Cutting costs an uphill battle for miners: report – by Ian McGugan (Globe and Mail – May 20, 2016)

As a short-lived frenzy of metal buying begins to abate, the cost-cutting challenges facing many of the world’s biggest miners are becoming more obvious.

Prices for iron ore, copper and other key industrial commodities jumped earlier this year, when signs of renewed infrastructure building in China set off a buying binge. Iron ore, to take one example, surged from $38 (U.S.) a tonne in January to above $70 in April.

But prices for the metal have since slid back to around $53 a tonne and further declines may be on the way. Vale SA, the Brazilian mining giant, reiterated on Thursday that it was preparing to unleash even more supply on the market, with production slated to begin late this year at its giant S11D mine.

The rise and fall of iron ore demand is typical of the volatility in many industrial commodities over recent months. Investors attempting to ride the upswing in Chinese demand created a mini-boom in the prices of many base metals, but those gains are now fading.

That leaves miners once again eager for ways to keep a lid on expenses. The problem is that their record on controlling costs may not be anywhere as good as it appears at first glance.

The world’s big five iron ore miners, for instance, have slashed their break-even cost of production in half over the past three years, according to a Citigroup analysis last month.

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