AS a new year dawns the global mining industry is at a very low ebb with volatile mineral commodity prices, very little capital available to support exploration or expansion projects, let alone new projects, and many existing operations struggling to break even at best. This has resulted in jobs being lost at mining operations and major impacts on the mining supply and service sector. The picture is gloomy but if we can look positively at the current cyclical situation, there must surely not be too far to go before the industry is at rock bottom, which means the only way is up.
Fundamentally there are also positives with China set to grow at a healthy 7%, other developing nations continuing their growth, the US showing signs of recovery and the European situation looking a little more healthy. This means the demand for resources is still present and although supply has exceeded demand for most resources during the past 12 months, maintaining future supply will be difficult as operations wind down or even close altogether.
The current situation is reflected by statements made by officials from US-based heavy equipment manufacturer Joy Global in a conference call to discuss the company’s latest financial results. Joy’s CEO designee Ted Doheny said the past year had seen customers stretching rebuild, delaying regular maintenance and taking risk with equipment that they hadn’t done in the past. Joy’s fourth quarter net income plunged 87% and the manufacturer has forecast lower than expected earnings for 2014.
CEO Michael Sutherlin said, “For us, 2013 was a very challenging year as we prepared for weaker market conditions. For the first time since I’ve been at Joy, commodities moved into supply surplus and this indicated that the correction would take longer and it has.” Ted Doheny said, “We’ve seen commodity pricing declines up to 30% in some cases, which has led to increasing pressure on our customers’ cash flow. We think the US aftermarket is now through most of its correction period. If we look at our Australian aftermarket, we’re probably getting close to finding the bottom.
“In China, it’s a little different. First of all, there’s a consolidation taking place, given the need to close many small and dangerous mines. Further, we’ve seen production down in China year-over-year close to 2%, as lower cost seaborne imports have created challenges for domestic producers.
“Iron ore prices have averaged $135 a tonne in 2013, as global steel production has grown 4% year-to-date. While major producers will be expanding production in coming years, we expect the steep seaborne iron ore cost curve will result in a higher-cost Chinese supply being displaced.” Joy also observed that copper markets continue to see strong commodity fundamentals. “In 2013, global consumption is expected to increase 3.6%. Pricing level should remain above the marginal cost of production and should attract continued investment in additional production capacity,” Ted Doheny said.
In the last 24 months, Joy has seen a 36% reduction in operating equipment order rates. “We feel this is something that can only go on for so long and we’re probably getting to the end of the miners’ ability to stretch these maintenance intervals. We believe we will see the headwinds that are facing our markets and customers remain an issue in 2014,” he stressed. “We are seeing selective projects moving forward that can achieve acceptable returns in the current pricing environment. So, despite the challenging markets, we are excited about some opportunities for creating growth.”
Threats to recovery remain increasing resource nationalism, new or higher mining taxes, increasing red tape and green tape, and growing anti-mining opinion. To combat the negative impacts, it is important for the entire mining industry to have a much stronger voice. During recent months many involved in the mining industry in the Hunter Valley of New South Wales, Australia, have signed up to become a ‘Voice for Mining’ - taking the opportunity to make their support for the mining industry heard loud and clear. This not only needs to happen in all mining communities but should also involve all those directly and indirectly involved in mining service and support industries.