LONDON – Expectations of a takeover frenzy in global mining have been dashed by falling commodity prices, leaving the field open for private equity funds looking to deploy billions of dollars.
Consolidation in previous times has been driven by major mining companies seeking extra capacity due to strong demand and rising prices.
The delay in their acquisition plans, of possibly two to three years, leaves a vacuum that some in the private equity business see as an opportunity.
Swiss miner Glencore says it might close more Australian mines if weak commodity prices persist, with the Murrin Murrin nickel mine in Western Australia the next probable candidate.
Glencore has already shuttered 15 per cent of its Australian coal production and reduced production at its Queensland zinc mines, and the company’s chief executive Ivan Glasenberg has said he was committed to shutting more mines if they were not making money.
Mr Glasenberg said only two mines in Glencore’s global portfolio were not profitable at current prices and Murrin Murrin, which is held in Glencore subsidiary Minara Resources, was one of those.
JOHANNESBURG/LONDON – Anglo American’s plans to shut or sell dozens of loss-making mines have failed to halt a dramatic slide in its share price and it may need to sacrifice stronger parts of the business or raise cash from shareholders to pay down its debt.
The company, which grew from gold fields near Johannesburg to dominate diamond, platinum and, to some extent, iron ore markets, is one of many miners struggling with a fall in commodities’ prices driven by lower demand from China.
That makes selling assets that much harder. Anglo’s shares have slumped 11 percent since it announced the biggest restructuring in its nearly 100-year history on Tuesday, leaving it with a market value of $6.7 billion, down from $27 billion a year ago.
It is hard to recall a time of such conflicting signals from the world economy. Oil and commodity prices are plummeting, promising £1 a litre at the pumps, but forcing crippling retrenchment on resource producing companies and nations.
This might suggest deeply impaired demand, and a world economy that is heading back into recession. In the United States, on the other hand, the Federal Reserve is preparing for its first rise in interest rates since the onset of the financial crisis. Over in America at least, policymakers fear an economy that needs reining in.
Meanwhile in Europe, policy is heading in the other direction, with the European Central Bank cutting its deposit rate to minus 0.3 per cent and promising further to extend its programme of “quantitative easing”.
SYDNEY—A little over a year ago, the most pressing issue for Rio Tinto wasn’t whether it could ride out the commodities downturn. Instead, it was whether the mining company could survive without falling prey to a rival such as Glencore PLC.
Rio has since been bruised by steep declines in commodity prices. But it has so far spared its shareholders much of the pain dished out by competitors such as Anglo American PLC and Glencore, which last year approached Rio about a possible takeover.
The Anglo-Australian mining company, which recorded an annual loss as recently as three years ago, now finds itself valued more highly than its chief rivals by investors on several metrics.
Glencore expanded its debt-reduction plan by pledging more asset sales and wider spending cuts as the Swiss miner and trader reacts to the deepening rout in commodities prices.
The company is seeking to trim its net debt to between $18 billion and $19 billion by the end of 2016, it said on Thursday in a statement. That’s less than the company said in September, when it promised to cut debt by about a third to about $20 billion. The shares rose the most in more than a month.
The world’s biggest miners are reeling from a slump in commodities prices that have cut profits and stretched balance sheets loaded with debt during a decade-long bull run.
More than 65 per cent of the world’s coal production is estimated to be unprofitable as prices for both thermal and coking coal head for their fifth consecutive year of declines.
The estimate, which was provided by commercial intelligence company Wood Mackenzie, applies to both types of coal. It would be even higher if sustaining capital spent by miners on things like engine maintenance was taken into account.
The extraordinary estimate illustrates the parlous state of the coal industry, which has been battling slowing demand in Asia and structural challenges surrounding coal’s place in an increasingly carbon-conscious world.
The Wood Mackenzie data includes coal mined for export markets and domestic energy supplies around the world.
http://www.theaustralian.com.au/
These are tough times for commodity investors and resources companies. The price of Brent crude has dipped below $US40 a barrel for the first time since 2009 and is down by 60 per cent since the middle of last year. The share prices of mining companies fell sharply after news broke that Anglo American had cut its dividend.
Commodities are the biggest story of 2015, not only in markets and economics but also in politics and, of course, the environment. Cheaper fossil fuels pose a risk to strategies for mitigating climate change.
The collapse in prices is devastating for countries whose export earnings are dominated by commodities and that have squandered the proceeds of a commodities boom or siphoned them to private interests.
GLENCORE CEO, Ivan Glasenberg, returned to a favourite theme in questions during the firm’s investor update today saying he “… did not understand” why rival miners kept loss-making assets open.
He also raised the prospect that his company would “walk away” from its 49% stake in the Koniambo nickel mine in New Caledonia.
“We inherited the asset [Koniambo] and we have struggled with it since,” said Glasenberg of the nickel operation that was first established by Xstrata, the company with which Glencore merged in 2013.
“But we are not married to it. If the furnace does not work we will walk away from it. We will not burn cash. This is not Glencore’s style and we won’t do it,” he said.
Dec 9 Freeport-McMoRan Inc on Wednesday suspended its annual dividend and made deeper cuts in capital spending and copper production, the latest mining company to act to preserve cash as a commodities’ price downturn enters its fifth year.
Shares in the U.S. diversified miner and oil producer jumped 9.9 percent to $7.41 a share on Wednesday morning, getting help from a stronger copper price, after Freeport said it would suspend its annual dividend of 20 cents per share, a move that will help it save $240 million a year.
Freeport said it will cut its annual copper output by a further 100 million pounds as it shuts down its Sierrita mine in Arizona. Molybdenum output will be reduced by another 14 million pounds. This brings total annual reductions to 350 million pounds of copper and 34 million pounds of molybdenum.
http://www.miningweekly.com/page/americas-home
JOHANNESBURG (miningweekly.com) – Based on its revised, weaker global growth expectations for 2016, softening demand, the strength of the dollar and continued uncertainty surrounding metal demand in China, Moody’s Investor Service expects base metals prices to remain under pressure to the downside, warning that an impending downturn is likely to be “deeper and longer”.
“We have lowered our price sensitivities for base metals to reflect the steep decline recently seen to lows commensurate with or below 2009 levels.
“Improvement from current trading levels is viewed as unlikely over the next several quarters, [unless we see] meaningful production cuts,” the group said this week.
Even for a company that once had the global monopoly on diamond production during almost a century of all but constant expansion, the collapse in commodities prices is proving too much.
Anglo American Plc, a conglomerate spanning everything from brewing, publishing and gold mining during its peak in the early 1990s, will shrink beyond recognition after Chief Executive Officer Mark Cutifani on Tuesday announced a package of asset sales, mine closures and job cuts.
Among the potential casualties is Minas Rio, a Brazilian iron-ore mine where spiraling costs and collapsing prices turned a $14 billion project into the epitome of the company’s predicament.
LONDON – Global miner Rio Tinto (RIO.L) plans to boost aluminium production next year by about 10 percent due to productivity improvements, it said on Tuesday, despite a global surplus weighing on prices.
Hard-hit prices will remain under pressure until loss-making producers slash output, Rio said.
Rio (RIO.AX), one of the world’s biggest producers of the metal used in transport and packaging, told a presentation in London that it targeted output of 3.6 million tonnes in 2016.
“Just what the world needs, more aluminium,” said analyst David Gagliano of BMO Capital Markets in a note.
Gina Rinehart, the richest Australian, is planning to see off Roy Hill’s first iron ore shipment in Port Hedland on Thursday, which she says is one month ahead of expectations, as she lashed the media for “relentless negativity” surrounding the $10 billion project.
In a statement, Mrs Rinehart lashed the media while also thanking its staff and partners for their hard work developing the Pilbara iron ore mine, in which her company, Hancock Prospecting, has a 70 per cent stake.
“Despite the many media critics and their relentless negativity, we have now loaded a ship of Roy Hill low phosphorous ore, the next step in the exciting story of the Roy Hill project,” Mrs Rinehart said in a statement to thank staff and the project’s partners.
RIO DE JANEIRO—Mining company Samarco Mineração SA’s bill for a catastrophic dam failure last month could be growing by the day, as it struggles to formulate an emergency plan demanded by local prosecutors in case of additional accidents.
On Nov. 28, a judge in Minas Gerais state gave Samarco, a joint venture between mining giants Vale SA and BHP Billiton Ltd., three days to fulfill the requirement or else pay a fine of 1 million Brazilian reais a day ($262,536).
Prosecutors asked the company to forecast potential scenarios of what could happen if the remaining dams at its mining complex were to break, and to provide “concrete emergency measures” to be adopted in each scenario.
