The not-new, not-a-cycle mining supercycle – by David Robinson

Dr. David Robinson is an economist at Laurentian University in Sudbury, Canada. His column was originally published in March 2011 issue of Sudbury Mining Solutions Journal a magazine that showcases the mining expertise of North Bay, Timmins and Sudbury.  drobinson@laurentian.ca

Mr. Keynes had it right: the financial community is very, very emotional. We are barely climbing out of what many were calling the great recession, and suddenly a flock of bankers and business reporters are babbling about a new economic supercycle.

Well, I have news for them. There is no new supercycle. Don’t run off and sell all your mining stocks, though. This isn’t bad news – it’s just a better way of understanding the good news.

To start with, the supercycle isn’t new. Even Gerard Lyons, the guy who wrote The Supercycle Report, shows the cycle starting in 2000. It is the same old supercycle that we were talking about five years ago in this space.

Second, it isn’t a cycle. An interesting thing about the figures from Gerard Lyons is that they show a gradually rising growth rate, not a series of cycles. Each of the so-called high cycles got a bit higher.

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PwC NEWS RELEASE: China’s role in global mining M&A overstated – Canadian buyers top world

China ramps up deal activity, but Canada outpaced the nation in 2010 36% to 6%: PwC report

Click here for: You Can’t Always Get What You Want: Global Mining Deals 2010

TORONTO, Mar. 3, 2011— Dispelling the myth that China is amassing de facto control of the world’s mining resources via mergers and acquisitions (M&A), data for the decade ended December 010 shows China remains a small player in global mining M&A. In 2010, only 6% of global mining
deals involved Chinese acquirers, compared to acquirers from Canada (36%), the United States (16%) nd Australia (16%), according to PwC’s new Mining Deals report released today.

Canada has always been a top destination for mining deals, but this year, Canada also topped buy-side ctivity – both within Canada and abroad.

“The reality is China has been a very active investor in global mining projects in recent years, but its urrent market share pales in comparison to Canada and other developed countries,” says John yholt, National Leader of Transaction Services, PwC. “Chinese-led M&A this decade has been
impressive, but consider that Rio Tinto and Xstrata alone have completed more acquisitions during he first ten years of this millennium than all Chinese buyers collectively.”

The PwC report tracked 713 deals in 2010 that involved a Canadian buyer compared to 161 involving a Chinese buyer. Year-end results bring the decade ended 2010 tally to 400 Chinese deals worth close to US$48 billion, which is considerable given Chinese buyers were negligible players in mining M&A only ten years ago.

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NEWS RELEASE : Survey shows global mining industry optimistic towards new investment while Australia recovers in global rankings

The Fraser Institute is a conservative think tank based in Canada that espouses free market principles. Its stated mandate is to advocate for freedom and competitive markets. – (Wiki). Click here for: The Fraser Institute’s Survey of Mining Companies.

March 3, 2011

TORONTO, CANADA–The worldwide economic turnaround has created optimism in the mining sector, with the global mining industry primed for new exploration and investment in 2011, according to the Survey of Mining Companies 2010/2011, released today by the Fraser Institute, Canada’s leading public policy think-tank.

More than three quarters of survey respondents said they expected to increase their exploration budgets in 2011, as detailed in the annual global survey of the world’s best places for mineral exploration and development.

The survey also shows that Australia has regained the confidence of the mining industry after taking a hard hit in the special Survey of Mining Companies: 2010 Mid-Year Update, following the Australian government’s plan to impose a heavy Resources Super Profits Tax (RSPT) on the mining industry.

“The Australian government has since announced it would back away from the proposed tax, earning a positive reaction and improved rankings from the global mining industry,” said Fred McMahon, coordinator of the survey and the Institute’s vice-president of international policy research.

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NEWS RELEASE: Canada becomes the destination of choice for mining transactions: Ernst & Young

Please click here to view the executive summary of the report: Ungeared for Growth

Deal activity to ramp up in 2011, while companies roll the dice on frontier markets

(Vancouver – 23 February, 2010) Canada’s mining and metals sector is set to heat up in 2011 with increased deal activity, more diverse buyer competition and a continued appetite for projects in frontier markets, according to Ernst & Young.

“Canadian M&A activity has made an incredible rebound with companies reaping the rewards of reinvigorated balance sheets and flushed with cash from high commodity prices – particularly gold and copper,” said Tom Whelan, Leader of Ernst & Young’s national Mining practice. “In 2010, a third of all global gold deals took place in Canada, with over half of all deals conducted by Canadian companies. The largest of these was Kinross Gold’s acquisition of Red Back Mining, valued at US$7.4 billion.”

Ernst & Young’s annual mining and metals transactions report, Ungeared for growth, finds that Canada emerged from 2010 as the preferred destination for transaction activity in the sector globally, ahead of the US, Australia and Brazil. Canada was also the most active acquirer last year, ahead of both Australia and China, and up from fourth place in 2009.

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[Commodity] Super-Cycle Leaves No Economy Behind as Davos Shifts to Growth – Simon Kennedy (January 23, 2011)

This article was originally posted on the http://www.businessweek.com/ website on January 23, 2010.

Jan. 24, 2011 (Bloomberg) — For only the third time since the Industrial Revolution, the world may be entering a long-term growth cycle that will lift all economies simultaneously, driving bond yields and commodity prices higher.

The depth and scope of the expansion will be a focus for discussion at this week’s annual meeting of the World Economic Forum in Davos, Switzerland. Evidence of a broadening global recovery will enable U.S. Treasury Secretary Timothy F. Geithner, investor George Soros and 2,500 political, business and academic leaders to shift their emphasis away from crisis- fighting.

With the economic and investment outlooks “much better” than in recent years, “people are talking about how to get back to business as normal and what comes next,” said Jitesh Gadhia, a delegate to the conference and the London-based senior managing director at Blackstone Group LP, which runs the world’s largest buyout fund.

Goldman Sachs Group Inc., PricewaterhouseCoopers LLP and London’s Standard Chartered Bank are among the financial companies sending executives to the meeting. Their economists predict a growth spurt in coming decades led by emerging nations that will be strong enough to boost developed countries.

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Prosperity is Created, not Inherited – Ontario Mineral Industry Cluster: A Case in Point (2007)

Published in the Ontario Mineral Exploration Review by the Ontario Ministry of Northern Development and Mines in 2007. www.omicc.ca

National, provincial and regional governments are continually searching for new tools to improve the economic prosperity of their citizens. Prosperity is a widely used term in government documents, reports and position papers. Evidence from both the developed and developing world is that economic prosperity is created, not inherited.

For example, some countries and regions rich in natural resources remain poor, whereas other countries and regions with little in the way of a natural endowment have and continue to enjoy a higher standard of living. Inherited comparative advantages such as natural resources, geographic location, or a supply of labour are becoming less important in achieving prosperity.

According Harvard professor Michael Porter, renowned for his pioneering work on competitiveness and cluster theory, “A nation can be prosperous and productive in virtually any field. What matters is how a nation competes, not what industry it competes in…we must stop thinking that traditional industries are bad and that the nation must move into high tech”.

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Mining clusters fuel economic growth – by Indira Singh (September, 2006)

Interrelated industries and institutions drive wealth creation

Clusters are a group of interrelated industries and institutions that drive wealth creation primarily through innovation and the export of goods and services. Clustered industries mutually reinforce and enhance
competitive advantage by acting as each other’s consumers, competitors, partners, suppliers and sources of research and development.

The Ontario Mineral Industry Cluster (OMIC) includes exploration companies, major mine operators, service and equipment suppliers, labour, training and education institutions, associations and other allied entities. Other well-known clusters include Hollywood, California’s Silicon Valley, Ottawa’s Silicon Valley North, the Netherlands’ cut flower industry and Houston’s oil and gas sector.

Over the last decade, clusters have attracted substantial attention from policy makers, legislatures, business leaders, academics, economic development practitioners and development agencies around the world.
Governments with widely differing ideologies in more than 30 countries and in the majority of U.S. states have adopted cluster-based economic development models. The cluster approach is also used by European governments, as well as governments in the Asia-Pacific region.

Why clusters work

Productivity and productive growth are the fundamental drivers of prosperity. Innovation is the key driver of productivity. Clusters drive innovation, economic growth and development.

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PwC News Release: Back to the boom in mining sector but costs remain a key differentiator, according to PricewaterhouseCoopers

PricewaterhouseCoopers (PwC) firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. Click here to view: Mine Back to the Boom…

London, 25 May 2010 — The beginning of 2009 saw commodity prices continuing to fall globally, tough price negotiations with customers and challenging market conditions. However, companies responded swiftly and decisively: funding was restructured, mines were closed and production cut as margins declined. However, in contrast, the year ended with the market capitalisation of the Top 40 returning to the heights of 2007 and a cautious optimism returning to the, according to PricewaterhouseCoopers’ seventh annual review of global trends in the mining industry – Mine, Back to the Boom.

Tim Goldsmith, global mining leader, PricewaterhouseCoopers comments:

“Although 2009 saw overall revenues decline, a drop in net profit and a decrease in cash flow in the industry, none of the Top 40 companies were subject to bankruptcy or voluntary administration provisions. This was largely due to their ability to remove their debt overhang, strengthening commodity markets over the year and the positive impact of government stimulus packages around the world.

“On the other hand, there were no significant transactions completed during the year – pointing to a potential missed opportunity for those that may have had the available financial resources. 

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PwC News Release: Mining companies make a significant economic contribution to the world economy, according to PricewaterhouseCoopers study

PricewaterhouseCoopers (PwC) firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. Click here to view: Total Tax Contribution

London, 3 JUN 2010 — The taxes and other contributions to government that mining companies pay are an important element in the creation of prosperity and stability of the countries in which they operate. However, the full extent of this contribution is not always recognised. PricewaterhouseCoopers’ second Total Tax Contribution (TTC) study of the global mining industry aims to bring greater transparency to the full economic contribution that these companies make by providing data on all taxes and other payments made to government.

The results show that mining companies make a large economic contribution to public finances in relation to the size of their operations. On average, the companies participating in the study paid an amount equivalent to 15.3% of their turnover to government, comprising 10.8% in amounts borne and 4.5% in amounts collected. These companies pay many other taxes and contributions in addition to corporate income tax which, on average, represents only 40% of all the taxes and contributions they bear. For every $1 of corporate income tax paid, these companies pay another $1.50 in other taxes and contributions borne, plus $0.52 in taxes collected.

Susan Symons, global Total Tax Contribution leader, PricewaterhouseCoopers comments:

“There is increasing pressure on both government and business to increase transparency in the extractive industries, with a call for companies to ‘publish what they pay’, and for governments to ‘publish what they receive’, and how they use these revenues.

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PwC News Release: Global Financial Crisis Accelerates Shift in Economic Power to Emerging Economies

PricewaterhouseCoopers (PwC) firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. Click here to view: The World in 2050 (January 2011 Report)

London, 7 Jan 2011 — The global financial crisis has accelerated the shift in economic power to emerging economies, says a report published by PwC today.

This is one of the conclusions from the latest in the series of PwC’s ‘The World in 2050’ reports. Measuring GDP at purchasing power parities (PPPs) – which corrects for the fact that price levels tend to be lower in emerging economies – the analysis shows that the E7 emerging economies (China, India, Brazil, Russia, Mexico, Indonesia and Turkey) are likely to overtake the G7 economies (US, Japan, Germany, UK, France, Italy and Canada) before 2020.

If instead we use GDP at market exchange rates (MERs), then the shift in the economic world order is slower but equally inexorable, with the E7 projected to overtake the G7 around 2032. China would also overtake the US in that same year to become the biggest economy in the world based on GDP at market exchange rates, although on a PPP basis this would be likely to occur before 2020. This is even allowing for some slowing of China’s growth rate over time due to its one child policy and the fact that, as it catches up with the US, it must rely more on innovation than imitation to sustain further growth.

The table below summarises some of the key estimated overtaking dates for the E7 economies relative to the G7. We can see that these always occur later when using market exchange rates than PPPs, but even on an MER basis there is an inexorable process of the new world order replacing the old over the next four decades. While precise overtaking dates are clearly subject to many uncertainties, and some emerging countries may fail to realise their full growth potential, the general pattern should be robust assuming no catastrophic political or environmental shocks that permanently throw the world off its current economic development path.

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News Release: Conference Board of Canada – Mining And Related Support Industries Offer The Greatest Economic Potential For Northern Canada

The Conference Board of Canada is the foremost independent, not-for-profit applied research organization in Canada. It is not a government department or agency and conducts, publishes, and disseminates objective and non-partisan research on economic trends, as well as organizational performance and public policy issues. Click here for Mapping the Economic Potential of Canada’s North.

Ottawa, December 17 —The natural resources sector – and the industries that support it – provide the strongest potential for Northern Canada’s future economic development, The Conference Board of Canada concludes in a study for its Centre for the North, released today.

This report, Mapping the Economic Potential of Canada’s North, is one of a series of foundational studies for the Centre for the North. It is intended to provide a launch pad for further inquiry into the future economic development potential of the North.

“The economic potential of Northern Canada is highly dependent on its mining and oil and gas resources,” said Len Coad, Director, Environment, Energy and Technology Policy, The Conference Board of Canada. “These primary industries also drive growth in other sectors of Northern economies, including communication, electricity and transportation infrastructure, and commercial services. They can contribute to the prosperity of northern communities by providing jobs and supporting local businesses.”

The Conference Board uses the Northern Development Ministers Forum’s definition of the North as the basis for this research. Based on this definition, the North comprises the three territories and the northern parts of seven provinces – 80 per cent of Canada’s land mass in all, but it makes up less than seven per cent of the population. This study identified a collection of seven key industries—oil and gas, mining, forestry, fishing, utilities, construction, and tourism.

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Deloitte Mining Publication: Tracking the Trends 2009 – The Top 10 Global Mining Issues (December/2008)

For a more detailed discussion of each of the top ten issues that Deloitte’s global network of mining professionals believe will influence the mining sector most in the coming year, read the full report. Tracking the Trends 2009

December/2008 – The financial crisis that came to define the latter half of 2008 brought the turmoil of unprecedented uncertainty to both the private and public sectors. Resource companies in particular were especially impacted, reliant as they are on buoyant commodity prices, which after a series of record highs in the earlier half of the year have since plummeted to fresh lows. As 2009 drew near, the one question on everyone’s mind surely was, “What’s next for the mining industry?”

“Mining companies believed in a super-cycle, but like all cycles, it came to an end,” says Glenn Ives, leader of Deloitte’s North American   Mining  practice. “While companies could not foresee the liquidity crisis that caused commodity price declines, those that react most quickly will be positioned to win in the next cycle.”

Tracking the trends 2009 is a report that identifies the ten most pressing global challenges facing the mining industry today and offers thoughts and strategic advice toward addressing them. From volatile markets and operating cost pressures to regulatory compliance and carbon permitting, the report is intended to help executives chart their companies’ courses over the coming months.

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Deloitte News Release: Miners Urged to Take “Stronger for Longer” Approach to Business Planning (December/2009)

For a more detailed discussion of each of the top ten issues that Deloitte’s global network of mining professionals believe will influence the mining sector most in the coming year, read the full report. Tracking the Trends 2010

Deloitte report recommends cautious expansion and forward-looking approach 

Toronto, December 15, 2009 — Volatility seems a mild word to apply to what has been happening in the mining sector over the past year. Deloitte today released a new report showing that, given the continued uncertainties facing the mining sector, the winners will be the companies that learn to manage volatility more effectively by adopting an integrated, forward-looking approach that defines responses to a range of anticipated futures.

“In an industry as notoriously cyclical as mining, more than ever before, organizations must have sufficiently flexible strategies to weather both market upswings and downswings,” says Glenn Ives, North American Mining Leader, Deloitte. “Achieving this flexibility requires advance planning for various potential risks and scenarios. Without this approach, many companies are bound to experience project delays, talent shortages, and spiraling costs as demand recovers — which could ultimately result in an endless series of boom and bust cycles.”

According to a new Deloitte report, Tracking the Trends 2010: A look at 10 of the top issues mining companies will face, mining industry activity has often been disproportionately influenced by short-term outlooks. When commodity prices were hitting record highs two years ago, optimism was expressed with almost giddy expansion as companies rushed to develop and build even marginal, and often technically complex, assets. The result was a precipitous increase in costs for raw materials, energy, equipment, supplies, and labour. When commodity prices subsequently dropped in the wake of the downturn, saddled with committed capital expenses at suddenly uneconomical prices, mining companies turned cost containment into a mantra and began cutting across the board, shedding non-core, and in some cases, high-quality assets, halting production, scaling back workforces, and putting deals on hold.

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News Release: Deloitte Report Unveils Ten of the Top Trends and Challenges Mining Companies Will Face in 2011 (December/2010)

Obtain a copy of the report: For a more detailed discussion of each of the top ten issues that Deloitte’s global network of mining professionals believe will influence the mining sector most in the coming year, read the full report. Tracking the Trends 2011

Toronto, December 1, 2010—As emerging economies around the globe continue their rapid industrialization, demand for commodities is skyrocketing. Yet at the same time, numerous countries are taking steps to safeguard their own supply by curbing the export of natural resources and shutting down some traditional supply markets. According to a new report released by Deloitte today, this is doing more than affecting commodity prices. It is changing the way mining companies do business.

“With the combination of surging commodity prices, labour shortages, and more demand than supply, one can almost imagine that we are back in the heyday of the mining boom,” says Glenn Ives, North American Mining Leader and Chair of Deloitte Canada. “But today’s demand drivers are significantly different than they were in the past and mining companies need to change the way they pursue growth if they hope to keep pace.”

Over the past 18 months, the axis of the world has shifted according to Deloitte’s third annual global mining report, “Tracking the Trends 2011: The top 10 issues mining companies face in the coming year.” As demand grows from emerging economies, the flow of commodities is increasingly moving to non-Organization for Economic Co-operation and Development (OECD) nations. The report explains, however, that although the developing economies’ strong appetite for commodities is sending demand signals to the mining industry, these are being muffled by the difficulties of obtaining permits for new mines and finding skilled labour.

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