Capital Investment

INFORMATION BULLETIN, JUNE 2012

Capital Investment in the Mining Sector Reaches a Record
$12.5 Billion in 2011 and Is Expected to Climb in 2012

Capital investment in the mining sector¹ is characterized by sizable up-front expenditures, extended periods over which expenditures increase before revenues can be generated, and elevated technical, economic and financial risks (e.g., geological, mining, processing, future prices and revenues, and capital and operating costs). Firms tend to curtail expenditures when business conditions are unfavourable and accelerate investment plans when the outlook improves. Capital investment in the mining sector declined during the recent global recession and has rebounded since 2009. In 2011, capital investment in the Canadian mining sector was a record $12.5 billion, a 24.5% increase over 2010, and is expected to reach almost $16.0 billion in 2012 (Figure 1).

Capital investment in the mineral exploration industry² was on an upward trajectory prior to the recession. Following a dip in 2009, it soared to $3.5 billion in 2011, a 29.3% increase from 2010. Capital investment in this industry is expected to accelerate and to reach $5.0 billion in 2012.

The downstream mineral-processing industries³ are expected to contribute $5.8 billion to Canadian capital investment totals in 2012, a 20.1% increase over 2011. Over two-thirds of this investment ($4.1 billion) can be attributed to primary metal manufacturing, which is expected to lead the total manufacturing sector to year-over-year gains of 6.6% in capital investment. Other sectors within the mining and mineral processing sector (nonmetallic mineral product manufacturing and fabricated metal product manufacturing) are expected to contribute $1.8 billion in capital investment. Combined 2012 capital investment intentions for the exploration, mining, and mineral-processing industries are $26.5 billion, which would represent 6.7% of Canada’s total capital investment intentions and the highest value on record (adjusting for inflation).

Capital investment in energy and forestry has also rebounded and is expected to climb in 2012. Capital investment in energy⁴ is expected to climb for the third straight year, while forestry⁵ is also expected to experience its third consecutive year of increases after years of declines. The growth rate of capital investment in mining and minerals (including mineral exploration) has outpaced both energy and forestry each year since 2007. Capital investment in mining and minerals was $20.9 billion in 2011 and accounted for 19% of the total for the three sectors. Total capital investment in the three natural resource sectors is expected to reach $129.5 billion in 2012, which would represent approximately one-third of all capital investment in Canada.

INVESTMENT IN THE MINING INDUSTRY BY SECTOR

Investment in the metal ore sector of $8.2 billion in 2011 accounted for about two-thirds of all mining sector capital investment. Investment in this sector is expected to increase by 28.2% to $10.5 billion in 2012, following substantial increases in 2010 and 2011. Since a cyclical low in 2009, capital investment in the metal ore sector has more than doubled. Much of this increase is attributable to the gold and silver ore mining sector, which has experienced a sustained period of robust prices, and to large iron ore projects that are nearing production.

Capital investment in the nonmetallic mineral mining sector also continued its upward trend since 2009, reaching $3.3 billion in 2011 on the strength of substantial investment increases in the potash mining sector. Investment is expected to reach $3.9 billion in 2012, driven by the potash mining sector and the diamond mining sector.

Capital investment in the coal mining sector is more cyclical, but is expected to climb for the third consecutive year to a record level of $1.3 billion in 2012.

INVESTMENT IN THE MINING INDUSTRY BY REGION

Capital investment in the mining industry is expected to increase in all provinces and most territories in 2012⁶ with the exception of Nunavut. Over three-quarters of Canada’s total capital investment in the mining industry is expected to be concentrated in Ontario, Quebec, British Columbia, and Saskatchewan, with investment in excess of $4 billion in each of Saskatchewan and Quebec and over $3 billion in each of Ontario and British Columbia (Figure 2). Capital investment in Newfoundland and Labrador is expected to surpass $1 billion in 2012. Nunavut, despite being the only jurisdiction expected to experience a decrease in capital investment expenditures in 2012, is still anticipated to outspend all but the top five jurisdictions.

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.

Figure 1. Allocation of Capital Investment in the Mining Industries in Canada, in Current Dollars, 2001-12

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

[Text Version - Figure 1. Allocation of Capital Investment in the Mining Industries in Canada, in Current Dollars, 2001-12]

Figure 2. Change in Capital Investment, 2011 to 2012 (i)

Source: Natural Resources Canada.
(i) Intentions.

[Text Version - Figure 2. Change in Capital Investment, 2011 to 2012 (i)]

© Her Majesty the Queen in Right of Canada, 2012