Mining at 'tail-end' of cyclical recovery

An easing of China's overheated economy and a rapid rise in costs could sap some of the vigor from the mining industry, says Canaccord Capital's global metals and mining analyst Gary Lampard.

In an early-February research report he said that rather than being at the "start of a long-lasting commodity boom driven by China," the industry is "facing the tail end of a strong cyclical recovery."

Lampard said the 11 global firms he studied are investing US$24 billion over three years until 2006 on expansion projects, a 23 percent increase from their combined capital base in 2003.

But he said costs across the industry are "rising alarmingly."

He is predicting that the return on invested capital will fall to 11.8 percent for the 11 firms in 2006 from 14.6 percent in 2004 and 16.7 percent in 2005.

Canaccord expects output from its surveyed firms will rise in 2006 by 27 percent for iron ore from 2003, 23 percent for coking coal and 9 percent for thermal coal.