S&P Global Market Intelligence assessed capital expenditure guidance by the 150 top mining companies globally by market capitalization. Among the 52 companies with updated guidance, reported capital expenditure is expected to fall by a total of US$7.5 billion in 2020. Many other companies plan to update capex guidance in their June-quarter reports to reflect uncertainties around COVID-19. All sub-industries, including precious metals, which has done well in terms of pricing, are expected to see capex fall.
The most impacted sector in terms of percentage change year over year was base metals, due to demand for copper, nickel and zinc collapsing along with prices for these commodities. Capex guidance by the 16 base metals companies among the 52 with updated capex figures has fallen by 19% to US$13.1 billion from their previous guidance totaling US$16.2 billion. PJSC Norilsk Nickel Co., Southern Copper Corp. and Freeport-McMoRan Inc. all had higher estimated capex guidance pre-COVID-19 but had fallen by 11%, 21% and 29%, respectively, by June 17. The three companies accounted for a US$1.4 billion total reduction in capex for 2020. While we expect some resurgence of base metal demand coming from the easing of lockdown restrictions and Chinese stimulus packages, company guidance does not yet reflect this potential recovery.
While the diversified commodities group had only five constituents, they were the largest global miners and they had the largest aggregate decline in actual planned dollar spend. Capex guidance among the five companies fell by 16%, or US$3.7 billion, from 2019 to total US$18.7 billion as of June 17. We excluded BHP Group from our overall analysis since it has not given capex guidance other than that it will be lower than the current estimate of US$8.0 billion — which includes capex for the petroleum business unit. Rio Tinto and Vale SA reduced their guidance to US$5.5 billion from US$6.5 billion and to US$4.6 billion from US$5.0 billion, respectively. One of many reasons capex for diversified commodities did not fall as much as it did for base metals is both Rio and Vale having large iron ore revenue streams, so the cash flow at risk has been reduced as iron ore prices have held up reasonably well.
Guidance in the precious metals sector fell by 5%, or US$560.9 million, year over year to US$10.8 billion. We found 20 revisions to guidance, with Newmont Corp. and Agnico Eagle Mines Ltd. showing some of the biggest changes. Newmont dropped its capex guidance to US$1.3 billion from US$1.6 billion. The company reduced nonessential work, suspended five of its mines temporarily to align with restrictions and health guidelines within host countries, and expects all-in sustaining costs to increase for its gold production. Agnico reduced its capex guidance by 7%, to US$690 million from US$740 million, primarily due to lower underground development costs. The deferrals of these costs are associated with the Amaruq underground project and with the Kittila shaft expansion and are related to contractor travel restrictions during the pandemic. The company also suspended six of its mines due to the pandemic.
The least impacted subsector was bulk commodities, which had a 2% decline to US$10.7 billion. The largest company in this group, Fortescue Metals Group Ltd., actually increased its guidance, by 10% to US$2.2 billion from US$2.0 billion. Fortescue was one of nine companies with increased capex guidance for the period. Others included Yara International ASA, Gold Fields Ltd. and Impala Platinum Holdings Ltd.
Further changes to capex will be announced as the June-quarter reports come around. It is expected that most miners will reduce capital expenditures if uncertainty in the market remains high.
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.