Rising operating costs and bloated capital expenditure programs have become familiar complaints of the world’s biggest mining companies. And falling commodity prices are putting pressure on miners’ profits from the other direction, too, prompting fears of further downgrades.
Industrial commodities such as aluminium, nickel, iron ore, platinum and coal have retreated between 20 and 30 per cent since early spring, on increasing concern over the managed economic slowdown in China and deteriorating conditions in the United States and Europe. Metals used in the steelmaking industry have been particularly hard hit, as earlier overstocking and shrinking Chinese demand take their toll.
And while the major diversified miners boast some of the lowest-cost, longest-life mines in the world, which are able to survive several commodity cycles, even their balance sheets are not immune.
Anglo American saw first half pre-tax profits plummet 55 per cent to $2.9bn (£1.9bn). The company blamed nearly two-thirds of that fall on weaker commodity prices – the group’s struggling platinum operation was the chief culprit – despite output rising strongly in most other minerals.
Brazilian miner Vale, meanwhile, saw second-quarter net income slump nearly 60 per cent against the prior year period and 30 per cent against the first quarter partly due to a weaker Brazilian real, but Vale sold iron ore at an average of $103 a tonne, down from $145 a tonne last year.
The increased pressure on margins from both sides has some industry commentators concerned over another wave of potential downgrades by analysts.
But some commodities have performed better than others this year, chiefly gold and copper. At $1,620 an ounce and $3.40 a pound, respectively, the metals are down a ‘mere’ 9 and 11 per cent from their spring highs. Yet miners of those metals have largely suffered the same fate as their more diversified counterparts. Net earnings at Barrick Gold, the world’s largest gold miner by output, fell 35 per cent in the second quarter to $750m, with capital costs at the company’s huge Pascua Lama project on the border of Chile and Argentina rocketing by $3bn to $8bn.
