Capital Expenditures

Capital Expenditures Information Bulletin

(published in August 2019)

A capital expenditureFootnote 1 (CAPEX) is money spent to buy, build or upgrade tangible assets, such as mines, machinery and equipment, that will benefit a company over an extended period of time.

Information on capital spending is one of the useful indicators of broad economic conditions that can provide an outlook on how management views future market demands in relation to their company’s present productive capacity.

Find out about Canada’s minerals sector CAPEX and its spending intentions:

Overview

Capital expenditures in the upstream mining industry

Capital expenditures in the downstream mineral-processing industries

Spending breakdown by province and territory

Overview

CAPEX in Canada’s minerals sectorFootnote 2 rose by 5% and reached $13.2 billion in 2018. It is expected to rise by 6% to reach $13.9 billion in 2019. These increases follow a drop that occurred between 2014 and 2017, which was largely dictated by the commodity price cycle and came after historic levels were reached earlier in the decade. Historic spending levels were driven by increased demand in China and other emerging market economies for many of Canada’s most important minerals and metals.

The largest contributor to the overall 2018 spending increase in the mining industry was metal ore mining, which rose by $1.2 billion (22%) and reached $6.6 billion. The increase was also the result of a number of large projects in the industry that were being completed. Most interestingly, this increase occurred in spite of the important decline in CAPEX for potash mining, which was down 32% to $1.2 billion.

In terms of growth performance, CAPEX in the minerals sector grew at an average annual rate of 4.5% over the past 10 years (2009–18). This sector outpaced the 2.5% growth rate achieved by the broader private sector in Canada.

As shown in Figure 1, mining is by far the most capital-intensive industry within the minerals sector, accounting for 74% of the total CAPEX. The minerals sector accounted for 15% of CAPEX in the natural resource sectorFootnote 3 and 5% of Canada’s total spending in 2018.

Figure 1: Capital expenditures, by sector, 2018 (p)

Figure 1: Capital expenditures, by subsector and price, 2008–18 (i)
 
Text version - Figure 1
Figure 1: Capital expenditures, by sector ($ billions), 2018 (p)
Sector Value
Mining 9,817.90
Processing and fabrication 3,379.30
Minerals and metals 13,197.20
Energy 71,546.00
Forestry 2,191.00
Natural resources 86,934.20
All other sectors 159,002.70
Total economy 245,936.90

Sources: Natural Resources Canada, Statistics Canada.
B = billion, p = preliminary expenditures.

 

Capital expenditures in the upstream mining industry

Mining projects are large-scale operations: they entail a sizeable upfront investment followed by periods of sustained expenditures before a project can begin commercial production and start generating revenues. This is why industry‑wide CAPEX trends can sometimes be affected by one or more mines moving from the construction stage to the production stage.

As shown in Figure 2, CAPEX in the mining industry is also affected by minerals and metals prices. This is because companies tend to curtail expenditures when market conditions are unfavourable and financing options are limited. They accelerate their investment plans when the outlook for demand and prices improves, which enhances cash flow and profitability.

Capital spending in the upstream mining industry had weakened during the 2008–09 global recession, but rebounded in successive years, reaching a record high of $16.9 billion in 2012 (Figure 2). The post-recession growth was largely driven by rapid growth in China and other emerging market economies. It reached a peak in 2012 when supply caught up with demand. The supply then became greater than the demand, which caused minerals and metals prices to fall.

In 2018, CAPEX in Canada’s mining industry rose by 6% and reached $9.5 billion. This gain was mainly the result of development proceeding at several precious metal mines. Intentions for 2019 indicate spending will increase by 4.9% to reach $10.0 billion. If this occurs, it will be the fifth year that CAPEX remains at the $9-to-$10-billion mark.

Figure 2: Capital expenditures, by subsector and with respect to the metals and minerals price index, 2009–19

Capital expenditures, by subsector and with respect to the metals and minerals price index, 2009–19
 
Text version - Figure 2
Figure 2: Capital expenditures, by subsector and with respect to the metals and minerals price index ($ billions), 2009–19
Year Coal
mining
Metal
ore
mining
Non-metallic
mineral
mining
Metals
and
minerals
price
index
(2008=100)*
2009 0.36 3.54 2.30 101.5
2010 0.70 5.50 2.85 88.5
2011 0.97 8.11 3.08 103.0
2012 1.09 11.02 4.81 120.6
2013 0.67 9.17 5.24 118.3
2014 0.38 5.30 5.43 99.7
2015 0.23 4.88 5.08 94.3
2016 0.21 5.14 4.29 83.9
2017 0.37 5.41 3.20 81.9
2018 (p) 0.68 6.63 2.17 88.3
2019 (i) 0.61 6.47 2.87 92.2

Sources: Natural Resources Canada, Bank of Canada, Statistics Canada.
p = preliminary expenditures, i = spending intentions.
*The metals and minerals price index is presented with a one-year lag.

 

CAPEX in the metal ore subsector was up a substantial 22.5% in 2018 as a result of increases in all its components.

Notable developments in the metal ore subsector

Notable spending increases were recorded for nickel-copper (73.4%), iron ore (53.1%), copper-zinc (31.4%) and gold-silver (12.0%) operations.

Spending intentions for 2019 indicate that expenditures in the subsector might decline slightly by 2.5% to drop to $6.5 billion.

Gold and precious metal mines are the largest component of CAPEX in this subsector, accounting for 60% of its total expenditures in 2018. This proportion continues to be higher than the past decade, which averaged about 40%. As with other metals, gold and silver have seen a resurgence of spending in 2018 due to higher prices.

Since reaching its peak in 2014, CAPEX in the non-metallic mining subsector has declined by 60% to fall at $2.2 billion in 2018.

Notable developments in the non-metallic mining subsector

Potash mining accounted for 53% of the subsector’s total CAPEX in 2018 and the decline was almost entirely concentrated in this activity (86%). The drop follows a period of high investment in potash mining that resulted in several mine expansions and the opening of one new mine (Bethune).

Spending intentions for 2019 suggest that CAPEX will increase by 32.2% to reach $2.9 billion, reversing the decline in expenditures that had affected this subsector for the past few years.

With respect to coal mining, expenditures reached their highest level since 2012, rising to $683 million in 2018. This gain represents an increase of 83.3% compared to 2017 and is consistent with developments in metallurgical (or steelmaking) coal markets, which have seen increased demand and higher prices. Spending intentions for 2019 indicate expenditures in coal mining will decrease by 10.2% to drop at $613.6 million.

Capital expenditures in the downstream mineral-processing industries

CAPEX in Canada’s downstream mineral-processing industriesFootnote 2 remained relatively unchanged in 2018 at $3.4 billion. Almost 60% of this amount is attributable to investment spending in the primary metal manufacturing subindustries, which increased by 33.8% and surpassed $2.0 billion in 2018. However, CAPEX in the fabricated metal product manufacturing and non-metallic mineral product manufacturing subindustries declined by 8.6% and 39.2% respectively.

The 2019 spending intentions in the downstream mineral-processing industries indicate a 6.2% gain in CAPEX to reach $3.6 billion, due to increasing expenditures across all three subindustries. Spending in the fabricated metal product manufacturing, primary metal manufacturing and non-metallic product manufacturing subindustries is anticipated to increase by 4%, 5% and 12% respectively.

Spending breakdown by province and territoryFootnote 4

CAPEX across provinces and territories (Figure 3) can experience considerable volatility from year to year based on the number of mines present and their progress along the mineral development continuum. Jurisdictions with fewer mines can experience greater volatility as the construction of a single mine can account for a significant portion of overall spending.

CAPEX in Alberta’s mining industry significantly increased (+219.2%) in 2018. This growth coincides with increased activity in the coal industry. Smaller increases were recorded in Quebec (+21.8%), Newfoundland and Labrador (+19.95%) and Ontario (+17.0%), while substantial declines were recorded in Nova Scotia (-56.1%), Northwest Territories (-26.1%) and British Columbia (-14.4%). Saskatchewan again experienced a significant drop (-44.4%) because of the concentration of potash mining in that province.

Figure 3: Capital expenditures, by jurisdiction, 2017–19

Figure 3: Capital expenditures, by jurisdiction, 2017–19
 
Text version - Figure 3
Figure 3: Capital expenditures, by jurisdiction ($ millions), 2017–19
Province / Territory 2017 2018 (p) 2019 (i)
Newfoundland and Labrador 411.3 489.5 549.7
Prince Edward Island - - -
Nova Scotia 202.5 88.9 118.6
New Brunswick - - -
Quebec 1,625.3 1,979.3 2,120.5
Ontario 1,897.2 2,218.8 2,296.1
Manitoba 190.8 - 318.0
Saskatchewan 2,252.3 1,252.4 1,964.1
Alberta 154.9 494.4 332.5
British Columbia 954.9 817.6 766.8
Yukon - - -
Northwest Territories 382.6 282.7 199.1
Nunavut - 1,329.9 1,089.7

Sources: Natural Resources Canada, Statistics Canada.
p = preliminary expenditures, i = spending intentions, - = confidential.
Note: Prince Edward Island, New Brunswick, Manitoba, Nunavut and Yukon data are suppressed by the source.

 

Spending intentions for 2019 point to increases for Saskatchewan (+56.8%), Nova Scotia (+33.4%) and Newfoundland and Labrador (+12.3%). Positive growth is expected to persist for Quebec (+7.1%) and Ontario (+3.5%), while spending is expected to decline in Alberta (-32.7%), Northwest Territories (-29.6%), Nunavut (-18.1%) and British Columbia (-6.2%).

CAPEX is concentrated in a handful of provinces. In 2018, three provinces accounted for approximately 66% of the mining industry’s CAPEX: Ontario (23.5%), Quebec (21.7%) and Saskatchewan (20.1%).

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