Jim Letourneau's Blog

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Who Wants to Build a Mine?

Turns out that building a mine isn't a popular use of capital these days. 

Eastern Platinum has halted development of a platinum project in South Africa due to heightened financial risk. The project faced cost pressures, and reduced metal prices. (source)

Closer to home, BHP Billiton is reconsidering plans to build the $12 billion Jansen potash project. CEO Marius Kloppers recently said “You should not expect in the next six months any new major approval of projects.” (source)

Miner's are cooling their heals based on an uncertain economic outlook. On the macro side slowing growth in China and the European debt crisis (btw its not a crisis if it lasts for months on end) are boilerplate reasons to stop investing in the future. They also face ever increasing costs, labor unrest and in places like South Africa, foreign exchange challenges.

My current take on this kind of news is that the commodity supercycle is not over. It takes a long time for new mining projects to come on stream and between the financial meltdown of 2008 and the present gloomy economic outlook, many projects are stalled. Any projection of decreased global demand should be offset by a reduction in new sources of supply. Population growth continues and the improvement of global living standards should keep commodity demand healthy. Normally commodity bull markets and AFTER everyone has built up large stockpiles of raw materials. Maybe this time will be different but I doubt it.