Mining industry under pressure globally

Mining is not for sissies. Price volatility, geopolitical turmoil, rising costs, declining grades and a general lack of access to financing are just some of the issues companies have to contend with. According to Duncan Bonnett of Whitehouse & Associates, this is true across the world and not only in the unpredictable African environment where lack of infrastructure, security and political unrest add further challenges. “The industry is facing several problems, most notably the drop in commodity prices,” he told FTW. The latest mining report by Deloitte Touche Tohmatsu Limited (DTTL) reiterates this. “Growth prospects for countries like China and India remain uncertain, Japan is struggling with a mountain of sovereign debt and a rapidly aging population, and instability in the Russian border areas and the Middle East is raising concerns. Stakeholders around the globe are becoming increasingly vocal in their demands from the industry. Prospects for many commodities remain weak, particularly for coal and iron ore,” reads the report titled ‘Tracking the Trends 2015’. “Commodity prices for the key base metals and minerals such as coal, iron ore and copper have dropped significantly – probably to the levels they were around 2008,” says Bonnett. “And while some may argue that these prices were quite high and the current drop should not impact too significantly, the fact is that production costs have risen exponentially since 2008. So the extraction cost is very high and the commodity price is low which means margins are being squeezed very tightly at the moment.” And indications are that it’s not going to pick up any time soon. The DTTL report advises that if mining companies hope to emerge from the downward cycle in a stronger position than they entered it, they will need to increase mining intensity and focus on reducing capital, people and energy intensity. This will require them to adopt innovative technologies used in other industries in a measured and risk-intelligent way and increase the use of information technology. There will be a definite requirement for companies to become more adept at balancing short-term investor expectations with long-term business imperatives. “There is no doubt that mining companies operate in complex geographies where they face increasing challenges in responding to regulatory and compliance requirements,” says Philip Hopwood, DTTL global mining leader. “At the same time, they have an imperative to adapt to changing market conditions, adopting new innovations as they seek to produce more for less cost in a world where volatile market conditions are the new normal, and geopolitical conditions are increasingly impacting economic decision-making.” INSERT & CAPTION The extraction cost is very high and the commodity price is low which means margins are being squeezed very tightly at the moment. – Duncan Bonnett