The global mining industry will see fewer projects brought
online and those that are will be developed at a slower pace as
resource financing continues to become tighter and more
Falling prices for metals and minerals have slowed their
descent this year but show few signs of a turnaround in the
wake of faltering demand from China, causing miners and
financiers to pull back on funding commitments for new
|Major miners, juniors and service companies are
suffering from a lack
of funding (source: Vale).
"The boom in China seems to have, at the very least, paused,
acquisitions done by many Chinese companies have been
questioned and few mining projects are being funded beyond the
next two to three years," Ken Hoffman, global head of metals
and mining at Bloomberg Intelligence, said at
an industry meeting in
London last week.
"Potential sharp shifts in demand along with equally strong
supply reactions could lead to market gyrations," he added.
Headline indicators of these shifts have tended to focus on
steel demand and the attendant impact on iron ore prices.
At the beginning of October, the World Steel Association
(worldsteel) told a conference in Moscow that global steel
consumption is likely to grow at a slower pace than previously
forecast for 2014 and 2015, with growth now pegged at 2% for
this year and the next, down from estimates of 3.8% and 3.3%,
"The positive momentum in global steel demand seen in the
second half of 2013 abated in 2014, with weaker than expected
performance in the emerging and developing economies," Hans
Jurgen Kerkhoff, worldsteel’s committee chairman
told the conference, singling out structural chain in China as
a key driver of the decline.
Iron ore prices, meanwhile, have hit five-year lows in 2014
and weakness has also been observed in many industrial minerals
prices, taking a toll on project financing.
Notable postponements to mining projects this year include
BHP Billiton’s decision to push back its 10m tpa
Jansen potash project in
Saskatchewan, Canada, until 2020, while Rio Tinto has gone all
but silent on its Jadar lithium-borates project in Serbia and
has put rutile and zircon processing operations in South Africa
on care and maintenance in response to weak demand.
In the junior mining industry, Canadian lithium and iodine junior RB Energy Inc. recently
shut down operations at its Quebec lithium project in Canada
after it failed to secure the funding needed to maintain
operations and has since announced it will delist from the
TSX-V after its stock price collapsed.
Elsewhere, a number of graphite and rare earths
projects tipped to come online by 2015 appear to have stalled
completely owing to a lack of funding.
One Canada-based former analyst who recently moved into the
exploration industry told IM that some juniors
missed their chance to secure funding.
"Many were too greedy when the money was on the table and
thought they could do better," he said.
"The problem is that they find themselves unable to get any
funding, now that market feeling gone sour," he added.
The lucky few
While the general picture is one of gloom for junior miners
in particular, the industry has not been without its success
Manoli Yannaghas, managing director of UK-listed StratMin Global Resources
Plc., which recently signed an offtake agreement for
graphite produced at is Madagascan mine, told
IM that his company was both relieved and
delighted to have secured a buyer in a market where such deals
are few and far between.
"Binding offtakes like this aren’t easy to
get," he said. "They’re not like
MoU’s [memoranda of understanding] –
there aren’t many of them around and it has taken
a lot of time and hard work to get this far," he said.
StratMin has agreed to sell all the graphite grading over
94% C it can produce from its Loharano flake graphite mine to
an undisclosed buyer for five years, with prices agreed six
months in advance on a rolling basis to take account of market
Canada-based vanadium miner Largo Resources Ltd has likewise
recently began supplying its offtake partner, Swiss trading
giant Glencore, with material from its Maracas mine in
Mark Brennan, CEO of Largo Resources, said that his
company’s offtake deal was also hard won.
"There is money out there for good projects, but you really
have to be best of breed to secure it," he said.
Brennan, who was an investment banker for 10 years prior to
joining Largo, explained that the Maracas mine had suffered a
number of funding setbacks on its path to development as a
result of turmoil in the financial markets.
"It’s been tough for miners on the TSX lately,
but demand hasn’t gone away –
it’s still there, just not as strong as it was,"
He described the present funding drought for mining as "a
period of indigestion", but conceded that there are probably
"too many projects" around, given that the industry is facing a
different economic environment now to that of the last
Capex cuts slice deep into mining
The squeeze on funding for mining companies has been sending
ripples through the wider industry, particularly in the mining
services sector which is struggling to cope with the downturn
Finnish processing group Outotec this week
reported a loss of €3.1m ($3.9m*) for the third quarter of
2014, down from a net profit of €43m for the same period a
year ago, and announced that it would axe 100 staff in an
effort to cut costs.
"Uncertainties in the global economy, weak metal prices
performance, as well as mining and metals
companies’ pursuit for minimising capex and opex
costs kept investments on a low level and put pressures on the
service market," Pertti Korhonen, Outotec's CEO, said in a
statement accompanying the results.
Another telling recent development has been the news that
Rio Tinto has offered its incumbent CEO, Sam Walsh, an
open-ended contract to remain in the job – a
significant move given that Walsh was brought in on a mandate
of cutting costs at the Anglo-Australian miner, and had been
due to leave the job at the end of 2015.
A more positive perspective came earlier this month from
equipment supplier, Caterpillar Inc., which reported a surprise
increase in third quarter earnings to $1.02bn from $946m a year
ago and has forecast sales of $55bn for 2014.
The Peoria, Illinois, US-based company said that the gains
were thanks largely to cost savings achieved through
restructuring, but added that it was cautiously optimistic
about its growth prospects, even though uncertainties over
structural reform in China and continuing unrest in Africa, the
Middle East and the former Soviet Union continue to cause
Services companies have said that while they are pursuing
stronger margins through cuts, industry fundamentals, including
mineral prices, need to improve for organic growth to be
*Conversion made October 2014