The world's leading mining companies are digging in for a long road to recovery after share prices in the sector and some commodities staged a rally yesterday.
Oil pushed through the $50 mark, while copper, gold and zinc hit multi-week highs. London’s mining index jumped 6.5 per cent, with giants such as Glencore, BHP Billiton, Rio Tinto and Antofagasta helping the FTSE 100 to close one per cent higher.
The global mining industry has taken a battering in recent times, partly due to slower economic growth in China. The extent of the situation is laid bare in a new report out today which concludes that miners may be “down but they are not out”.
PwC’s annual Minereport reveals a first ever collective net loss for the “top 40” miners, at $27bn last year. Market capitalisation fell by 37 per cent in 2015, effectively wiping out all the gains made during the commodity super cycle.
The report also found that investors have punished the top mining firms for poor investment and capital management decisions and, in some cases, for squandering the benefits of the boom.
Jason Burkitt, UK mining leader at PwC, said: “Last year was undoubtedly challenging for the mining sector. A 25 per cent year-on-year decline in commodity prices meant companies had to ratchet up their productivity efforts, while some found themselves in a fight for survival, with asset disposals and closures to follow. But this is a hardy industry, and while miners may be down now they are certainly not out.”
Burkitt predicts a long-term positive outlook for the sector despite the continuing challenges. He also expects 2016 to be very busy on the deal front: “In the first five months of the year, we’ve been encouraged by some recoveries in market capitalisations and commodity price, but with high volatility still in play, hopes of a sustained rebound are tempered.”
While China is still critical to the success of the industry, accounting for approximately 40 per cent of overall commodity demand, it can no longer be relied on to supercharge returns. As the country moves from a manufacturing base to a more services-based economy the previously rampant demand for commodities will not resume with the same intensity.
Yesterday’s rally for FTSE mining stocks is seen by some analysts as the latest manifestation of recent metal market volatility
Richard Knights, mining analyst at Liberum, said commodities had not bottomed yet. “Iron ore, copper and aluminium, I don’t think those have bottomed. [Mining] is a massively volatile sector at the moment.”