When you are inside a hole, the saying goes, stop digging. A simple lesson that arguably has bypassed a mining industry that’s wiped out a lot more than US$1.4 trillion of shareholder value by digging a lot of holes around the world. The industry’s 73 per cent plunge from the 2011 peak is way past the oil industry’s 49 percent loss throughout the same time.
Just just how long it will require for that world to erode bulging stockpiles of metals, coal and iron ore was the central debate at the mining industry’s biggest investment conference in Cape Town now, which attracted a lot more than 6,000 top executives, bankers, brokers, analysts, miners and reporters. Here’s the things they concluded.
The Worst Is Yet to Come
This year may be the worst yet with prices trending lower for longer, according to Anglo American Chief Executive Officer Mark Cutifani, who says his company should be better prepared “for that winter that inevitably comes after the summer.”
The Australian revealed that since he took on the role 33 months ago the company’s revenue had slumped by typically US$350 million a month.
Rio Tinto Group is also get yourself ready for a difficult year, with CEO Sam Walsh predicting on Bloomberg Television on Thursday that distress from the commodities rout will spread to majors. The company joined rivals in scrapping its so-called progressive dividend policy.
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Distress or Impress
The market is splitting into two classes of citizens: those under distress and people who will impress by riding out the downturn and being released on the other side inside a stronger position heading into the next cycle.
Vedanta Resources CEO Tom Albanese was hesitant to call the bottom. Vedanta, like its peers, is centered on paying its debts and will also be “hunkering down and getting that done,” he said within an interview with Bloomberg Television.
“Those companies that are best at it is going to be best-recovering,” said Albanese, the former boss of Rio Tinto.
Sticky Supply
Gluts of everything from iron ore to copper are the main challenge for the industry. China’s slowest economic growth in a generation has resulted in oversupplies of metals, and for that, the is basically to blame, Cutifani said. The large cost of environmental cleanups after closing a mine is preventing closures and prolonging the downturn.
“Excess supply is awash in many commodities and as painful as it is, economically and rationally it needs to leave the marketplace to create a long-term sustainable future,” said Graham Kerr, CEO of South32 Ltd., the spin-off of BHP Billiton.
Gold, a Shining Light
Gold, this year’s best performing commodity, is giving miners some hope. Its safe-haven status makes it immune to many of the forces which have weighed on industrial metals and bulk commodities.
“The exam is going to be with this pick-up in the gold price and the absolute confusion around the global economy, and watching everyone suddenly rush back to gold and gold equities,” said Mark Bristow, CEO of Randgold Resources, whose shares have surged 40 per cent this season.
Prices are strong and firms are looking to acquire, said Neil Froneman, the CEO of Sibanye Gold, South Africa’s biggest gold producer.
Deals Will Happen
The here we are at mergers and acquisitions in gold is ripe, based on Sibanye.
“This doesn’t come around very often, maybe every 15, 20 years,” Froneman said.
The biggest producers have been battered by the slump in commodity prices that’s forced producers to get rid of lower-quality mines and smelters. Anglo American, that is selling more than half of their assets, will probably announce sales of its coal assets in the united states in the next fourteen days, based on the South African Mineral Resources Minister.
Private equity groups are circling. The value of private-equity deals within the mining industry will rise this season from US$3.2 billion in 2015 as top producers save money and offload unwanted operations, based on U.K. law firm Berwin Leighton Paisner.
A Flood of Shares
BlackRock’s Evy Hambro, one of the most prominent mining investors, was blunt in his assessment of the profession. When asked about the outlook for supply, he quipped probably the most abundant commodity would be new shares in mining companies. He expects the “floodgates to open” on share sales because the industry raises cash to rebuild battered balance sheets.
Bloomberg News
