Mining: End of the supercycle – by Michelle Madsen (The Africa Report – February 12, 2016)

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The deepest rout in commodities prices in more than a dec- ade has seen a fundamental reconfiguration of Africa’s mining sector. The past year has seen China’s growth slow sharply, driving prices down and prompting waves of mines across the continent to shut up shop, regardless of size.

The resource landscape has never looked bleaker for some – from the troubles of seemingly invincible Swiss commodities giant Glencore to the hundreds of exploration and development projects quietly disappearing from company prospectuses. Mine closures and project cancellations have also gutted the fortunes of currencies dependent on mineral exports.

With the commodity supercycle showing no signs of swinging back into a bull market, the short-term outlook for Africa’s miners given by international funding bodies and banks remains gloomy.

Some countries and companies are better positioned to weather the storm. And despite the risky environment, a clutch of investors is poised to step in to pick up potentially lucrative projects that cash-constrained owners have been looking to dump.

In this falling market, the profitability of even high-grade mines has been compromised, with miners large and small looking to rationalise their assets and strip businesses to the core. Swiss mining giant Glencore, which championed its diversified structure to investors at the time of its 2011 London listing as a safeguard against dropping prices in any one product, has emerged as one of the more unexpected victims.

Glencore saw its share price dive by 30% overnight in Septem- ber after a London-based analyst questioned the viability of the company’s huge balance sheet. In response, Glencore’s management team has sped up its asset rationalisation process, imposing cuts to loss-making arms of the business in a bid to reduce debt.

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