From Mining to Refining: Low Commodity Prices Force Shift at Industry Giants (Wall Street Journal – August 20, 2015)

Share prices of many mining companies have fallen sharply this year

The world’s largest mining companies have plenty of nickel. Now they are scrounging around for nickels.

In a sign of desperation amid plunging commodity prices, mining companies are delving into low-margin businesses—traditionally the domain of the industry’s middlemen—for new sources of revenue.

Rio Tinto PLC for the first time has started to refine other companies’ copper ore. Brazil’s Vale SA, the world’s largest iron-ore producer, has begun mixing minerals to make custom supplies for buyers. U.S. coal miner Murray Energy Corp. in June launched its own trading unit.

The mining companies are seeking to alleviate the financial pressure from tumbling raw-materials prices. With industrial metals and coal at lows last seen during the financial crisis, the share prices of many companies have collapsed by more than half in the past year. A global supply glut and weak demand have spurred the selloff in futures markets and mining stocks.

Anglo American PLC alone posted a $6 billion loss for the year ended June 30, compared with a $100 million profit in the previous period.

“Everybody is trying to find ways to squeeze out whatever they can,” said Rick de los Reyes, who helps manage $1.5 billion invested in metals and mining at T. Rowe Price. “Everybody is fighting to stay alive.”

The scramble for revenue, no matter how small, is an example of how producers are grappling with the commodities bust following an extended boom fueled by China’s rapid growth. It is also a tacit acknowledgment that raw-materials prices are likely to remain low for an extended period, a challenge for companies that borrowed heavily to scoop up mines when prices were high.

So far this year, iron ore has slid 22%, and copper is down 19%. Nickel has tumbled 31%, while coal has fallen at least 10%, depending on the type.

In the first quarter, trucks laden with tons of bluish-gray rocks that contain copper started to rumble across Utah to Rio Tinto’s smelting facility, with a smokestack nearly as tall as the Empire State Building, on the southern shore of the state’s Great Salt Lake. But in a shift from the past, the copper ore is owned by other producers, which are paying Rio Tinto a fee to heat the rocks to 2,400 degrees Fahrenheit to pry the copper loose of silica, iron and sulfur.

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