Mining Industry Trends and What They Really Mean

SOURCE:[Lawrence Roulston,Resource Opportunities] – Mining industry news of late has been dominated by massive write-downs: $6.5 billion for Barrick; Kinross added $3.2 billion to the $2.5 billion written off last year on its West Africa operations; in total, the mining industry wrote off $50 billion last year.

The write-offs follow a shopping spree over the past few years that saw all of the top-tier majors making aggressive acquisition aimed at growing the size of their businesses. Higher operating expenses in the face of softening metal prices slashed operating margins, emphasizing that the companies had grossly overpaid for those acquisitions. Those deals were done by management teams who were committed to growing for the sake of growth.

Barrick has stated that it has no further mine development plans in the works and the other top-tier majors also assured their shareholders that they have shifted their focus from growth to maximizing return on capital.

This slowdown in growth for the largest of the majors has led to the superficial assessment that there will be no new mines built. According to that assessment, there is little value in the exploration and development companies which are proving up metal deposits. That view, adding to the generally negative mood toward resource companies, adds further downward pressure to the share prices of junior metal companies.

A deferral of mega-projects by the mega-majors will create added impetus for the hundreds of mid-tier mining companies to develop mines on a more modest scale. While investors and analysts are focused on the large and established mining companies in the developed world, they are missing the emergence of powerful mining companies in the developing world. Late last year, two of the companies that we follow in Resource Opportunities were taken over for a combined $600 million in cash. One of the acquirers was a Chinese company and the other was a private Brazilian company. There are a large number of such companies which are looking to expand and will continue their hunt for metal deposits upon which to build mines.

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Post from: Gold News from Gold Editor

Mining Industry Trends and What They Really Mean