering commodity markets, putting pressure on prices.

This has led to what BREE calls a “bottleneck of projects at the feasibility stage”.

“It is evident that Australian project proponents are starting to delay project schedules as they review their feasibility studies to account for current market conditions,” the report noted.

“In an environment of low prices, it is likely that project schedules will continue to be delayed in the near term.”

However, BREE said that business investment is cyclical and the potential for fresh investment in the future.

“Australia has many world class mineral and energy deposits that can be developed when market conditions permit.”

It said companies were getting smarter about ensuring their projects remain economically viable in volatile commodity markets.

“Proponents are reassessing the plans for projects that are currently on hold, such as the scale of the project or its mining methods, with a view to reducing capital costs. These revised plans may better position the project in a climate of lower commodity prices in the future.”

“Australia will continue to compete with other resource-rich countries to secure investment to allow the development of new projects.”