As 2022 approaches, S&P Global remains mostly upbeat about the outlook for minerals, even though the firm sees a slowing in economic growth in many major economies such as China.
But while demand will moderate over time and prices will ease, S&P Global reckons the minerals industry is set up “for a period of sustained growth.”
Winners will be gold, copper and other ‘green’ metals like lithium. Iron ore and uranium will be losers (as will coal).
Inflation is the big unknown.
Higher raw material costs have led to rising inflation globally — a trend likely to impact mining operations in 2022.
“Inputs such as fuel, electricity and equipment are of particular concern for producer costs, adding downside risks to 2022 margins should inflationary pressures persist throughout the year” S&P Global warned.
The continuing issue is the extent of any continuing damage to economic demand and growth from Covid – specifically the Delta variant which as 2021 closes, continues to cause significant disruption.
But so far the recovery in 2020 and this year from the ravages of Covid has been stronger than any one predicted.
“Global efforts to combat the COVID-19 pandemic hampered most aspects of the metals and mining industry in the first half of 2020” S&P said in this week’s report.
“The sector’s rapid rebound in the second half, and rising demand for most mining commodities, has created robust conditions for producers and explorers. We expect these conditions to persist into 2022, and in some cases beyond.”
“While we anticipate that metals prices will slip somewhat in 2022 from their current highs, medium- term supply constraints are setting the stage for historically above-average prices through to 2025 — driven mostly by increasing demand for materials used in the accelerating global energy transition.
“The supply constraints are expected to persist despite intensive exploration efforts, which we forecast to expand further in 2022.
“Exploration will continue to focus on regions that have largely mitigated the pandemic’s impacts; however, few of the resulting discoveries will be developed in time to meet medium-term supply requirements.
“Faced with persistent if moderating demand, the industry is set up for a period of sustained growth,” the firm predicted.
Costs of course remain a problem with inflation rising, especially energy costs.
But the report says these look like remaining under control.
As the separate story on gold reveals, gold production costs have returned to levels last seen in 2014. But even with this, the gold mining sectors is still expected to see high margins between its All In Sustaining Costs (AISC) and prices which are expected to remain buoyant next year.
“Gold producers have benefited the most since the emergence of the pandemic, with AISC margins of about 72% for both 2020 and 2021.
“Margins are forecast to rise above 85% in 2022, hitting a historical high as gold producers benefit from a modest increase in head grades and a sustained high price.”
Copper is another metal looking good not only in 2021 but also next year.
“…the bullish copper market is forecast to support consecutive years of AISC margins over 100% in 2022, which last occurred in 2010,” S&P Global forecast.
“Copper AISC has increased 10% year over year in 2021, with rising labour and other mine site costs the major contributors — mainly driven by currencies strengthening against the U.S. dollar.
“Nickel margins are following a trend similar to copper’s, as profitability for both commodities is slated to decrease 2%-3% in 2022.
“After two years of negative zinc margins, strong zinc prices will drive them back into positive territory in 2021. While costs are expected to remain relatively flat in 2022, softening prices will contribute to margins decreasing 18% year over year, although they will remain well into positive territory.
One point S&P Global made was the path of exploration budgets – they were cut hard in early 2020, but the cuts turned out to be too pessimistic and companies added money back into their spending plans as the year went on and turned into 2021.
As 2022 nears, the pandemic recovery continues to keep metals prices elevated, which is maintaining investor interest in the mining sector. Financings by junior and intermediate companies totalled $14.8 billion for the first nine months of 2021 — well above the $12.1 billion raised in all of 2020.
Should this trend continue through the first few months of 2022, we expect the year’s global exploration budget to be 5%-15% above 2021.
The increase will not be felt evenly across all mining commodities, however. Gold, which appears to have found a new base level above $1,700 per ounce, should perform well again in 2022 and maintain its status as the primary exploration target by a wide margin.
“High interest in energy transition metals should push copper and nickel up more than average and maintain interest in lithium and cobalt exploration.
“We expect diamonds, platinum group metals and uranium — all of which have underperformed over the past decade — to disappoint again in 2022< S&P Global forecast.
This report was written and issued before Chalice released details of its maiden estimates for its huge Gonneville PGE, nickel, copper and cobalt find near Perth in WA. That has already sparked a rush of interest in PGE exploration in Australia – not just WA. There are teams working IN NSW around Broken Hill and further east.
