Blame mining companies, not China, for resource value wipeout – by Eric Reguly (Globe and Mail – October 31, 2015)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

ROME — American senator Everett Dirksen wasn’t talking about the commodities industry when he reputedly said “a billion here, a billion there, pretty soon you’re talking real money.” Were he alive today, he could have. Great gobs of real money are being vaporized by mining and oil and gas companies. The slowdown in China, conveniently, is taking much of the blame. It shouldn’t.

Episodes of woe are recorded almost every day. Shares of Royal Dutch Shell, one of the world’s biggest oil companies, slumped again this week after it took an $8.2-billion (U.S.) hit on weak oil prices and decisions to scrap a Canadian oil sands project and retreat from Alaska.

Glencore, the world’s top commodities trader, has fallen by two-thirds this year alone. The Swiss company, which acquired Viterra and Falconbridge in Canada, is now busy shrinking its asset base and debt. On Friday, Chevron announced it would cut as many as 7,000 jobs – up to 11 per cent of its work force.

Research done by Citigroup for Glencore reveals astounding value destruction. The bank took Glencore’s initial public offering in May, 2011, as a starting point and measured the share performance and market capitalization decline of 23 of the world’s leading mining and oil companies through the end of October. The group includes BHP Billiton, Anglo American, Exxon Mobil, First Quantum, Freeport McMoRan, Petra Diamonds and Acacia.

The collective equity loss for these 23 companies alone was almost $650-billion. The figure excludes the losses of some biggies, among them Barrick Gold, Kinross Gold, Canadian Oil Sands and Teck Resources that, mysteriously, did not land on the Citigroup list.

If the absentee losers and other stock market duds are added, the loss could easily rise by another $100-billion. Translated into loonies, let’s say $1-trillion (Canadian) has been wiped off the resources map in the past four years, equivalent to the gross domestic product of Saudi Arabia or Switzerland.

A few of the individual losses are gruesome. While BHP Billiton shed only 51 per cent over the period, compared with Glencore’s 77 per cent and Lonmin’s 97 per cent, the company is so big that the price fall wiped out $118-billion (U.S.) in value. The value crunch at Vale, the Brazilian company that owns the former Inco, was even greater, at $120-billion.

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