SINGAPORE – The rally in commodity prices last year is starting to filter through to higher spending by miners, but the nature of how they are loosening the purse strings betrays the view that companies are still cautious about the outlook.
Mining service providers are generally one of the first groups to suffer cutbacks when prices turn down, but equally they are among the first beneficiaries when things turn around.
In the five years of declining prices from 2011 to 2015, mining companies universally tried to survive by stripping costs out of their operations, with many eventually even cutting sustaining capital. It’s this spending that is coming back into the market, according to several participants at this week’s Mining Investment Asia conference in Singapore.
Sustaining capital is the miners’ term for the money needed to keep the operation running at its present production rates, and includes items like replacing machinery and doing the necessary geological and engineering work to ensure that the next area to be mined is identified and prepared.
Most mines work on mine plans that detail the work to be undertaken in the coming years. When a company cuts sustaining capital, it can continue to operate on the existing plan, but eventually it will need to put money back into the project to keep operating.
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