Engineering & Mining Journal

JAN 2016

Engineering and Mining Journal - Whether the market is copper, gold, nickel, iron ore, lead/zinc, PGM, diamonds or other commodities, E&MJ takes the lead in projecting trends, following development and reporting on the most efficient operating pr

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After a period of intense mining project development, driven by increased emerging market consumption of building-block com- modities such as coal, copper, and iron ore, the mining industry now finds itself in a peri- od of cost cutting and capital preservation. Between 2005 and 2015, mining firms worldwide constructed and started up more than 1,230 greenfield mines representing total investment value of $265 billion. The mining boom, which included greenfield mine construction and expansions of exist- ing mines, really peaked in 2012, but sig- nificant spending for major mining projects continued in 2013 and 2014, albeit at a lesser rate, as large projects that had started in earlier years reached peak construction. In 2015, construction activity at min- ing projects worldwide declined by 50%, based on the total investment value of pro- jects when compared to a year earlier. According to Industrial Info's Global Mining Project Database , at the beginning of 2014, there were 1,228 mining projects totaling $636 billion under construction worldwide. This includes any significant capital expenditure of $1 million or greater, including greenfield mines and mine infra- structure, as well as mine/plant expan- sions, additions, modernizations, upgrades, etc. By the end of 2015, the number of mining projects under construction had increased to 1,731, but the total invest- ment value had declined to $320 billion. Greenfield Projects on the Back Burner Given today's market conditions, the magni- tude and type of projects being developed going forward will be different, at least for the next year or two. Mining companies, for the most part, are shelving large greenfield projects and are focusing on productivity optimizations for newly developed assets, as well as brownfields, expansions of existing assets, in-plant capital and environmental spending. Project timelines will be slowed down and stretched out during this period. While the majority of greenfield project activity, especially mega-projects, is being shelved or delayed indefinitely, a small amount of greenfield activity will continue during this period. Companies will need to replace capacity lost from mines due to depleting reserves and declining ore grades. Newmont Mining is a good example of this: Construction started earlier this year on the $293 million Long Canyon mine, the com- pany's next gold mine in Nevada. The mine will utilize the heap-leach process to recov- er 150,000 ounces per year (oz/y) when it is completed in late 2016. In one of the biggest announcements for a country that's been battered by the decline in commodity prices, Rio Tinto will begin con- struction in 2016 on the $1.9 billion South of Embley bauxite project in Queensland, Australia. The project involves an open-pit mine, processing plant, diesel power station, water pipeline, sewage treatment plant, and rail and port facilities. The project will initial- ly produce about 22.5 million tons of bauxite per year when it starts up in 2019, and it will replace capacity lost from the depleting Weipa mine. Bechtel is providing engineer- ing, procurement and construction manage- ment services for the project. New Commodity Price Paradigm Most of the major mining firms are slowing down production to conserve resources during this period of low commodity prices. Layoffs, mine closures and project delays, which proliferated in 2015, will continue in 2016 as the industry continues to adjust to the new low-price commodity funda- mentals. Most major mining companies will reduce capital expenditures in the range of 20%–25% in 2016. Freeport McMoRan, for example, has announced capex reductions of 25%, and Glencore Plc announced a 24% cutback for 2016. Large, low-cost producers such as Rio Tinto and BHP Billiton will fare better in 2016, while smaller and high-cost producers and junior mining companies will suffer the most. The current mood in the mining industry is to "batten down the hatches," 20 E&MJ; • JANUARY 2016 www.e-mj.com P R O J E C T S U R V E Y 2 0 1 6 Cutting Back, Looking Ahead The industry's major players are culling noncore assets, cutting costs and paring project investment budgets as they await signs of market recovery By Joseph F. Govreau

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