Copper is emerging as a key growth driver in the mining sector as capital allocation strategies shift, with greenfield projects offering some of the most attractive investment opportunities.
According to Wood Mackenzie’s latest analysis, major mining companies are increasing capital expenditure in response to growing competition for investment, shifting away from shareholder payouts and buybacks.
This trend is particularly relevant for the Australian market, where mining giants like BHP and Rio Tinto are making crucial decisions about their future investment strategies.
The report outlines three key factors behind this pivot: increasing non-discretionary capital expenditure, the need for strong balance sheets, and the growing demand for copper as part of diversification strategies.
“Our analysis suggests that valuation multiples are not responding to higher payout ratios and buybacks are no longer delivering strong returns making the pivot to growth more appealing,” Wood Mackenzie head of corporate for metals and mining James Whiteside said.
“Diversified companies seeking relevance through big payouts aren’t being rewarded, but the read across from copper miners is investing in production growth pays.”
Wood Mackenzie forecasts that major copper companies will accelerate their reinvestment efforts over the next three years, on aggregate surpassing 100 per cent of their operating cashflows.
The divergence in strategy is particularly evident among Australia’s top miners, with Rio Tinto increasing investments in Oyu Tolgoi.
The company enjoyed a significant boost to copper production in the fourth quarter (Q4) of 2024 due to strong progress made at the Oyu Tolgoi underground copper mine in Mongolia.
Q4 2024 saw 202,000 tonnes (t) of copper produced across Rio’s operations, up 26 per cent from Q4 2023.
BHP is eyeing greenfield copper projects, with an aim to spend up to $US25 million ($40 million) of exploration expenditure on Cobre’s Kitlanya East and West copper projects in Botswana.
“Miners are entering a new era of capital discipline,” Whiteside said. “The market’s response to these differing approaches will influence the long-term capital allocation decisions of major mining companies.
“Firms that can effectively balance growth investments with shareholder returns are likely to emerge as the winners in this changing landscape.”
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