Are oil com­pa­nies learn­ing from min­ing mis­takes?

Financial Mirror (Cyprus) - - FRONT PAGE -

Since the be­gin­ning of 2011, some of the world’s largest min­ing com­pa­nies have lost a third to nearly 90% of their mar­ket value as global de­mand for their prod­ucts de­clined. In the same pe­riod, some of the world’s largest pri­vately held oil com­pa­nies have posted gains rang­ing from 17% to 26%.

If we had stopped the oil chart on July 24, oil company share price gains would have swelled to 40-66%.

At no time since 2011 did the min­ing com­pa­nies fall as far or as fast as oil com­pa­nies have in the past four months.

Since early 2011, the price of iron ore pel­lets has dropped from $220 per metric ton to less than $120, the same price as in 2009. That price swing has cost Vale S.A., BHP Bil­li­ton and Rio Tinto share price de­clines of 77%, 45% and 36%, re­spec­tively.

Con­sult­ing firm Price­wa­ter­house­Coop­ers had said that to keep up with de­mand, the top 40 [min­ing com­pa­nies] an­nounced more than $300 bln of cap­i­tal pro­grammes with over $120 bln planned for 2011, more than dou­ble the to­tal 2010 spend.

Three firms - Vale, BHP and Rio - ac­counted for 50% of the to­tal mar­ket cap and to­tal as­sets for the top 40 firms amounted to nearly $1 trln.

Merg­ers and ac­qui­si­tions in the min­ing sec­tor were just be­gin­ning to heat up, cul­mi­nat­ing in the Fe­bru­ary 2012 $41 bln ac­qui­si­tion of Xs­trata by Glen­core. And then the mu­sic stopped. Growth in emerg­ing mar­kets slowed sharply and min­ing com­pa­nies, as the in­dus­try had done in the past, had al­ready com­mit­ted to large projects that took bil­lions to de­velop and years to bring to com­ple­tion. By early 2013, min­ing company merg­ers and ac­qui­si­tions over the past ten years had to­talled more than $1 trln.

Write-downs taken in 2012 had cost share­hold­ers about $50 bln in value and they re­volted.

Rio Tinto wrote down $14 bln as­sets in 2013 and the CEO was fired. Gold miner An­glo Amer­i­can wrote down $4 bln and fired its CEO. BHP Bil­li­ton wrote down $3.3 bln in Au­gust 2012 on nat­u­ral gas and alu­minium projects, and Vale took a $4.2 bln charge in 2012. The oil and gas business is do­ing all it can to avoid over­stretch­ing. Since late July, the share price for Exxon Mo­bil has dropped 11%, while Chevron and Royal Dutch Shell have both lost 20%. BP is down 23%. The sud­den­ness and de­gree of the crude price de­cline and the col­lapse of stock prices hap­pened far more quickly than the de­cline in min­ing, but the oil com­pa­nies ap­pear to have learned some things from the min­ing dis­as­ters: don’t wait too long to cut costs; don’t wait too long to shed as­sets; don’t make share­hold­ers (and boards) mad; and, don’t ex­pect mir­a­cles.

Newspapers in English

Newspapers from Cyprus

© PressReader. All rights reserved.