BMI View: While the US mining industry continues to be one the largest, most diverse and well developed in the world, we expect the sector to grow at only a moderate pace through the 2019. One of the main factors impeding its expansion is global price weakness in a number of key mined products, including gold, coal and copper which is leading to consolidation and a lack of new investment in some markets. The total industry value is nevertheless forecast to reach USD139bn in 2019 while the US's considerable reserves and well-established framework will ensure the country remains an important centre for mining for many years to come.
We forecast the US mining sector will see modest average annual growth, reflecting a broader trend among developed mining markets. For the period of 2015-2019, we forecast average annual growth of 1.9%. Ultimately, the majority of growth in both mineral output and mining investment in the Americas region will occur in developing markets in Latin America. Still, accelerating US economic growth, including steady expansion in the automotive and broader manufacturing sectors, should ensure the overall mining and metals sector remains supported.
|Slow Growth Reflects Developed Market Trends|
|US - Mining Industry Value & Growth|
Consolidation to Increase
For 2015, we forecast average prices for both gold and copper will decline compared to 2014 levels. While we expect copper mining operations will remain profitable, we note that gold producers, in particular, are coming under increasing pressure both from falling prices and rising costs. Thus, we expect capital expenditure to remain subdued over the coming quarters and expect consolidation among some junior miners. We also expect further consolidation to take place across gold mining and other markets as smaller, junior miners struggle to remain profitable among continued price pressures.
In April, gold miner Coeur Mining acquired all outstanding shares of rival Paramount Gold and Silver for USD146mn, after securing stockholder approval from the two firms. The companies entered a merger agreement in December 2014. Under the transaction, 32.7mn Coeur shares were issued to Paramount stockholders and a USD10mn cash contribution was made to its subsidiary Paramount Gold Nevada. Meanwhile, company AngloGold Ashanti was reported to in second-round talks with two potential partners or buyers for its Cripple Creek & Victor mine in Colorado.
We expect consolidation to continue across many markets over the coming quarters as smaller miners fall by the wayside and larger players look to increase economies of scale to weather the current challenges. The coal mining sector is already very consolidated, with four companies - Peabody Energy, Arch Coal, Alpha Natural Resources, and Cloud Peak Energy - responsible for slightly over half of all US coal production. This follows a series of asset sales and downsizing over recent quarters, a period which has seen Consol Energy sell off five of its coal mines, James River Coal file for bankruptcy, Patriot Coal announce it would cut output from its Corridor G Appalachian mining complex, and SunCoke Energy state it would cut its coal production in half and seek a buyer for its mining assets. While other mining segments, such as copper have been less affected by global price slides and appear to be relatively well capitalised, many operators in these markets are neverthless adopting a cautious approach towards a worsening operating environment. In March, the US's largest copper producer, Freeport-McMoRan announced that it would cut its dividend by 84%. Freeport stated that the cut would assist funding mining and energy projects and further shore up its balance sheet. The move follows its announcement in January 2015 in which it yet again lowered its capital expenditure (capex) outlook for 2015 on account of weak commodity prices.
Long Permitting Times Mar Overall Solid Business Environment
The US will continue to attract mining investment owing to its vast natural resources, well-developed mining industry and infrastructure, and stable political environment. Furthermore, the country's mature capital markets also allow junior firms to find financing opportunities, though credit remains more constrained following the global financial crisis.
|US To Remain Prime Destination|
|United States - Inward FDI Position, Mining (USDbn)|
We expect US real GDP growth to accelerate in 2015, and indeed recently revised upward our forecast from 2.7% to 2.9%. Greater economic expansion should support end-use demand growth for metal products, although as we noted before developed world economic growth has become less metal-intensive over the past decade. Ultimately though, long wait times to secure environmental and other operating permits will remain a significant detriment to greenfield mining investment.
|US To Remain A Global Leader|
|US - Mineral Production, 2013|