Distressed mining companies face a growth dilemma |
JOHANNESBURG, 31 January (Reuters) – High costs and the prospect of falling profits have made big miners nervous about expansion, even as shareholders clamor for investment in response to firmer commodity prices, the reopening of China and the role of minerals in decarbonizing the economy.
While years of spending discipline have trimmed balance sheets from past overspending, full-year results announcements in February are expected to see miners’ earnings and shareholder payouts fall short of record levels set in 2022. for energy, explosives and equipment.
According to Goldman Sachs analysts, extreme in copper mining weather conditions and labour disruptions caused by the problems are expected to worsen and affect 1.6 million tons of production this year. as their savings run out.
George Cheveley, portfolio manager at Ninety-One, said: “By reducing CapEx and costs, mining companies are in a good position in the short term, but looking a few years ahead, they need to start developing more growth options.”
“It’s a growing problem because unless you’ve spent a lot of money on development or scaled back, as was the case after the price crash in 2015-16, you can’t do it forever and expect to keep growing,” he added.
According to Kevin Murphy, principal metals and mining analyst at S&P Global Commodity Insights, capital spending by mining companies will decline 11% in 2023, while exploration spending will 10–20% will decrease.
Despite the large reserves of copper, lithium, nickel and cobalt needed to transition to a low-carbon economy, majors have limited plans to develop mines that take years to turn a profit.
Among the more bullish CEOs, Barrick Gold’s Mark Bristow said that while the global economy is “extremely tight,” mining companies need to spend more on exploration to ensure a solid pipeline of mines.
“The first thing the mining industry does when it’s under pressure is to stop spending. But of the day at the end of the day, the best time to grow your business is in the pit,” Bristow said.
Some companies make acquisitions by investing in projects owned by smaller developers way preferred to grow with
The world’s largest listed mining company BHP Group ( BHP.AX ) has in recent months taken over Canadian exploration company Brixton Metals ( BBB.V 20% and signed an agreement with Canada’s Mundoro Capital (MUN.V) for copper exploration. Serbia.
It also 6.5 for copper and gold producer OZ Minerals (OZL.AX). billion dollars money offer did.
A tough economic backdrop could fuel the deal, which is an opportunity for stronger players looking to acquire proven assets and smaller players looking to cash in.
“This could be a really interesting catalyst for M&A because if people don’t really believe in the fundamentals, there could be a softening in share prices,” said Sandra du Toit, who heads the Africa M&A practice at Ernst & Young.
Reuters Graphics AFRICA’S RESOURCES WILL EXPERIENCE, BUT IT IS DRAWING
Apart from China, where the lifting of lingering COVID-19 restrictions is expected to boost demand for metals, according to the IMF and World Bank, the main engines of global growth are – USA and Europe will slow down this year. stabilization of inflation.
Economic contraction makes “unlocking African mining investment” – the theme of this year’s Africa Mining Investment Indaba conference in Cape Town in early February – a more challenging goal.
Total exploration spending by mining companies in Africa has fallen compared to Australia, Canada and Latin America.
The share of exploration budgets allocated to Africa last year was the smallest since at least 1997, according to S&P Global Commodity Insights.
According to S&P’s Murphy, much of this decline is due to the migration of smaller miners out of Africa, while major producers increased their share of spending on the continent last year.
Major miners have long been wary of the continent’s risk profile, but USA and Europe’s desire to reduce its dependence on China, which dominates processing of battery minerals, is persuading companies to reconsider.
In May, Anglo American ( AAL.L ) small exploration firm Arc Minerals ( ARCMA.L ) took control of Zambian copper-cobalt licences, European Union and has partnered with Namibia, one of the countries it hopes will help build its battery sector. – came out.
“There aren’t many regions with good-quality orebodies yet to be exploited,” said Costas Bintas, co-head of metals at global commodities trader Trafigura.
“Africa, and especially the Democratic Republic of the Congo and Zambia, still have untapped, relatively high-grade, high-quality copper deposits. DRC and Zambia are two countries where you can significantly increase copper supply to meet demand.”
Reuters Graphics reporting by Clara Denina in London and Helen Reid in Johannesburg; Edited by Barbara Lewis
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2023-01-31 11:17:29
Source – reuters
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