Anglo American CEO sees ‘solid’ metals outlook in ’08

Beijing, China–In her keynote speech at the recent China Mining Conference here, Anglo American (AAUK-Q, AAL-L) chief executive Cynthia Carroll highlighted key trends — and concerns — in the mining industry.

Carroll, who left Alcan to take over as head of Anglo American in March, said the company plans to increase the proportion of its procurement sourced from China and has set “an informal target of achieving a balance of trade between its sales to, and its purchases from, China over the medium term.”

So far, Anglo American has invested about US$400 million in China, including its US$150-million stake as a strategic IPO investor in Chinese coal producer China Shenhua Energy (CUAEF-O). Last year, the company raked in US$2 billion in direct and indirect sales of commodities to China.

In terms of commodity markets, Carroll said the demand fundamentals look good despite worries about the U.S. economy. She noted that with major metals-consuming economies “in expansionary mode” and stocks predicted to remain low for most major metals, the price outlook remains “solid.”

Carroll noted the activity of investment funds has “amplified” the strength of the commodity cycle and diversified the drivers of demand.

Another factor driving up prices has been the mining sector’s inability to significantly expand supply, she said. This has been due in part to limited investment in exploration from the mid-1990s, she explained, but also because it takes longer to bring new projects to account as a result of increasingly rigorous impact assessments and permitting processes. Shortages of capital, equipment, skills and infrastructure bottlenecks have contributed to the problem.

Carroll noted that costs have also increased dramatically across the industry — including energy, transport and labour costs. Indeed, the average capital costs of building a new copper mine are estimated to have grown by an average of about US$200 million, she said, or about 60%, since 2004.

She also warned that supply constraints would continue to trouble the industry.

She identified the five key supply challenges as skills, energy, infrastructure, water and community consent.

In terms of labour shortages, Carroll said women make up only about 10% of the mining industry. The solution?

“I see reaching out to the fifty-one per cent of the population who are hardly present in our operations to be a key response to the skills shortage in countries like Australia and Chile.”