Capital Investment

CAPITAL INVESTMENT INFORMATION BULLETIN,
JUNE 2011

Capital Investment Rebounds in 2010 and Is Expected To Increase Further in 2011

Capital investment in the mining sector¹ is characterized by tremendous risks (e.g., geological, geographic, and prices), sizable up-front capital investments, and long lags between these initial investments and production revenues. In attempting to mitigate these risks, firms tend to invest when business conditions are favourable; investment is therefore higher in times of economic prosperity. It is not surprising then that capital investment in the mining sector declined substantially during the most recent global recession, and it is equally unsurprising that it rebounded in the two years following the recession. In 2010, capital investment in the mining sector amounted to $9.3 billion, a 31.8% increase over 2009, and is expected to reach a record level of $11.5 billion in 2011 (Figure 1).

The downstream mineral-processing industries² are expected to contribute an additional $4.5 billion to Canadian capital investment totals in 2011, which would represent a 36.6% increase over 2010. Over two-thirds of this investment, or $3.0 billion, can be attributed to primary metal manufacturing, which is also expected to lead the total manufacturing sector to year-over-year gains of 15.1% in capital investment. The remaining sectors that comprise the mining and mineral processing sector (the nonmetallic mineral product manufacturing sector and the fabricated metal product manufacturing sector) are expected to contribute a combined $1.5 billion in capital investment. Thus, 2011 combined capital investment intentions for the mining and mineral-processing industries are $16.1 billion, which would represent 4.6% of Canada’s total capital investment intentions and the highest value on record (adjusting for inflation). In 2010, the mining and mineral-processing industries accounted for 2.8% of Canada’s total Gross Domestic Product (GDP).

Capital investment in the other natural resource sectors – forestry and energy – rebounded in 2010 and is expected to climb further in 2011. Forestry³ is expected to experience its second consecutive year of capital investment increases after years of declines. Following its first decrease in six years, capital investment in energy⁴ is also expected to climb for the second straight year. In total, capital investment in the three natural resource sectors is expected to reach $88.5 billion in 2011, which would represent over one-quarter of all capital investment in Canada. In 2010, the natural resource sectors accounted for 11.5% of Canada’s total GDP.

Investment in the Mining Industry

Investment in the metal ore sector, where well over half of all mining sector capital investment is concentrated, is expected to increase 47.3% in 2011 to $8.2 billion. This comes on the heels of a substantial increase in 2010. In the two years following the economic recession, capital investment in the metal sector has nearly doubled. Much of this increase is attributable to the gold and silver ore mining sector, which has experienced record prices in recent years. Investment in the iron ore mining sector is expected to more than double to $1.5 billion as some large-scale iron ore projects in Newfoundland and Labrador, Quebec, and Nunavut get closer to the production stage. All other metal mining sectors, except copper-zinc ore mining, are expected to experience capital investment increases in 2011.

As a result of the global financial crisis, investment in the nonmetallic mineral mining sector decreased in 2009, but rebounded in 2010 to reach $3.2 billion due to substantial investment increases in the potash mining sector. However, investment is expected to fall in 2011 to $2.6 billion, largely due to expected decreases in the potash mining sector.

Capital investment in the coal mining sector has been very cyclical over the last two decades, alternating between years of growth and decline. This trend is expected to continue in 2011 as capital investment is projected to increase for a second consecutive year after a year of decline in 2009. At $756 million, expected capital investment in the coal mining sector in 2011 is 22.4% higher than in 2010 and, adjusting for inflation, would represent the second-highest level of capital spending in the last two decades.

Investment in the Mining Industry Across Canada

Capital investment in the mining industry is expected to increase in most provinces and territories in 2011⁵ with the exception of New Brunswick, Manitoba, Saskatchewan, and Alberta. Over three-quarters of Canada’s total capital investment in the mining industry is expected to be concentrated in the traditionally strong mining jurisdictions of Ontario, Saskatchewan, British Columbia, and Quebec, where each is expected to spend over $2 billion in 2011 (over $3 billion in Ontario). In Nunavut, where the Meadowbank mine recently opened and several high-profile projects, such as Mary River and Hope Bay, are moving closer to production, mining capital expenditures are expect to exceed $1 billion for the first time (Figure 2).

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Note: Changes in capital investment spending are based on comparisons between 2011 intentions and 2010 preliminary actual spending; however, provincial comparisons are based on 2011 revised spending intentions and 2010 actual spending expenditures. Statistics Canada and Natural Resources Canada data may differ due to conceptual differences and the timing of the publication of the two data sets.

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Figure 1. Allocation of Capital Investment in the Mining Industries, in Current Dollars, 2000-2011

Source: Statistics Canada.
(p) Preliminary actual investment; (i) Intentions.

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Figure 2. Change in Capital Investment, 2010 to 2011 (rsi)

Source: Natural Resources Canada.
(rsi) Revised spending intentions.

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© Her Majesty the Queen in Right of Canada, 2011