As the global mining business
ushers in another new year, it seems that the “stealth
bulls”, conjured by some leading industry figures at the
end of 2013, are still treading softly in what remains a
distinctly bearish market.
The crisis of confidence that
infected investor sentiment in mining throughout last year
could deepen in 2014, experts have predicted, as early
indications of the health of the industry bode ill for a
near-term recovery.
“A lot of early stage projects
have simply been put on hold with only minimum licence
commitments being met,” Alexander Keepin, global co-head
of mining at international law firm, Berwin Leighton Paisner,
told the Financial Times (FT).
“The companies feeling the
pinch the most are those which are looking to move to
production and need to finance substantial investment in the
project and related infrastructure. They are struggling the
most and having to be very creative about using a combination
of all types of funding,” he added.
Keepin’s assessment
underscored recently released stock exchange figures
illustrating the persistently difficult financial conditions
for junior mining companies.
Between January and November last
year, just 62 mining companies listed on Canada’s Toronto
Stock Exchange and TSX Venture Exchange, the world’s
largest market for mining stocks, compared to 129 listings
during the same period in 2012, and more than 200 in each of
the preceding two years.
The amount of equity raised on the
TSX markets also fell from $10.3bn in 2012 to $6.5bn by the end
of November 2013, with almost half that total coming from a
single equity raising of $3.1bn in new cash by
Canada-headquartered gold producer, Barrick Gold Corp.
Elsewhere, mining companies
continue to face adverse conditions on the Australian Stock
Exchange, with mining stocks, notably those of Anglo-Australian
resource giants Rio Tinto and BHP Billiton, repeatedly dragging
down overall daily trading in early January.
Weak Australian mining-related
construction figures, meanwhile, led to a 6.4 point dip in the
country’s engineering construction sub index in December,
placing the industry in the <50 point contraction territory
at 46.1.
In London, a report by the UK
newspaper, The Telegraph, showed that funds connected
with natural resources made up nine of the 10 worst performing
funds in 2013, including the gold investment arms of Investec,
BlackRock and JP Morgan.
Bridled
optimism
Despite these downbeat signals, the
final months of last year saw a handful of predictions that the
worst of mining’s capital-related aches and pains are
behind it and that the sector could look forward to a more
prosperous 2014.
Reviewing issues discussed at the
third IM Graphite and Graphene Conference in
New York last November, Chris Berry, founder of House Mountain
Partners LLC, said that despite its financing difficulties, the
junior graphite industry maintained a “firm belief”
that its market is set to expand in the coming months and
years.
“The ubiquity of graphite in
the global economy all but assures this,” added Berry, who
has also hinted at House Mountain’s tentative confidence
in the recovery of the global rare earths sector.
Others have suggested that, as long
as mining companies can maintain the discipline in capital
spending implemented across much of the business in 2013,
investors may be minded to regain some trust in mining and
exploration company stocks.
“We still need to see [miners]
sticking to the disciplined message,” Evy Hambro,
co-manager of the BlackRock World Mining Trust, told the
FT in December.
“If investors are to be
attracted in, they need to be confident about the fundamentals
of supply and demand, but they also need to believe that
management are not going to repeat the mistakes of the
past,” he added.
Additionally, the decline in the
price of gold, which fell by 28% in 2013, is not necessarily
bad news for the industrial minerals sector, since many
economists link lower gold prices with economic strength, the
latter being a more positive fundamental for minerals used in
industries such as manufacturing, construction, chemicals and
agriculture.
Junior
survival
Junior miners too, unsurprisingly,
have sought to persuade investors that there is sufficient
market potential to support new projects, pointing to medium
and long term demand forecasts from existing and new
applications.
Graphite juniors in particular were
buoyed by a prediction from SGL Group’s vice president
Americas, Tom Burkett, who said that demand from green energy
applications could accommodate up to five new production
sources.
The beleaguered rare earths sector,
meanwhile, saw out 2013 on an even keel, and early market
indications suggest that rare earths prices improved slightly
in January.
December’s significant Chinese
resource policy announcements regarding the consolidation of
its rare earths industry could also reduce global supply of the
minerals, which may help to support prices.
Nevertheless, most agree that the
rare earths business remains top heavy with juniors, and that
this, coupled with the present weak state of downstream demand
and lacklustre investor interest, will lead to a significant
reduction in the number of active rare earths projects in the
near future.
In other industrial mineral
markets, uncertainty continues to afflict potash following the
acrimonious divorce of Uralkali and Belaruskali last August,
while mineral sands companies continue to struggle against weak
prices and low consumption.
Producers of refractory,
construction and chemical minerals are also watching anxiously
as an apparent uptick in worldwide manufacturing and building
activity in late 2013, indicated by last week’s PMI
results for December, has been slow to translate into raw
materials orders and higher prices.
Indeed, the fate of existing and
prospective mineral producers is indelibly tied to the variable
price of what they extract from the ground, something over
which they have no control.
In this context of uncertainty, shareholders look to company
executives to take a tough approach to financial aspects they
do have power over Ð namely, spending and productivity.