Wood Mackenzie’s latest analysis reveals a transformative shift in mining sector strategies, with companies prioritising production growth over shareholder returns amid intensifying competition for capital.
The report highlights three key drivers reshaping investment approaches: rising non-discretionary capital expenditures, the need for resilient balance sheets, and copper’s emergence as a strategic priority for diversification.
Major diversified and copper-focused miners are guiding for higher capital expenditures in 2025, signaling a departure from years of tightened budgets.
Greenfield copper projects now offer the sector’s most attractive returns, with analysts forecasting that major copper producers will reinvest over 100 per cent of operating cash flows into growth initiatives within three years.
“Valuation multiples no longer reward high payout ratios, and buybacks aren’t delivering strong returns. The pivot to growth is more appealing,” said James Whiteside, Wood Mackenzie’s Head of Corporate for Metals and Mining.
“Diversified companies aren’t being rewarded for big payouts, but copper miners prove investing in production growth pays.”
Share buybacks have plummeted to decade lows, with 2024 volumes among major miners dropping to US$3.2 billion — a 73 per cent decline from 2022 levels.
This reflects diminished investor confidence in buybacks’ effectiveness amid volatile valuations.
The analysis underscores contrasting strategies at Rio Tinto and BHP:
- Rio Tinto is accelerating reinvestment, targeting a 60 per cent reinvestment rate by 2025 through projects like Simandou (iron ore), Oyu Tolgoi (copper), and lithium ventures.
- BHP maintains a more conservative approach, focusing on Chilean copper projects and its Jansen potash asset, which may lower its leverage below industry peers.
Wood Mackenzie projects diversified miners will adopt a new normal of reinvesting over 50 per cent of operating cash flows, reducing shareholder distributions to approximately 45 per cent.
Whiteside emphasised the sector’s evolving risk calculus: “For some firms, embracing growth-oriented risk is now the optimal strategy.
“Our analysis shows that growth in the right commodities is rewarding, while higher variable payouts do not benefit companies struggling for relevance.”
The report concludes that success in this new era will depend on balancing growth investments with returns, as market responses to divergent strategies reshape long-term capital allocation across the industry.
