Just a blip

Finweek English Edition - - Companies & Markets -

BIL­LIONS OF US DOL­LARS have been sliced off min­ing cap­i­tal pro­grammes and wide swathes of the in­dus­try can’t make money. But don’t worry; it’s a blip. That was the some­what hope­ful tone of this year’s an­nual min­ing talk shop – the Min­ing Ind­aba – held in a sun-re­splen­dent Cape Town though mar­ket clouds hung low.

Around 1 000 fewer peo­ple turned up this year, doubt­less hav­ing had their travel bud­gets whipped from be­neath them. But mar­ket an­a­lysts urged per­spec­tive. “This dif­fi­cult phase will pass,” says Kevin Nor­rish, a com­modi­ties an­a­lyst at Bar­clays Cap­i­tal. “In my view we’re still in a bull mar­ket for met­als. It’s as though a bucket of cold wa­ter has been thrown over the in­dus­try and it’s gasp­ing for air.”

Gasp­ing is no ex­ag­ger­a­tion. Bar­clays Cap­i­tal says 60% of the world cop­per mar­ket can’t pro­vide a sat­is­fac­tory re­turn for its share­hold­ers. It’s worse in other in­dus­trial met­als mar­kets: for ex­am­ple, alu­minium is vir­tu­ally un­prof­itable world­wide. And more than US$30bn in spending has been stopped.

But the op­ti­mism is based on two fac­tors: first, that the world re­mains re­sources-con­strained, mean­ing there’s not enough met­als to go around. Sec­ond, not much new metal has been found in the earth.

The mes­sage is that min­ing is hurt­ing, like the rest of the mar­ket, but ac­tu­ally we’re dif­fer­ent. “Around 15m to 20m peo­ple will ur­banise this year, so de­mand for com­modi­ties will con­tinue,” says Nor­rish.

But it wasn’t just Bar­clays Cap­i­tal that was op­ti­mistic. Ec­cen­tric but enor­mously re­spected di­a­mond mar­ket an­a­lyst Chaim Even-Zo­har rea­soned the ex­pected 15% fall in global re­tail di­a­mond sales was “not that bad”. And re­tail de­mand would surge back. “Peo­ple still make sex and get mar­ried,” he quipped, re­fer­ring to the cer­e­mo­nial and, dare one say, eroge­nous qual­ity that we’re told a di­a­mond car­ries.

In Even-Zo­har’s view, what’s re­quired is a change in the way the di­a­mond in­dus­try is struc­tured. While re­tail di­a­mond sales – with 50% be­ing in the United States – would

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