The ASIA Miner - Reporting Important Issues to Mining Companies in the Asia Pacific Region
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2 | ASIA Miner | Volume 13 • Issue 1 | 2016 From The Editor WITH the short-term outlook for commodities remaining neg- ative there is little likelihood of any relief for the next 12 months, which means more belt tightening, more mine closures and job losses, more fnancial hardship and more pain. According to Thomson Reuters GFMS, the world's top 10 miners have lost around half their market value in 2015, wip- ing out an estimated $280 billion. The clock has turned back on commodity prices and revenue to levels last seen in 2008, while over the same period debt on the combined balance sheets of the 10 is more than 50% higher. The story is worse for mid-tier and junior miners. Fitch Ratings' outlook for the mining sector in 2016 is also negative, refecting its view that Chinese demand will weaken further and that commodities will remain unpopular with investors. Fitch says the slowdown in Chinese demand has created substantial oversupply in some commodities, including iron ore and aluminium, and it expects this to continue in 2016 as China's economy undergoes a gradual deleveraging and transi- tion from investment to consumer-led growth. Average prices for these two commodi- ties are likely to be lower as are prices for copper and zinc. Nickel could be an exception due to mine closures and falling Chinese nickel pig iron production. Companies are expected to continue to focus on cost control and short-term liquidity management but Fitch says they will fnd it harder to use cost cuts to aid debt reduction because the falling diesel prices and benefcial exchange rate moves that helped them in 2015 are unlikely to be repeated. It is diffcult to fnd good stories but important to focus on the few that are around, such as the Oyu Tolgoi (OT) underground development in Mongolia and the Portia Gold Project in South Australia. The US$4.4 billion fnancing package for OT is among the biggest the mining industry has ever seen and hopefully will lead to increased foreign investment in resource-rich Mongolia. The protracted negotiations between miners and the government took a major toll on Mongolia's development but the OT package is a big step in the right direction. In these toughest of times for juniors, demonstrated by plunging share prices, lack of capital and next to no investor interest, the story of Havilah Resources' Portia project is more than worthy of recording. It is almost impossible to fnd starter projects in the junior sector but a unique partnership arrangement with contractor, CMC, has seen Havilah start mining. CMC is undertaking all mining, including removing 70 metres of overbur- den, at its cost but will split the proceeds of the gold won with Havilah. It is a big wager for CMC but one that seems certain to pay off without diluting Havilah's shareholders and without Havilah taking out big loans. The industry may also gain encouragement from statements by PwC in its annual anal- ysis of the 50 biggest ASX-listed mining companies with market values under $5 billion. PwC says the pipeline of M&A; activity suggests a belief that we might be nearing the bottom of the commodity price cycle. PwC mining leader Chris Dodd says, "The majors continue to divest non-core assets, so mid-tiers should be positioning themselves to be opportunistic with M&A.; In the right hands, and with greater focus and attention, assets that the majors consider peripheral will deliver medium term dividends. We also expect to see mid-tiers launching joint bids for larger projects, and a strong preference for brownfeld projects." The report also states that another positive to emerge is the focus on innovation. Leading miners are looking to technology to deliver improvements. Chris Dodd said. "Companies that can master their cost and productivity initiatives, move quickly for the right assets, and embed an innovation strategy will prosper." WWW.ASIAMINER.COM The ASIA Miner® Suite 9, 880 Canterbury Road, Box Hill, Melbourne,Victoria, 3128 Australia Phone: + 61 3 9899 2981 Mobile: + 61 417 517 863 Editor—John Miller, jmiller@mining-media.com G —Michael Florman mforman@mining-media.com Editorial Director—Steve Fiscor, sfscor@mining-media.com Production —Dan Fitts, dfitts@mining-media.com Europe—Simon Walker, simon.iets@btinternet.com North America—Russ Carter, russ.carter.emj@gmail.com Latin America—Oscar Martinez, omartinez@mining-media.com South Africa—Antonio Ruffni,antonior@webafrica.org.za SALES Publisher—Lanita Idrus, Lidrus@mining-media.com North America—Victor Matteucci, vmatteucci@mining-media.com Midwest/Eastern U.S. & Canada Sales —Mary Lu Buse, mlbuse@mining-media.com Germany, Austria, Switzerland— Gerd Strasmann strasmannmedia@t-online.de Rest of Europe—Colm Barry, colm.barry@telia.com —Jeff Draycott, jeff.draycott@WOMPint.com Japan—Masao Ishiguro, Ishiguro@irm.jp Indonesia—Dimas Abdillah, dabdillah@mining-media.com Latin America—Paulina Downey, paulina@downeyassociates.cl —Sylvia Palma, sylvia@downeyassociates.cl 8751 East Hampden Ave, Suite B-1 Denver, Colorado 80231, U.S.A. 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Copyright 2016 Mining Media International Pty Ltd ISSN: 1832-7966 PHOTOCOPIES: Authorization to photocopy articles for internal corporate, personal, or instructional use may be obtained from the Copyright Clearance Center (CCC) at +1.978.750.8400. To obtain further information, visit www.copyright.com By John Miller /Editor More pain in 2016 … but some positives