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Global Commodities Slowdown Spurs Partnerships to Unlock Value of Property Acquired During Boom
SYDNEY—As the global mining slowdown intensifies, resource companies are unlocking vast landholdings built up during years of high commodity prices, outsourcing exploration to smaller rivals.
For years, major mining companies such as Fortescue Metals Group Ltd. FMG.AU +1.35% and Anglo American AAL.LN +2.35% PLC chose to go it alone when hunting for new mineral deposits, bolstered by record profits amid Asia’s booming demand for resources. Now, a subdued outlook for commodity prices is forcing the miners to seek junior partners who can help shoulder exploration costs.
“You need to be opportunistic,” said Stewart Bailey, a senior vice president at South Africa’s AngloGold Ashanti Ltd., ANG.JO -3.01% which will cut its exploration budget to as little as $150 million next year from $461 million last year. “In the current gold market, there’s less exploration money to go around in general, so people will be looking for smarter ways to do things.”
Tie-ups with smaller companies may ease concerns that the world is heading toward a supply shortage of metals such as copper and iron ore as major resource companies pull back on investments in new projects amid slowing demand from China. BHP Billiton, BLT.LN +1.68% the world’s largest mining company by market value, cut exploration spending by 46% to $1.3 billion in the year through June.
While some companies are focusing spending and staffing on existing projects, others are looking to alliances as a way to target commodities outside their areas of expertise. Large miners are also seeking stakes in projects held by smaller exploration companies, in exchange for funding and know-how.
Fortescue, the world’s fourth-biggest iron-ore miner, struck a deal with Northern Star Resources Ltd., NST.AU -2.23% allowing the small Australian gold company to hunt for precious metals on a parcel of land that Fortescue controls in Western Australia’s Pilbara region.
The dusty Pilbara plains in the country’s northwest account for two of every five tons of iron ore shipped by sea. But until now, there has been little attention given to finding other commodities, such as copper or gold.
Northern Star Managing Director Bill Beament said the deal opened up “an extensive landholding in one of Australia’s most prospective, yet barely explored gold regions.” Fortescue has exploration licenses in the Pilbara covering some 33,000 square miles of land—double the area of Switzerland.
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