REUTERS

Miners will splash out more on building new mines in 2012, despite recent falls in industrial metals prices, in the belief that new projects are needed in coming years to satisfy China's voracious appetite.

Metals markets have plummeted on worries that weak economic growth may hurt demand. Benchmark copper fell to a 14-month low of $6,635 a tonne on Monday, down nearly 35 percent from February's peak of $10,190.

But for now, the expectation is that beyond near-term uncertainty, top metals consumer China and other emerging economies will still take increasing amounts of metal and raw materials for their infrastructure needs.

“The signs for China remain strong ... and while we continue to have belief in emerging nations and the mid-term story for China, then we think we will see the investments continue,” said Paul Robinson, group manager for non-ferrous metals at consultancy CRU Group.

“The indications from miners are that none of them are letting up in terms of their investment portfolio. None is saying they're not going to invest in their projects going forwards on the basis of the economic outlook,” he added.

Stockholm-based industry consultants Raw Materials Group predicts that capital spending by miners will rise almost 11 percent to $155 billion next year, matching the 2008 peak.

This year, RMG puts expenditure at $140 billion, up from $126 billion in 2010. Most money is being poured into iron ore, copper, gold, coal and potash.

There is some concern that mid-tier and smaller companies might run into difficulties if the financial situation deteriorates much further.

But most planned spending is by the big miners.

“The major capex projects stem from larger companies, and they're committed to these projects ... They're relying on their belief that the economy will be able to rectify itself,” said Damian Brett, a project manager at RMG.

RMG estimates 80 percent of capital spending is by large mining firms.

A lot of companies also learned from the last financial crisis in 2008/2009 and the speed with which demand recovered and will try to avoid shelving projects for fear of losing out.

“Putting projects on hold put them in a worse position. So if they can, and most have strong balance sheets, they should be able to maintain their funding and development of these projects,” Brett said.

NO LUXURY FOR SMALL MINERS

Smaller companies do not have the luxury of strong balance sheets and have much shorter time horizons.

“I'm more concerned about exploration and the mid-tiers and juniors. If cash were to dry up in lower price scenarios, the players more at risk are those living month to month,” said CRU's Robinson.

“They're probably more susceptible. Essentially they're in no different a position than they were in the last downturn. They're probably closer to the high quartile (of production costs) and need external investors who believe in the commodity story, and they need cash.”

The fact that the copper market is in supply deficit and likely to remain so until around the middle of the decade should mean spending on copper projects is not affected even in a recession.

Supplies of the metal - used widely in power and construction - have been constrained for years by a combination of falling ore grades at some of the world's biggest mines, delayed projects and industrial disputes.

Some analysts expect the global copper market to be in a deficit of around 300,000 tonnes this year, which will come on top of a shortfall of nearly half a million tonnes last year.

“The projects that were put on hold or suspended last time were mostly other base metals, and the assumption is that would happen again. If things get worse you could see a couple of expansions in zinc put on hold in the short term,” said Brett.

For now, analysts broadly expect outlays on new mines and expansions to keep rising unless the global economy takes a dive.

“If there's a recession, we will see a pull-back (in mine spending). But let's see where the markets are going before coming to any conclusions,” said Carl Firman of Virtual Metals. - Reuters