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MINING REPORTER VANCOUVER – Miners are forging ahead with aggressive spending plans despite sinking stock values and retreating commodity prices, in a bet that metals demand will remain solid even as the global economy softens.
Mining giants such as Alcoa Inc., Rio Tinto PLC and Xstrata PLC advanced major new projects this week, adding to the billions of dollars earmarked by miners around the world for expansion through acquisitions, new mine construction and increased exploration.
The spending spree, made possible by years of strong commodity prices that fattened profits, is largely focused on expanding production to meet the needs of commodity-hungry countries such as China, India and Brazil.
In fact, miners are moving forward so fast they are setting records in both exploration and acquisitions.
Exploration budgets for metals are expected to hit a record of more than $17-billion (U.S.) this year, an increase of about 50 per cent from last year, Metals Economics Group estimates in a report released Thursday.
And nearly 1,400 mining deals worth $71-billion were announced in the first six months of this year, making it the busiest half year in the history of the mining sector, according to a recent report from PricewaterhouseCoopers.
Jittery global equity markets have put some future financing and M&A deals on hold as stock prices tumble amid indicators pointing to a slowing global economy. Metal prices have fallen in recent weeks, but remain at traditionally high levels.
Still, miners haven’t reined in spending, even as the cost of operating and building mines climbs. It’s a change of pace for miners from a couple years ago, when they were cautious to boost budgets coming out of the 2008-09 global recession.
Xstrata said this week it plans to invest $1.47-billion in two copper mines in Peru, with the goal of increasing production in the country by 60 per cent in 2012. On Thursday, Rio Tinto announced plans to invest $833-million in major power and fuel supply projects in Western Australia to help substantially increase iron ore production capacity.
Aluminum giant Alcoa also said Thursday it will spend $300-million to expand a rolled products plant in Iowa to meet rising demand from the automotive market.
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