More pain to come
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