The global mining industry is facing a growing disconnect as, despite record profits for the world’s 40 biggest miners in 2011 thanks to high commodity prices, investors proved fickle demanding greater capital discipline and increased shareholder returns.
Against a backdrop of shareholder demands for heightened capital discipline, the story for the future will be about the ability to bring on supply through developing the right projects. We continue to observe a structural change of higher average commodity prices which are underwritten by higher production costs and lower grades. However, this does not guarantee increasing gross margins.
The Top 40 invested $98 billion in capital projects in 2011 and plan for a further $140 billion for 2012 in an effort to increase supply. The market, however, doesn’t seem to be buying the industry’s long-term growth story, which has sent share prices lower−2011 marks the start of the growing disconnect.