Mineral’s Commodities Boom, Prices and Investment

Mateus Patrice Piermatei Soares

Universidade Federal de Ouro Preto, Ouro Preto, Brazil
Marco Antônio Tourinho Furtado (Advisor)
Universidade Federal de Ouro Preto, Ouro Preto, Brazil

ABSTRACT Up to the year of 2008, the mining industry was going through an outstanding
growth period, due to the high demand for commodities and the following high of their prices.
In this context, the investments in the sector increased every year. However, in 2008, the real
estate crisis in the US initiated a period of recession that might compromise this growth. This
article aims to analyze and establish the relation between the high on prices and the
investments. The studied aspects were, among others, the transient difference between the
changes in prices and investments and the projects' execution stage. The rise in prices,
especially since 2004, led to a wave of new investments in 2006 and 2007, especially for the
projects on studies of feasibility and mines reactivation or expansion. Following the prices
drop over 2008, we believe that the new data may reveal a new context for investments.
KEY WORDS: Commodities, Investment, Mining, Prices

1 INTRODUCTION industry growth through the new

A remarkable growth has taken place in
the mining industry in the last few years.
Among other factors, this growth was
conceived through great investments in
projects, either for the construction of new
mines or the expansion or reactivation of old
ones. (brownfield projects).
From the beginning of 2000 until the first
half of 2008, the great moment in the world
economy and the promising growth of China
and India caused the world market to thrive
and expand. The high consumption of raw
materials caused an increase on prices, what
had an impact on the metallic commodities.
New investments were emerging and at great
numbers every year because of the high
prices.
This article attempts to show the current
development of investments in the mining
industry over recent years, as well as its
reasons and consequences.
The study analyzes the relation between
the rise in prices and its impact on
investments, their temporal disparity; verifies
how much of the investments really turned
into executed projects; and exposes the real
accomplished projects or the expansion of
old mines. Five commodities will be studied,
besides the absolute numbers: Iron ore,
Copper, Gold, Zinc and Nickel.
At the end of the first half of 2008, the real
estate crisis in the US provoked a period of
stock exchange fall and recession that
affected the mining industry with the drop on
commodity prices. This, combined to the
lack of credit for the projects, led to a
reduction on investments, which caused
standstills, delays and even the abolishment
of some projects. This study also presents the
variance of prices throughout 2008,
highlighting the drop, especially after the
middle of the year.
This study will continue, in order to
include data from 2008 and 2009, so to
evaluate the effects of the recession on
mining investments.

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2 MATERIALS AND METHODS
This work is based on secondary data.
The information on the prices was
acquired from the London Metal Exchange,
the COMEX – New York Mercantile
Exchange and from data given by Vale, via
the EconStats website.
The data on investments were collected
from annual reports published on the
Engineering and Mining Journal. On this
publication, the main projects of the world
mining industry are listed and, also, data
about investments sorted by country, metal
and stage of execution.
The collected data were organized in
tables and graphics, and they were analyzed
separately, then the prices and investments
were analyzed simultaneously.
At first, we will display the prices
fluctuation throughout the years, until 2008.
Then we will display the data on the
investments progression from 2000 to 2008,
sorted by kind of metal, project stage and
investment value. Following the graphics
presentation, the data will be analyzed.
3 RESULTS
3.1 The fluctuation of the prices
The graphics below represent the price
fluctuation of commodities, studied
throughout the years:

$140,00
$120,00
$100,00
US$/ton

$80,00
$60,00
$40,00
$20,00
$0,00
Figure 1. Iron1970 1980
ore prices 1990 2000
(Contracts-Fines). Annual2010
average.2020
Created by the author based on
data from: EconStats – CVRD.

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 $7.000
$6.000
$5.000
US$/ton

$4.000
$3.000
$2.000
$1.000
$0
Aug-87 Jan-93 Jul-98 Jan-04 Jul-09
Figure 2. Copper Prices (Futures Exchange). Monthly average. Created by the author based
on data from: EconStats – London Metal Exchange.

$1.200
$1.000
$800
US$/oz.

$600
$400
$200
$0
May-90 Oct-95 Apr-01 Oct-06 Apr-12
Figure 3. Gold Prices (Futures Exchange). Monthly average. Created by the author based on
data from: EconStats – COMEX.

$4.000
$3.500
$3.000
$2.500
US$/ton

$2.000
$1.500
$1.000
$500
$0
Aug-87 Jan-93 Jul-98 Jan-04 Jul-09
Figure 4. Zinc Prices (Futures Exchange). Monthly average. Created by the author based on
data from: EconStats – London Metal Exchange.

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 $35.000
$30.000
$25.000
US$/ton

$20.000
$15.000
$10.000
$5.000
$0
Jan-93 Oct-95 Jul-98 Apr-01 Jan-04 Oct-06 Jul-09
Figure 5. Nickel Prices (Futures Exchange), in US$/ton. Monthly average. Created by the
author based on data from: EconStats – London Metal Exchange.

3.2 Fluctuation of the investments

The graphics below are based on the data throughout the years. Data from 2000 to
published every year on the Engineering 2008 are presented. The graphics were
and Mining Journal. These reports gather firstly organized by general numbers and,
information of the main mining projects then, by studied metals.

100
80 Cooper
US$ Billion

60 Gold
Nickel
40
Zinc
20 Iron Ore
0
1999 2004 2009
Year
Figure 6. Total of investments according to metal produced. Created by the author based on
data available at the Engineering and Mining Journal publications.

On the publications, the projects data were Brownfield: represents projects of

classified in three distinct stages: expansion or reactivation of old mines.
Feasibility: represents the stage in which Hence, the following graphics and tables
studies about the feasibility of the projects present these three stages and their
are performed. The aspects analyzed are the progression. Their data are discussed in item
ore bed, local infrastructure, the market, 4.
local political issues, among others.
Construction: represents the projects that
are under construction and will be operating
afterwards.

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 250
200
US$ Billion

150 Brownfield
Feasibility
100
Construction
50
0
1999 2004 2009
Year
Figure 7. Total of investments according to the project stage. Created by the author based
on data available at the Engineering and Mining Journal publications.

50
40 COOPER
US$ Billion

30 GOLD
IRON ORE
20
ZINC
10 NICKEL
0
1998 2000 2002 2004 2006 2008
Year
Figure 8. Investments in feasibility studies (numbers on the listed projects). Created by the
author based on data available at the Engineering and Mining Journal publications.

12
10 COOPER
US$ Billion

8 GOLD
6 IRON ORE
4 ZINC
2 NICKEL
0
1998 2000 2002 2004 2006 2008
Year
Figure 9. Investments in new projects at the stage of construction (numbers on the listed
projects). Created by the author based on data available at the Engineering and Mining Journal
publications.

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 20

15 COOPER
US$ Billion

GOLD
10 IRON ORE
ZINC
5
NICKEL
0
1998 2000 2002 2004 2006 2008
Year
Figure 10. Investments in Brownfield projects (numbers on the main listed projects).
Created by the author based on data available at the Engineering and Mining Journal
publications.

Table 1. Fluctuation of investments in feasibility studies (according to the main projects,

listed on the annual publication by E&MJ).

COMMODITY 2000 to 2002 2002 to 2005 2005 to 2007

COPPER 121% 55% 74%
GOLD 285% 11% 99%
IRON ORE -2% 75% 1178%
ZINC 95% 21% 145%
NICKEL 27% 170% 29%
Created by the author based on data available at the Engineering and Mining Journal
publications.

Table 2. Fluctuation of investments in new projects at the construction stage (according to

the listed projects).

COMMODITY 2000 to 2007

COPPER -29%
GOLD 200%
IRON ORE *
ZINC -62%
NICKEL **
* In 2000, there were no investments in iron ore projects under construction, while in 2007, the amount reached US$ 2.08 Bi.
** In 2000, there were no investments in nickel projects under construction, while in 2007, the amount reached US$ 10.15 Bi
Created by the author based on data available at the Engineering and Mining Journal
publications.

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 Table 3. Fluctuation of investments in projects at the brownfield stage (according to the
listed projects).
COMMODITY 2000 a 2004
COPPER 231%
GOLD 126%
IRON ORE 1734%
ZINC 11%
NICKEL * 258%
* In 2000, there were no investments in brownfield projects of nickel, while in 2004, the amount listed was US$ 0.65 Bi.
Created by the author based on data available at the Engineering and Mining Journal
publications.
4 DISCUSSION
4.1 Prices Progression
The commodities price progression has
been studied by various authors.
When analyzing the commodities price
progression throughout the last few years in
relation to Constant Dollars, Radetzki
(2006) exposes a general tendency for the
depreciation of the metallic and the non-
fuel commodities (food and raw materials
from the agriculture industry) until the
beginning of 2000, when this new tendency
turned into a prices increase. Prates (2007)
claims that in 2001 the prices reached
historic low levels, reducing stocks and
production, and in 2002 they started to rise
again.
From 2002, the demand for metallic
commodities starts to increase remarkably.
This is due to the world economy
turnaround and, mainly, to the development
of countries like India and China. With the
rise of demand and the lack of stocks and
production, the prices increased
substantially at a very short period of time,
what is confirmed by the graphics
previously presented (Figs. 1-5).
With the world in crises, due to the
collapse of the real estate sector in the
United States, a recession period has
started, causing the consumption to fall, and
so the prices. However, the data displayed
in this article only shows the first impacts
of this crisis. It is necessary to wait for
future data in order to analyze this period as
a whole; its progression will determine the
new ore prices.
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2004 a 2007
114%
192%
237%
38%
4.2 Investments Progression
From the data displayed on Fig. 6, it is
possible to assess an increase on the total of
investments from 2002, and further more
from 2006 and 2007. This could be related
to the great rise in prices since 2004, as
described in the former section. If so, there
is a discrepancy between the increase of
prices and of investments in three years.
However, caution is needed when
analyzing these absolute numbers. The
mining projects were sorted in this article
by three stages: feasibility studies,
construction and brownfield. The feasibility
studies projects do not necessarily represent
projects effectively initiated, therefore the
valid investments comprehend the stages of
construction and brownfield.
When analyzing the Figs. 7-10 and the
Tables 1-3, we conclude that the projects
still on feasibilities studies display a rise
from 2002, increasing further in 2006 and
2007. Nevertheless, when comparing to the
absolute numbers of projects under
construction, there was not a significant
change in the numbers for the metals in
question, but nickel. Investments in
brownfield projects have increased since
2004 and kept on, reaching maximum
values, in 2007.
5 CONCLUSION
When analyzing the graphics on the prices,
we can notice a change of the tendency
since 2002, when the prices started to
increase, due to the positive period
experienced by the world economy,
especially in China and India. These factors
combined created an environment of high
demand for metallic commodities.
 Prior the year of 2000, the commodities
prices achieved historic low levels and
therefore the stock and the production were
depleted. The low prices did not encourage
new investments in minerals.
The high demand caused the prices to
increase and the mining companies were
forced to intensify the investments to
increment the supply, so they could respond
the increasing demand.
Hence, it is possible to identify the
correlation between the rise in prices and
the rise in investments. This is even more
evident when we analyze the accentuated
tendency of a rise in prices in 2004, causing
an increase on investments in 2006 and
2007. So three years was the period of time
needed so that the price variation could
have an impact on the investments,
expressing the worries that the increase of
prices and the high demand were perceived
as constant and not as a fleeting moment.
It is necessary to pay attention to the
data of each of the projects stages. There is
a certain regularity of investments in
projects under construction, while, for
brownfield projects, there is a rise starting
in 2003 and intensified in 2004. This is
justified once it is faster and cheaper to
expand old mines rather than developing
new units. Hence, this kind of investment
quickly responds to pressures of demand
and prices increase. The investments that
had effectively intensified are the ones of
projects in the feasibility studies stage. But
projects on this stage do not necessarily
represent the consummation of the
investment. We can then conclude, from the
data analysis, that little has changed about
new projects, remaining at a stable level,
even with the rise of prices. On the other
hand, the expansions and/or reactivations of
existing mines were significant,
representing the real growth of the mining
industries. But the growth of feasibility
studies projects could suggest the advent of
new mines soon.
We can highlight the progression of
investments in iron ore. Until 2003, among
the five studied commodities, iron ore did
not receive a significant part of these
investments. However, in 2007, this
commodity received the majority of the
investments in brownfield and feasibility
studies projects, reflecting its great ratings
since 2004.
With the world crisis caused by the
American real estate sector, the resulting
prices drop can be noticed on the graphics
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of prices above, but, since the data from
2008 was not available yet, we can not
assess the actual effect on the investments.
Each day, new facts make us realize that we
are really facing a period of world
recession. However, there is still no
information to quantify this as in previous
years.
We then conclude that:
a) The real increase of prices of the
mining commodities caused a great
movement of investments;
b) In a short period of time, since 2003,
there has been an expressive increase on the
number of expansions and/or reactivation of
mines;
c) A great number of new investments
stood at the feasibility study stage, and the
drop in prices at the end of 2008 may have
an effect on those, materializing them.;
d) The investments in iron ore had an
outstanding increase comparing to the
absolute number of investments in
minerals, due to the fast rise of prices
between 2004 and 2008.
6 SPECIAL THANKS TO
Professor Marco Antônio Tourinho Furtado
for his guidance along this research, to my
father, Marcos José Veroneze Soares, for
his help with the writing of the article, to
Ouro Preto Federal University, for its high
quality teaching, and to the Raw Materials
Group, from Sweden, for the information
given about its publications.
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