Date | Jan 07, 2016:
China is considered the world’s largest ore consumer. Over the past year, Chinese economic slowdown pushed the global ore demand down. As a result, the supply outpaced demand; since miners did not mind producing iron-ore in order to reach their year-end targets.
In China, the manufacturing activities are dull for five consecutive months. According to the Purchasing Managers’ Index (PMI) released by National Bureau of Statistics (NBS) for December 2015, the business confidence level was 49.7. This indicates that the Chinese economy is on the verge of contraction.
Prior to China’s economic slowdown, the miners were optimistic toward overwhelming demand. In order to move ahead and to amass a large amount of market share, these miners invested billions of dollars in giant size mines. In this regard, copper super-mines were arranged in Congo, Indonesia, Peru, Chile, Arizona, and Mongolia. On the other hand, iron super-mines were established in West Africa, Australia, and Brazil.
Miners have almost succumbed to pressures from declining demand, making their position very risky. Not only is their billion dollar investment is at stake, but they are also faced with the overhead cost incurred on these mines. Companies are helpless; they can’t afford to halt mining as it helps to pay off their debts. And since a supply glut already exists, the companies have no other option but to offer the ores at a cost below the cost of production.
Relatively smaller miners were not able to acclimatize to the situation. These miners right-sized their businesses, put their assets on sale, and even announced job cuts. Some miners also halted high-cost mines and continued to produce from low-cost ones.
Rio Tinto plc (NYSE:RIO) is considered one of the giant miners. Despite enjoying lowest production cost in the industry, it plans to cut its spending. In December, it also announced financing deal worth $4.4 billion for its Mongolia-based Oyu Tolgoi copper and gold super-mine.
On the other hand, Anglo American plc (OTCMKTS:NGLOY) reported 85,000 job cuts in its December statement. Other cost-cutting measures include dividend suspension and up to 60% assets sale. The corporation spent $6 billion for its Brazil-based super-mine.
During September 2015, Glencore International (OTCMKTS:GLNCY) announced its restructuring plan, where it deferred cash dividend. Further, its CEO intends to spin off US-based Sherwin Alumina asset as well as Australia-based Minara nickel mine, besides divesting his minority stake in the agriculture business.
Freeport-McMoRan Inc.’s (NYSE:FCX) was hit badly so much so, that its executive chairman and co-founder, James R. Moffett had no option but to step down just three days ahead of new year. This prominent decision was taken after the involvement of activist investor, Carl Icahn.
(Source: http://www.businessfinancenews.com/)