LatAm's top miners cut capex by US$2.7bn due to COVID-19 chaos

Latin America’s biggest mining firms have trimmed a further US$2.69bn from their 2020 capex budgets as the sector continues to grapple with COVID-19.

Total spending by 20 major operators with assets in the region is now expected at US$41.6bn, a 6.1% drop from US$44.3bn when BNamericas’ Mining Capex 2020 report was published in late April – by which point seven firms had already announced cuts.

The latest US$41.6bn estimate, compiled by BNamericas from the latest company information, is down US$7.1bn or 14.6% from original combined 2020 forecasts by the 20 companies of US$48.7bn.

LATEST CHANGES

Of the 20 companies, eight have reduced capex guidance since April by an aggregate US$3.39bn, with two raising forecasts by a total of US$700mn. The remaining 10 have not confirmed any changes.

While not all companies have given detailed explanations for their latest capex cuts, it appears clear that COVID-19 is the primary driver for the overall downward trend.

The pandemic resulted in mass mine and project suspensions in countries including Peru, Mexico and Ecuador in H1, with restrictions on movement and local outbreaks continuing to hamper some assets across the region to date.

Mining companies have also had to implement tough new protocols aimed at stemming the spread of the virus, which have resulted in reduced numbers of personnel allowed onsite.

These disruptions and health measures have hit spending, with companies deferring non-essential maintenance and optimization works and, in some cases, delaying growth projects.

BIGGEST FALLS

Glencore announced the biggest reduction in planned spending since April, to US$4.00bn from US$5.50bn, with sustaining capex down by US$1.00bn to US$3.00bn and growth capex falling US$500mn to US$1.00bn.

Brazilian mining giant Vale lowered its spending plans by US$800mn to US$4.20bn due to COVID-19 disruptions, of which US$3.70bn is sustaining capex.

Southern Copper cut its 2020 capex budget to US$650mn from US$1.15bn originally, spread across assets in Mexico and Peru.

Newmont – Latin America’s top gold producer – has shaved US$225mn off its global consolidated capex budget, which now stands at US$1.375bn.

In South America, development capex is down US$55mn to US$120mn, with sustaining spending down US$25mn to US$110mn.

In North America, which includes the Peñasquito mine in Mexico, sustaining capex is US$70mn lower at US$275mn, with US$70mn earmarked for development capex, up from US$60mn.

Teck Resources, Fresnillo, SQM and Nexa Resources have lowered capex estimates by US$39-130mn since April.

RISING SPENDING

Just two – Rio Tinto and BHP – have raised capex guidance for the year.

Rio Tinto now expects spending to come in at around US$6.00bn, US$500mn higher than original midpoint guidance of US$5.00-6.00bn.

BHP confirmed capex spending of US$7.60bn for its 2020 financial year, which ended June 30, US$200mn higher than it forecast in April.

The remaining companies have confirmed that they are on track to meet previous guidance (Barrick Gold, First Quantum Minerals, Antofagasta, Anglo American, Freeport-McMoRan, Kinross Gold and Codelco) or have not issued capex updates (Yamana Gold, Minsur and Buenaventura).

2021 OUTLOOK

Latin America’s biggest mining companies have cut back heavily on 2020 capex – but it remains unclear whether spending will bounce back strongly in 2021 as firms look to get key investments back on track.

Early indications for the year are mixed.

BHP has confirmed a capex budget of US$7.00bn for its 2021 financial year, which runs to June 30, down from US$7.60bn the previous year.

The main reason for the drop is the deferral of petroleum rather than mining projects, and spending is forecast to rise to US$8.50bn in 2022.

Anglo American has guided a sharp rebound in capex for 2021 to US$5.70-6.20bn, compared to US$4.00-4.50bn in 2020.

The rise is in part due to 2020 deferrals and additional investment in new business improvement opportunities, the company said earlier in December.

Newmont expects consolidated capex to rise to US$1.90bn next year from US$1.37bn in 2020, with US$1.00bn in sustaining and US$900mn for development capex, which includes spending at the Yanacocha Sulfides project in Peru.