A bid by some big mining companies to spread the risk of low commodity prices by expanding and diversifying in recent years has turned into a costly failure.
Over the past 12 months, major mine owners including Freeport-McMoRan Inc. and Vedanta Resources Plc have written down asset values by a combined $42.2 billion, 46 percent more than the previous period, data compiled by Bloomberg show. The adjustments reflect an across-the-board plunge in raw materials and the prospect of a prolonged slump.
Just a few years ago, the companies were flush with cash as oil topped $100 a barrel, copper and gold were at records, and Chinese demand seemed unquenchable. In the seven years through 2014, mining companies made about $400 billion of acquisitions, data show. With commodities at a nine-year low, and China’s economy slowing, companies have stepped up writedowns of the assets they bought.
“It was an overaggressive investment cycle, which was badly timed,” Colin Hamilton, head of global commodities research at Macquarie Group in London, said by telephone. “A lack of opportunities in their existing commodities is a part of why these miners did this, and that was done because everyone else was trying to do the same.”
Freeport, the biggest publicly traded copper miner, invested heavily in oil and gas in 2013, paying $9 billion to buy Plains Exploration & Production Co. and McMoRan Exploration Co. as the company looked to become a global resources giant. Last quarter it recorded a $3.5 billion net charge tied to oil and gas.
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