Big miners kick the empire building habit – by James Wilson (Financial Times – October 26, 2015)

http://www.ft.com/

BHP Billiton and Rio Tinto are being forced to curb their spending amid China’s economic slowdown

When the chief executive of one of the world’s biggest mining groups had to find words to describe his industry’s litany of problems, he turned to a US country song with an apt title: If You Are Going Through Hell.

“If you’re goin’ through hell keep on going,” were the lyrics recited by Freeport-McMoRan’s Richard Adkerson at a London reception this month, as his Arizona-based company battles a plummeting copper price and burdensome debts. “Don’t slow down, if you’re scared don’t show it . . . you might get out before the devil even knows you’re there.”

Forget the devil: mining investors are only too aware that the sector is a long way from paradise. The industry’s fortunes have deteriorated significantly since the end of the commodities “supercycle” — a big upward shift in demand driven by China’s post-2000 emergence as a manufacturing superpower.

A decade ago miners were confident that increased demand meant the good times would roll for years, and signed off on huge investments to expand output. Today, amid slowing Chinese economic growth and a glut in many commodities, miners are contending with tumbling metal prices and investor disgust.

“During the supercycle there was so much investment it was as if the industry was on steroids . . . now they are wearing off,” says Mark Cutifani, chief executive of Anglo American. “There are lots of red faces in the industry. People misread the forward curve and investment in mine capacity outstripped demand.”

Glencore, the miner and commodities trader that came to the stock market in 2011, underlined the sector’s fall from grace when it raised $2.5bn from shareholders last month to help cut its large debt load.

Those woes are part of a downturn that has seen miners underperform the wider stock market every year since 2011. Last month, the FTSE 350 mining index plumbed levels last seen back in 2005.

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