From the Editor

From the Editor - Miners Take Extreme Measures to Bridge the Gap

- Mining companies have been filing their first quarter reports for 2009 and the news could be viewed as especially encouraging, considering the financial turmoil the world has experienced. The mining business as a whole outperformed a lot of industries because in many cases they entered the recession with strong balance sheets, healthy assets and a manageable amount of debt. When the reality of the credit crisis set in, many of the major mining houses were already acting ahead of the curve, moving quickly from a plan to grow production by any means to the current vision of conserving cash and optimizing assets. As opposed to the past peaks and valleys, mining companies deferred new projects and scaled back production in line with demand. In fact, one could argue that with all of the capacity that has been taken off line, once the markets right themselves, base metal miners may have created the potential for another sustained period of healthy prices.

According to the E&MJ Project Survey, global mining investments in the hardock business break out as: copper, 29%; iron ore, 26%; gold, 14%; nickel, 13%; and other, 18%. As investors flocked to gold during the financial melt down, gold prices have remained high and gold mining companies are posting great financial results. The story is far different for base metal miners. The downturn in the global steel business has been well-documented, but executives see the market regaining strength again in the next year to 18 months. Copper prices dropped precipitously last year, but they have already rebounded quite a bit this year.

Although they dare not dwell on the last half of 2008, many of base metal miners address the historical nature of the downturn. Speaking before shareholders, Teck’s Chairman Dr. Norman Keevil said, “The last six months have been the most difficult I’ve seen in over 40 years in the business, and doubly surprising to people after two years in which the words of conventional wisdom were ‘a new supercycle in commodity prices,’ and a ‘world awash in liquidity.’ How quickly that changed.”

Many mining companies took on debt to acquire properties in a logical effort to diversify during high times. Then share prices fell along with metal prices. Companies with more debt suffered larger declines. Now they find themselves looking at ways to reschedule debt and sell off non-core assets during a soft market to raise cash. That ability to raise cash, however, is what sets the mining industry apart from other industries. During the first quarter, Rio Tinto alone announced divestments totaling $2.5 billion, including $761 million for the Jacobs Ranch coal mine in the U.S.

The light at the end of the tunnel for many of the base metal mining companies is previously announced global financial stimuli. Providing the basic materials that society needs to improve the quality of life, the base metal miners will again reap the rewards as these packages take effect. Until that time, many of these companies will watch as profit margins grow steadily with improved metal prices. That’s another attribute that sets them apart, no matter how diminished, they have a profit margin.

Steve Fiscor, Editor-in-Chief, E&MJ

As featured in Womp 2009 Vol 04 - www.womp-int.com