Miners say environmental issues top of mind in 2020
Industry leaders discuss the business and political landscape now and ahead
Merger mania swept the goldmining industry in 2019 with more than $33 billion (U.S.) worth of deals being inked. While trade fears lit a fire under bullion prices, they created headwinds for base-metals miners.
What’s ahead in 2020? In our fourth annual CEO year-ender, we asked the heads of some of the biggest miners for their outlooks.
Expect a focus on environmental, social and governance (ESG) issues and more consolidation.
Clive Newall, First Quantum
“The days of great big diesel trucks thundering around mines are going to be over very shortly,” Newall says.
Everyone in the industry is grappling with decarbonization issues, including water shortages: “Victoria Falls has dried up to almost a trickle. It’s impacting the industry wherever you operate.”
He notes a strong copper market, with prices holding in the $2.50 to $3.00/lb. range for 2020. He says pent-up demand, and cash, could spark mergers in the sector.
As for his own company, takeover talk is “scuttlebutt,” and the firm would resist if there’s an offer.
Deleveraging is the focus for next two-three years: “We want to reduce our debt by at least $2 billion before we think about doing anything else.”
Tom Palmer, Newmont Palmer says there’s a growing expectation for transparency on ESG issues. He says it’s the biggest challenge for the sector in 2020.
He says geopolitical instability and declining global gold reserves may support “robust” gold prices, predicting $1,200/ oz in the mid-term, like Barrick and Agnico Eagle Mines Ltd.
He said Newmont is likelier to use dividends than buybacks to reward shareholders in 2020.
While he says gold megamergers, like those in the first half of 2019, are unlikely, he anticipates more consolidation of single-asset gold producers.
He said merging with Goldcorp, completing a JV with Barrick in Nevada and then selling $1.4 billion in assets “set up Newmont up for the next several decades.”
Richard Adkerson, Freeport Adkerson says tariffs on China knocked copper back since June 2018, with Brexit and weak U.S. manufacturing acting as additional headwinds.
Other tensions, like resource nationalism and disruptions around income disparity, as in Chile, are a challenge.
While prices have been resilient, they’d have to be higher for new copper mines to be built. Freeport’s Lone Star project in Arizona will produce first copper in 2020.
After tough years in Indonesia, which he likened to a “war,” Adkerson is focused on the transition to underground operations at the Grasberg deposit, expecting cash flow to double and production surge in the next two years.
He says the firm would use cash to cut debt and boost shareholder returns through dividends or buybacks.
Mark Bristow, Barrick “Gold has never, since the Bretton Woods agreement, been in such a good place,” Bristow says, pointing to negative interest rates and looming global gold-production declines which could support $1,400 to $1,500/oz. prices.
He said the industry oversold because of ESG concerns, advising miners highlight responsible development: “Just look out your window.
“If you took away everything that was mined, you would just have a heap of rubble.
“And we, the mining industry, are very unloved.”
Headed for zero debt in 2020, Barrick has cash to support ambitions.
Bristow said the priority is to replace and add resources to ensure the company’s future beyond 10 years, then consider long-term dividends.
Freeport is on its radar — but Barrick has no plans to rush into anything and would “never” go hostile.
Don Lindsay, Teck
“One of best cures for low commodity prices is, of course, low commodity prices,” Lindsay says.
On zinc, Lindsay says negative sentiment is “overwhelming the fundamentals.”
Given China’s crackdown on polluters, the market is overestimating how much zinc concentrate will be turned into refined metal:
“We think that the market is going to be much tighter than people expect.”
He’s expecting copper to remain in the $2.80 to $3/lb. range for 2020.
As for metallurgical coal, Lindsay says prices should pick up as marginal producers can’t access capital and “are starting to shut down.”
Teck has plenty of liquidity and no significant debt due until 2035, so announced stock buybacks will continue, but they have no merger or acquisition plans.
Lindsay is encouraged by the sales process for Zafranal, but wouldn’t comment further.
The next asset to shed would be San Nicolas in Mexico, but Lindsay said that won’t happen until a prefeasibility study is done in six months.
The Canadian federal government has to make a decision on the Frontier oilsands project by the end of February.
Sean Boyd, Agnico Boyd notes that Agnico launched an advocacy campaign to articulate the benefits of mining.
Advocacy is important, postfederal election, to help shape resource policy.
“We see a bit of a vacuum in the Canadian mining space,” he says. “The country used to be in a leadership position.”
Boyd says gold has been in a bull market since 2015 and that the fundamentals are strong, anticipating the mineral to breach $1,550/oz. next year and to test new high around $2,000/ oz. in two-three years.
The greatest challenge for the industry is replenishing reserves, he says, noting that consolidation is needed and likely. Growth is tough, but “to grow in a way where you’re actually improving the quality of your underlying business is extremely difficult.”
But despite the recent wave of mergers, Agnico is under no pressure to do deals. Boyd says the firm trades at a premium and it’s tough for competitors to argue they can run the assets better.
With mines built in Nunavut, the focus will be on generating free cash flow to reinvest in the business, pay down debt and hike dividends: “We’re going to do all of those things.”