Rio to BHP Invest $244 Billion as Glasenberg Warns: Commodities – by Elisabeth Behrmann & Jesse Riseborough (Bloomberg News – September 4, 2013)

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The biggest mining companies are set to spend about $244 billion on expansions to 2015, slow to heed Glencore Xstrata Plc Chief Executive Officer Ivan Glasenberg’s call for austerity to end an oversupply in mineral markets.

That’s just a 2.4 percent drop from the $250 billion in capital expenditures made in the previous three-year period, according to forecasts compiled by Bloomberg for the 20 largest mining companies by market value. Glasenberg joined a chorus of investors pushing for spending cuts after the companies had to make $60 billion of writedowns over 18 months.

From BHP Billiton Ltd. (BHP), the world’s biggest, to Rio Tinto Group, industry members are telling investors they’ve become more optimistic for demand growth in the U.S. and China, the biggest minerals buyer, and that future capex will be more disciplined. The Bloomberg World Mining index has jumped about 16 percent from a four-year low in July.

“Institutional shareholders still feel that management need to prove to them that over the long term the discipline associated with capital allocation is there,” Catherine Raw, co-manager of BlackRock Inc. (BLK)’s $7 billion World Mining Fund, said yesterday in a phone interview from London. “They could always do more. Shareholders are not releasing the pressure.”

Glasenberg’s own Baar, Switzerland-based Glencore, in which he holds an 8.3 percent stake, estimates spending of $29 billion on new projects over the next three years before outlays drop to $4 billion to $5 billion annually, the company said in May. Spokesmen for Glencore and Rio declined to comment. London-based Rio is looking to cut capital spending 20 percent to about $14 billion this year, with a similar drop the following year.

Annual Spending

“Investors are happy with growth, if it’s high-returning growth,” said Paul Young, a Deutsche Bank AG analyst in Sydney with buy ratings on Rio and BHP. He cites shareholder approval of their iron ore and copper expansions. “Capex relative to history is still high, but the growth is all good growth.”

Annual expenditure by the top 20 is forecast to drop by about a third to $66 billion in 2015 from 2012 levels, in line with Glasenberg’s push. The three-year comparison is little changed, because of the number of projects put in motion in recent years that have helped create an oversupply of commodities including copper.

Glasenberg in an Aug. 21 interview applauded his peers for responding to his call to restrain spending and had set the tone for the new “age of austerity” for miners, Bank of America Corp. analysts said in May. In the past 18 months, BHP, Rio and Anglo American Plc (AAL) were among the mining companies to appoint new CEOs, and they began to rein in future capex budgets, sell assets and cut workers.

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