Min­ing firms must adapt

Business First - - NEWS -

The in­dus­trial com­modi­ties su­per­cy­cle isn’t over: con­tin­ued de­mand from China (slower, but from a larger base), on­go­ing global ur­ban­i­sa­tion, and struc­tural fac­tors such as higher en­ergy and ex­trac­tion costs will con­tinue to sup­port prices in the medium term.

In the pits? Min­ing and metals firms and the slow­ing of the su­per­cy­cle by the Econ­o­mist In­tel­li­gence Unit and spon­sored by Na­tional Aus­tralia Bank, fo­cuses pri­mar­ily on iron ore, base metals and coal.

The re­port ex­plains that while cost con­trol has be­come a new mantra in the in­dus­try, driv­ing down cap­i­tal ex­pen­di­ture over­all, some min­ers are in­vest­ing counter-cycli­cally in prepa­ra­tion for an ex­pected up­turn. Such ex­pen­di­ture may be nec­es­sary as re­main­ing re­sources are deeper and more costly to ex­tract and will re­quire more in­vest­ment to pre­pare firms for the next up­surge in de­mand. Firms also need to main­tain in­vest­ment in in­no­va­tion to be com­pet­i­tive.

David Line, the edi­tor of the re­port says, “Com­pa­nies face in­vestor pres­sure to re­turn cash, and with this there’s a risk that spend­ing on in­no­va­tion will be cut. This would be a mis­take. It will hurt long- term prof­its, since re­sources are be­com­ing more costly to ex­tract. In short, those that in­no­vate ‘from pit to port’ will be the ones with a com­pet­i­tive ad­van­tage.”

The re­port also as­serts that the era of the min­ing megadeal is over, as large-scale con­sol­i­da­tion be­comes dif­fi­cult for fi­nan­cial and po­lit­i­cal rea­sons. How­ever, the in­dus­try can ex­pect to see deals among ju­nior and mid-cap firms that need to shore up their bal­ance sheets or find part­ners for projects they are no longer able to fi­nance on their own. Mean­while, ma­jor min­ing groups are di­ver­si­fy­ing into ‘mid-cy­cle’ com­modi­ties, de­mand for which will be driven by ur­ban pop­u­la­tions’ in­sa­tiable de­mand for man­u­fac­tured goods, en­ergy and food.

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