A few years ago, the top 40 mining companies by market capitalization experienced a spectacular growth and an unprecedented increase in productivity. What is the main reason for this era of real prosperity? This question has for answer the name of an Asian country: China – and its rampant demand – which led to a fierce global race where every company managed to survive by increasing production capacity for the lowest price. That is how business junkies emerged in a business model clearly blinded by immediate profits and only relying on short-term decisions. But like it always does, after the mining market was awash with cash and had invested billions in brand new projects and acquisitions, the boom came to an end as Chinese demand didn’t continue to strengthen. After all, higher prices were not the new norm unlike people expected.
Hence, the top 40 are now in a thorny position where lenders and shareholders are less willing to invest great amounts of cash and where liquidities are no longer as easily circulating as they did before. In a sector where inertia now prevails, it seems like a considerable challenge to maximize value from shredding assets. 2015 could be seen as a “race to the bottom” as the top 40 experienced for the first time a collective net loss. However, the situation is not as bleak as it might sound; it is within the power of the mining companies to bounce back. The main lesson drawn from 2015 was that the foundation of the sector could not only rely on China’s growth and needs to be drastically reshaped. Costs have already been cut down but it is vital that they remain sustainable if commodity prices stay as low as they are. On top of that, a new one has made its entry within the top 40 during 2015 and is quite likely going to stay in the spotlight for a while: a lithium company. It is obvious that the energy sector is rapidly changing and that new disrupters will have their part to play. This is indeed where the opportunity lies for mining companies: everything remains to be done if they manage to start from scratch. No doubt that the mining companies are not defeated yet.
Despite appearances, the mining industry still has opportunities to offer which need to be seized; the sometimes-heavy choice of deciding whether or not an investment has to be made can surely be complemented by our expertise in the field and our onsite gained experience.