Confidence among miners is plummeting and mining executives are resigned to an increasingly gloomy outlook for the sector, according to the 2013 Mining Business Outlook by Newport Consulting. The breadth of the sectors falling sentiment over the past 12 months is illustrated by the report, which also marks the first reported fall in capex in the survey's four-year history. According to the findings, 44 per cent of 60 surveyed mining leaders said they plan to reel in capital investment, while 42 per cent said they had no plans whatsoever to boost spending.
Almost 50 per cent of subjects felt “not optimistic” about their prospects, representing a 34 per cent lift of pessimism from the 2010 survey.
As has been evident throughout the past 12 months, uncertainty throughout the sector has resulted in widespread job cuts and cost control efforts, measures confirmed by survey respondents. According to Newport, the curtailing of investment may translate into a global problem for Australia’s efforts to sell itself as an attractive and cost-competitive mining investment destination.Just under a third of survey respondents cited the uncertain economic environment as motivation for spending cuts, while difficulties in obtaining development funding were a motivating factor for 30 per cent.
The evolving conditions within the mining sector are not without their positives however, and there is not a whole lot wrong with miners readjusting the priorities towards productivity, cost control and efficiencies which may in time spawn improved methods and opportunities. Indicative of this being a medium to long term prospect, 66 per cent of mining executives surveyed reported a low level of productivity. The Newport survey confirms local resources company’s are accepting of the reality that the mining boom is over and are preparing to deal with the next phase.
Commentary
FNN asked Pengana Global Resources Fund, Portfolio Manager, Tim Schroeders how his fund overcomes the challenges of a sector volatile in nature to identify investments that deliver those returns.
“I guess first and foremost, we have the ability to be both long and short investments and that provides a significant cushioning impact, at various points in the cycle. We do use fairly active tools such as pairs, shorting and moving from larger capitalised to smaller capitalised and vice versa, where we see appropriate in terms of the beta component of the market. It’s important for us to understand what the markets were warding at a given point in time, and adjust our portfolios accordingly.”
Company news
BHP Billiton Limited
(ASX:BHP) is set to pour almost $US$US1.97 billion into constructing a seawater desalination facility at the Escondida mine in Chile. The global miner is the operator of the mine with a 57.5 per cent stake, while rival miner Rio Tinto Limited
(ASX:RIO) holds a 30 per cent stake, and will make a $US1.03 billion investment for the plant’s construction.
Atlas Iron Limited’s
(ASX:AGO) chief has backed Aurizon Holdings Limited’s
(ASX:AZJ) concept to build an independent rail network in the Pilbara region of Western Australia. The miner’s Managing Director Ken Brinsden has told ABC TV an independent rail line would be a fantastic solution, but cautioned it would first need to receive commitment from customers.
Rio Tinto Limited
(ASX:RIO) has reached a binding agreement for the sale of its 80 per cent interest in the Northparkes copper and gold mine to China Molybdenum Co. for $US820 million. Rio says Northparkes is a successful business but not of sufficient size to be a good fit with its strategy.
Rio Tinto Limited
(ASX:RIO) has stopped work on the underground development of its Oyu Tolgoi mining project after being told its financing agreement with the Mongolian government needs parliamentary approval. Rio says the Mongolian government had told it provisional project financing had to be approved by parliament - which is currently in recess - and the process may take some time to work through. The Mongolian government will earn its 34 per cent stake in the mine’s revenue, but capital cost issues have sparked tensions between the parties.
Sundance Resources Limited
(ASX:SDL) says it’s had a productive June quarter and and is continuing detailed discussions with investors for the development of its iron ore project in the Republic of Congo, identifying a number of interested parties and possible structures that could support the project. Sundance says its aiming to complete the mine development negotiations by the end of the calendar year.
PanAust Limited
(ASX:PNA) has maintained its 2013 production guidance of between 62 and 65 thousand tonnes of copper concentrate. The mineral explorer says its expects free cash from operations to rise sharply in the second half following completion of board approved capex.
Norton Gold Fields Limited
(ASX:NGF) increased its annual production expectations by 9 per cent following a strong first half. The miner now expects to deliver between 163,000-167,000 ounces at a cash cost of between $970 to $1,010 per ounce. Earlier this week the Norton scored the green light from Australia’s Foreign Investment Review Board to acquire Kalgoorlie Mining Company Limited
(ASX:KMC).
