The mining industry has lost more that $1.4 trillion, but the worst is still yet to come

When you are inside a hole, the saying goes, stop digging. An easy lesson that arguably has bypassed a mining industry that’s destroyed more than US$1.4 trillion of shareholder value by digging a lot of holes around the world. The industry’s 73 percent plunge from the 2011 peak is way beyond the oil industry’s 49 per cent loss during the same time. 

Just just how long it will require for the world to erode bulging stockpiles of metals, coal and iron ore was the central debate in 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 what they concluded.

The Worst Is Yet to Come

This year could be the worst yet with prices trending lower for longer, based on Anglo American Ceo Mark Cutifani, who says his company ought to be better prepared “for that winter that inevitably uses summer time.”

The Australian revealed that since he took around the role 33 months ago the company’s revenue had slumped by an average of US$350 million per month.

Rio Tinto Group can also be get yourself ready for a tough 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 those that will impress by riding the downturn and being released on the other side inside a stronger position heading in to the next cycle.

Vedanta Resources CEO Tom Albanese was hesitant to call the underside. Vedanta, like its peers, is focused on paying its debts and will also be “hunkering down and becoming so now,” he explained within an interview with Bloomberg Television.

“Those companies that would be best at it will be best-recovering,” said Albanese, the previous boss of Rio Tinto.



Sticky Supply

Gluts of everything from iron ore to copper are the main challenge for that industry. China’s slowest economic development in an era has resulted in oversupplies of metals, as well as for that, the is basically responsible, Cutifani said. The big cost of environmental cleanups after closing a mine is preventing closures and prolonging the downturn.

“Excess supply is awash in most commodities so that as painful because it is, economically and rationally it must 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 most of the forces which have weighed on industrial metals and bulk commodities. 

“The test is going to be with this pick-up within the gold price and also the absolute confusion round the global economy, and watching everyone suddenly rush to gold and gold equities,” said Mark Bristow, CEO of Randgold Resources, whose shares have surged 40 percent 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, according to 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 its assets, will probably announce sales of their coal assets in the country within the next fourteen days, based on the South African Mineral Resources Minister.

Private equity groups are circling. The value of private-equity deals in the mining industry will rise this season from US$3.2 billion in 2015 as top producers cut costs and offload unwanted operations, according to 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 as the industry raises cash to rebuild battered balance sheets.

Bloomberg News