Mining Woes Snag Financial Firms – by Alistair MacDonald (Wall Street Journal – May 1, 2013)

TORONTO—Far from any mine shaft, the legions of bankers, consultants and lawyers who benefited from a decadelong commodities boom are now preparing to retrench as the market weakens.

Global mining capitals such as Toronto, Johannesburg and London all flourished amid lofty prices in recent years for everything from gold and copper to potash. Mining companies have tended to flock to a handful of cities to list their shares, set up headquarters and raise cash.

But over the past year, the sector has been hit by a triple whammy of falling prices, still-rising costs and waning investor interest. Most mined commodities have fallen sharply since their 2011 highs. Gold is 23% off its highs, and copper closed at an 18-month low Wednesday. Gold has fallen 14% since the start of this year to $1,446 a troy ounce.

As a result, some of the world’s biggest miners are slashing outlays, shedding assets they bought at the top of the market just a few years ago, and shaking up management teams that spearheaded several years’ of frenetic deal making and fundraising.

That is having a spillover effect on the industries servicing miners. Bankers and brokers involved in the sector are starting to see revenue dry up, and some are already shedding staff.

At Royal Bank of Canada, RY.T -0.38% the largest bank in Canada by assets, capital-markets revenue fell by 16% year-on-year in the first quarter, with investment banking co-head Doug McGregor singling out the mining sector.

“It’s a little quiet in Canada,” he said on a conference call.

Bank of Montreal BMO -1.37% recently laid off four senior bankers who serviced the potash industry, amid a broader mining-sector streamlining at the bank. A host of smaller brokers in Toronto have let go of mining analysts.

Commonwealth Bank of Australia CBA.AU -0.62% estimates the mining slowdown will shave as much as 9% off net profit at Australia’s banks this fiscal year.

Commodities prices are volatile, and the industries that service miners are used to ups and downs. During the last big decline, in 2008 and 2009, miners cut exploration budgets by 40%. The next year they increased them by 40% as conditions improved, according to researcher Metals Economics Group.

So far, 2013 isn’t looking pretty. Year-to-date, there have been just 442 mining deals globally, valued at $20.5 billion, according to Dealogic. That compares with 641 deals worth $75 billion in the same period last year.

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