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Citing the slow down, the big miners may be restricting expenditure and enhanced mining activities even as small players are getting a golden opportunity to ramp up output without hurting the prices. "The returns on a..

27 Mar 2013

Commodity Online
In the era of global slowdown, shareholders of mining companies are demanding more of discipline when it comes to capital expenditure.

This is largely attributed to a change of heart amongst share holders who feel that falling commodity prices may hurt profits of miners. In the same breath, one should add that supply is behaving exactly the same way as one should expect in a subdued price environment.

Also, going by the calls to enforce spending discipline, one should also assume that further price drops may be on the anvil. The idea is built on the premise that the latest super cycle in commodity demand must have come to an end.

This idea, one may think is justified. But it takes a shrewd eye and attention to detail to figure out the opportunity for big and small miners in the bleak portrait. Stuart Kirk of the Financial Times succeeds in hitting the bull's eye just as he has been doing it through Lex column since 2006 in FT where he is also an associate editor.

His presentation at the Asia Mining Congress held at Singapore spanning 12-15 March 2013 is an eye opener.

He says that the long term real prices suggest the super cycle was merely returning prices to their long run level. Global development suggests that commodity demand picture is not going to be bad as we march ahead.

Countries like India and China who are on the path to growth are guzzling down commodities. In other words, “the contribution to global growth from countries in a commodity intensive stage is still rising”. Chinese growth story is far from over in that the nation is just in the dawn of urbanisation “compared to several other emerging economies”.

Also the supply side looks to be moderating by 2015.

This means big players are cutting down on production. Thus, citing the slow down, the big miners may be restricting expenditure and enhanced mining activities even as small players are getting a golden opportunity to ramp up output without hurting the prices. "The returns on any investment look to be well supported for smaller miners" even as many of the big miners have seen costs rising too fast. 

Given the fundamentals, “it is worth taking a risk with departing from the current timidity on M&A and capex” and non traditional sources could provide for funding; he concluded.


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