Write down today. Close down tomorrow.
That’s the outlook for the minerals and metals complex as a glut of virtually everything, from gold to oil, and from iron ore to aluminum, forces big asset value write downs and sets the scene for wholesale mine closures over the next six-to-12 months.
BHP Billiton , the world’s biggest mining company, kicked off the current round of asset-value write downs by last week wiping $2.8 billion off the value of its U.S. onshore oil and gas business. Anglo American followed suit yesterday, booking a $4 billion write-down of a Brazilian iron ore mine and a number of Australian coal assets.
There’s a lot more to come because those decisions were made before the latest plunge in commodity prices, including oil dipping back below $50 a barrel and gold dropping to a five-year low of less than $1100 an ounce.
Not So Super Cycle
By some measures the price of industrial commodities are back to where they were in 2002, the year which unofficially marked the start of a so-called “super cycle” resources boom that investors were told would keep prices “stronger for longer”.
It now seems that the commodity boom was nothing more than a slightly longer and slightly larger conventional supply/demand cycle with the problem being that too many people believed the stronger for longer claim which, in turn, led to chronic over-investment in new supply.
The only known cure for over-investment in commodities is to remove high cost material from the equation and that means the wholesale closure of mines and mineral processing plants and the potential failure of companies carrying excess debt as the downturn bites.
Coal First In, Maybe First Out
Coal miners were first into the downturn, with the price of their commodity bitten by the forces of excess supply and a worldwide push to limit the use of the most polluting of fossil fuels.
For the rest of this article, click here: http://www.forbes.com/sites/timtreadgold/2015/07/21/widespread-mine-closures-to-follow-the-commodity-price-collapse/