WITH some early signs of a mining industry recovery now is a good time to analyse the downturn and examine what is needed to minimize the impacts of future downturns. These economic dips are, unfortunately, bound to occur in the mining cycle but with effective, long-term planning, the path can be a lot smoother.
The mining boom of a few years back created its own headaches which have contributed to the downturn – supply increased putting pressure on metal prices; costs increased putting pressure on existing and proposed operations; and many producing miners made big profits causing governments to become rather greedy, bringing about resource nationalism along with retrograde taxes at the worst possible time.
The signs from mining events this year have been encouraging with many experts saying the industry is at the bottom and the only way is up. Their predictions of a start in the inevitable recovery vary from mid-year 2014 to mid-2015 but all are optimistic about the signs with some supply deficits looming, M&A activity increasing, a pool of private equity funds ready for investment, and renewed share market activity. The mood of investors at PDAC and Mines & Money Hong Kong was more buoyant than for the past two years. While investor numbers were down at both major investment events, the majority of exhibitors reported strong and genuine interest.
While mining companies can be more diligent in long-term planning, it is ultimately up to governments to provide effective policy to facilitate this. However, the very nature of most governmental systems prevents any long-term planning as most politicians are only interested in short-term, knee-jerk policies that earn them immediate popularity.
Bloomberg’s head of metals and mining research Ken Hoffman highlighted the problem in an interview with The ASIA Miner. He said: “The Chinese have done this with their one-party structure because the government can plan ahead and steer the country on a growth path. You have to give all the credit in the world to them because what they have done is the impossible – obviously they have problems such as pollution but they can develop medium and long-term plans to overcome these. Just think about where they were equivalent to India in steel production 15 years ago, now they are 8-10 times ahead. China has been able, through the foresight of the government and true long-term planning, to go through the peaks and valleys.”
He used Mongolia as an example of what happens in most countries. “Things were looking as though they were going to start improving for the benefit of everyone and all of a sudden the switch got shut off by government, putting the country years back. On paper many countries have all the opportunities to grow but the politicians so often get in the way of things with short-term, populist measures. It’s very hard to maintain the course needed for prolonged, beneficial growth.”
He also stated that Indonesia is interesting. “It is one of a number of countries that could really start to move. The frustrations that could arise have been evidenced in Brazil – it is supposed to be one of the BRIC countries and everyone thought it was going to rise but it has not reached that potential and the main reason is a change in government.
“As long as Indonesia wants to grow it will, but often the politicians are their own worst enemies. If government wants to set a growth path and put policies in place that the rest of the world is prepared to invest their capital in, then they will grow because they have a big, burgeoning population with a good work ethic. Indonesia has many things you would want to have in a workforce and a lot of things that could propel the country forward. There are so many countries like that in the world, but as soon as there is a problem the politicians make a knee-jerk reaction which puts the country backwards,” he adds. “In Indonesia all the elements are there for a good growth story but history tells you it is a 50/50 proposition.”