That sounds contradictory but there is an interesting explanation, which relies totally on timing.
Officially, if we use last Friday’s closing stock-market prices rather than wait for the market to shut later today, the metals and mining index of the Australian stock exchange rose by a very respectable 17%, surely a reason to break out the bubbly.
Unfortunately, all of that uplift occurred at the start of the financial year with the metals and mining index rising by 20% between July 1 and mid-September, only to end the year up by around 17%.
As an exercise in analysing statistics it is possible to argue that the mining sector had both a good year and a bad year. Yes, it went up, and yes, it went down, depending on whether you look at it from July 1 (up 17%) or from mid-September (down 3%).
The statistics are a reminder of Benjamin Disraeli’s famous quip about “lies, damned lies, and statistics” and an interesting view of what happened last year as well as helping to get a feel for what might happen next.
The key to all this is to see the past 12 months as a transition period.
It has been a time when the iron ore (mine-building) boom came to its inevitable conclusion and the most valuable part of the Australian mining industry geared down for a long period of steady production after a hectic decade.
Iron ore is not going to fade from view and profit flows will be strong. However, the easy days are over and have been replaced by a time of cost controls and productivity drives – more work for the same money.
Coal is a step ahead of iron ore having gone through a painful period of falling prices to have reached a point where prices really cannot fall much further and survival becomes a matter of cutting costs.
Expansion of coal production is definitely off the agenda, which is bad news for the late entrants to the industry, especially those companies planning big new mines in Queensland’s remote Galilee Basin.
So, if the bulk-twins of iron ore and coal have hit their respective ceilings and world markets are well satisfied, where will the excitement be generated in the Australian mining industry over the next 12-months?
As far as Dryblower can see there are three areas likely to attract the attention of investors and generate headlines. They are:
- takeovers, with the industry ready for a burst of activity at the top end, and a massive clean-up at the bottom
- a base metal revival as prices creep higher for zinc, nickel and perhaps copper
- asset divestments by the mega-miners, which have been threatening to sell entire divisions but are yet to really get moving.
Early signs of a takeover frenzy can be detected thanks to the combination of super-cheap money to fund a deal and bored managers who need to prove themselves by doing something (anything?).
Baosteel’s successful raid on Aquila was a case of the big Chinese company wanting to hurry things along at the West Pilbara iron ore project, as is Iluka’s proposed bid for Kenmare, a potential deal doomed to eventually end in disaster if it succeeds because most Australian miners fail when they get to Africa (another win and loss wrapped into one).
At the other end of the mining sector there is a job that could be compared with cleaning out a stable because hundreds of small mining companies have no money, no management and no hope. The only question is whether they are worth more dead than alive – and the process of proving that could be quite exciting, much like watching seagulls fight over a chip wrapper.
The base metal revival appears to be underway, a function of rising prices and declining supply in the nickel and zinc sectors. Sirius should finalise its funding talks soon and start building its Nova nickel mine. Mungana is shaping as first cab off the zinc rank.
At the big end of town there might also be some action. After a year of promises, both BHP Billiton and Rio Tinto could finally sell some of the big bits they don’t want, opening the way for another Chinese clean-up or the long-delayed entry of the private equity funds.
Whatever happens in 2014-15, enjoy the year. With luck it might even start with the same bang that gave us a 20% boost at this time last year and hopefully not fade out into another 11 months of nothingness.
First published in MiningNews.net yesterday
