More pain to come

Finweek English Edition - - COVER -

Ra­jat Kohli, global head of min­ing and met­als for Stan­dard Bank, said in Jo­han­nes­burg this week that 2015 would con­tinue to be a dif­fi­cult year for min­ing com­pa­nies. “It will be an­other cau­tious year,” he com­mented. Kohli per­haps even un­der­cooked the ex­tent of the fall­out yet to come be­fore the sec­tor is fully shriven of its 12-year bull mar­ket ex­cess.

In­vestors don’t have far to look to see ev­i­dence that the min­ing sec­tor is still strug­gling to re­cover. Only weeks into the new year, An­glo Amer­i­can gave no­tice of its con­tin­ued f inan­cial dis­tress say­ing it was likely to im­pair some as­sets in its ‘ bulk’ port­fo­lio such as iron ore and coal.

A day af­ter An­glo Amer­i­can’s a n n o u n c e ment , a n o t h e r JSE bell­wether, Sa­sol, said it would de­lay a gas-to-l iq­uids i nvest­ment at its Lake Charles com­plex in Louisiana, a project an­a­lysts said would re­quire a much higher oil price to suc­ceed. Sa­sol also promised to make fur­ther i nroads i nto its R2bn, t hree-year cost-cut­ting drive – a dec­la­ra­tion that talks di­rectly to in­vestor fears that the petro­chem­i­cal f irm’s div­i­dend is at stake.

And a day af­ter the Sa­sol shock, Glen­core an­nounced plans to shut half of its pro­duc­tion at Op­ti­mum Col­lier y i n Mpumalanga, cit i ng “f inan­cial hard­ship”, while an­a­lysts also spec­u­lated on the pos­si­bilit y that it would cut $1bn to $2bn in cap­i­tal spend­ing in or­der to cover its div­i­dend. It ap­pears no one is ex­empt.

It ’s worth r emem­ber­ing t hat t hrough­out 2014 t he mantra i n the min­ing sec­tor was share­holder re­turns with ev­ery ma­jor (and mi­nor) min­ing f i r m pub­lish­ing plans to cut costs. Given fresh fears about the abil­ity to pay div­i­dends among some com­pa­nies, does this mean the aus­ter­ity has not worked, and an­other round of cost-cut­ting is nec­es­sary?

Said Kohli: “In­vestors have been

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.