Global Mining: Not Meeting the Supply Gap

Mining activity and production is increasing. Its not enough to meet future demand.

Data from Industrial Info Resources reveals there are 4,790 metals and minerals capital projects with a value of $443 billion currently under construction around the world. There are 10,586 projects under planning, for a combined total of $1.11 trillion.

The top miners have increased capital outlays by more than 50% since the lows of the industry downturn in 2017. We believe these expenditures will increase as demand pressures continue to rise from global “Net Zero” policies and demand from green industries.

Resurgence of Coal

China’s ban on Australian coal has been a boon for US. Suppliers, with a 26% increase in US exports this year. China currently gets 65% of its energy from coal and Asian countries are increasing their investment in coal, with more coal-fired plants being built than are being retired.  A renewed reliance on coal, a high carbon-emission source of energy, will result in a significant gap in capital expenditures for green energy and renewable alternatives.

Copper Underinvestment

This is a huge problem for the energy transition. For example, lets look at copper.  Copper is an essential metal for manufacturing electric vehicles, EV batteries, windmills and other technology essential for a green future.  The red metal is also key for construction and cellphone manufacturing.  Unfortunately there’s a severe supply gap. There has been a response from global copper miners to ramp up production – but so far, it’s been too little to meet future demand.

Judging by the following chart below, current capital expenditures are increasing – unsurprisingly matching the locales where historically copper mining has been most intensive.

In a recent report, we outlined that the projected spike in demand places incredible stress on the limited copper supply we are currently mining. Global copper demand is projected to double – from 25 million metric tonnes in 2021, to nearly 49 million metric tonnes in 2035.
Let’s keep in mind that demand from markets outside of green energy – like construction, appliance manufacturing, cell phones etc. will grow at a compound rate of 2.4% between 2020 and 2050.

So, even without an energy transition, copper demand will still increase significantly.

Best Value in Copper Miners

Lundin Mining (TSX:LUN) is the cheapest large cap trading at a 50% blended valuation discount to peers and Sierra Metals (NYSE:SMTS) (TSX:SMT) is the cheapest small cap trading at 80% blended valuation discount. Additionally, both companies offer very attractive dividend yields that are above the copper peer group and the S&P 500 market yield.

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Sierra Metals is a market awareness client of Capital 10X.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

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