Archive | Commodity Super-Cycle and Decline

Can commodity producers resist the temptations of the up cycle? – by Clyde Russell (Daily Mail/Reuters – February 23, 2017)

LAUNCESTON, Australia, Feb 23 (Reuters) – Anytime you hear the mantra “this time it will be different,” it’s probably best to assume the same old cycle will repeat itself.

This is especially true for commodity producers, who often appear to lurch from boom to bust and back to boom with little regard for learning from past mistakes. Perhaps this is because commodity cycles can take decades to play out, meaning institutional memory is lost over time, allowing executives to repeat the mistakes of their predecessors.

But more likely it’s because most chief executives in listed commodity majors are either forced by investors to be seen doing something to boost growth, or by nature are driven to build and buy new mines. Continue Reading →

Mining Companies Are Back in the Black – by Scott Patterson and Rhiannon Hoyle (Wall Street Journal – February 21, 2017)

Coming out of a punishing downturn, executives are still cautious despite the return to profitability

The world’s biggest miners are profit machines again, cashing in on soaring commodity prices and rewarding investors who stuck with them through a brutal downturn.

BHP Billiton Ltd., the world’s largest miner by market value, said Tuesday it earned a net profit of $3.2 billion for the second half of 2016 after posting a $5.7 billion loss in the year-ago period. Anglo American PLC, the fifth-largest mining company, reported a net profit of $1.6 billion for all of 2016, a dramatic rebound from 2015, when it lost $5.6 billion.

The solid performance builds on strong results posted by British-Australian miner Rio Tinto PLC, which two weeks ago said it earned $4.6 billion in 2016 following a loss of $866 million in the prior year. Switzerland-based Glencore PLC is scheduled to release 2016 results on Thursday, with analysts widely predicting a return to profit. Continue Reading →

Miners Enjoy Fastest Comeback in a Decade on Surging Profits – by Kevin Crowley and David Stringer (Bloomberg News – February 21, 2017)

The speed of the mining recovery is faster than anything that’s been seen in the past decade. BHP Billiton Ltd. and Anglo American Plc on Tuesday reported the biggest profit increases since at least 2007 on deep cost cuts and rebounding metal prices. The earnings exceeded analysts estimates and highlight mining’s dramatic reversal of fortune in the past year.

The industry is coming back from a crisis that forced some of the top metal producers to sell assets, cut costs and rein in spending after years of over-investment. Metal prices have largely recovered from the downturn and several of the biggest mines are profitable, instead of bleeding cash.

“You can see how cash generative this business can be,” Paul Gait, an analyst at Sanford C. Bernstein Ltd. in London, said by phone. “I think 2017 is a year of strategic re-positioning and rethinking.” Continue Reading →

Don’t expect another commodities supercycle but oil at $60 is better than $30 for your portfolio – by Olev Edur (Financial Post – February 15, 2017)

“We’ve had a ten-year supercycle and then a five-year blow-off.” That’s how Drummond Brodeur, senior vice-president and global strategist with Signature Asset Management (a division of CI Investments) in Toronto, succinctly sums up the past 15 years for Canadian markets.

While the panic selling of early 2016 gave way to something of a rebound throughout the rest of the year — a “still alive bounce” — Brodeur offers an even more succinct summary of the outlook for Canadian markets going forward: “Meh.”

“We saw oil go down below US$30 and now it’s back to US$50, but it’s not going back to US$100 any time soon,” Brodeur says. “Maybe US$60, but we won’t see a resumption of the supercycle that occurred between 2001 and 2011. It’s not exciting, but US$60 is a lot better than US$30, and the market should be much more stable going forward.” Continue Reading →

‘Timing is key’: Supercycle effects still loom over long-term fund returns – by Olev Edur (Financial Post – February 15, 2017)

Looking at the latest 15-year fund performance figures, you’d think that Canadian equities are absolutely the best investments in the world, especially the small and mid caps. Resource and precious metal funds, despite ongoing commodity headwinds, don’t look too shabby either.

Those were among the top-performing categories in the Canadian mutual fund universe for the 15-year period ended Dec. 31, 2016, according to data provided by Fundata Canada Inc. Real estate equities (a small category comprising just three funds with 15-year track records) and energy equity funds rounded out the Top 5, even though oil prices now hover around the US$50 per barrel mark. Canadian dividend/income equity funds held sixth place in terms of 15-year performance.

The implications of Table 2 (below), which lists the Top 15 out of 28 total funds that achieved double-digit 15-year returns through 2016, are even more dramatic: The vast majority of these funds were Canadian equities and most were also in the small/mid-cap space. Continue Reading →

Cash dilemma for mining majors – by Staff (Mining Journal – February 6, 2017)

Rio Tinto (LN:RIO) is expected to post an annual profit of more than US$5 billion on Wednesday, according to the average analyst forecasts made to the Wall Street Journal.

The anticipated profit is in stark contrast to Rio’s previous result of an $866 million net loss. Increasing commodity prices and aggressive debt reduction strategies have seen miners’ balance sheets improve and shareholders could be rewarded for their loyalty.

Swiss trader and miner Glencore (UK:GLEN) announced in December it would reinstate dividends this year and pay US$1 billion in two tranches. Continue Reading →

Ending years of cuts, miners are exploring again: cautiously – by James Regan (Reuters U.S. – February 1, 2017)

SYDNEY – After years of cutting budgets and squeezing existing mines, global mining giants are again scouting for new deposits: industry analysts say 2017 will see the first increase in spending on exploration in five years.

Exploration spending came under pressure when commodity prices tumbled and investors pushed miners to be less profligate, especially on large new projects and in untested locations. Spending last year was down two-thirds from a 2012 peak of $21.5 billion, according to S&P Global Market Intelligence.

But mining companies say that is now changing as supply concerns return, market prices recover and deals for top-tier, low-risk mines in key commodities remain elusive. Continue Reading →

NEWS RELEASE: Mining industry at pivotal point in history, Deloitte report

Deloitte releases the top 10 trends facing mining companies in 2017

Click here for report:

TORONTO, ON–(Marketwired – February 01, 2017) – For the first time in years, there is a mood of cautious optimism in the Canadian mining industry, with commodity prices on the rise, shallow growth returning to different end markets, and most mining companies in better cost positions than in the recent past. However, the industry is still at a pivotal point as it faces challenges from cybersecurity threats to technological disruption and environmental issues, according to Deloitte’s 9th annual Mining report, Tracking the Trends.

“Mining companies must now make key decisions about where to invest and how to position themselves in the coming years. It is critical that companies are aware that with technological and digital disruption occurring across all industries, comes accelerated threats to the mining industry,” said Phil Hopwood, Deloitte’s Canadian and Global Mining Leader. “Companies that are willing to engage in substantive change by rethinking strategy, embracing technological disruption and adopting a long-term view, will be best positioned to succeed and propel the industry forward.” Continue Reading →

Komatsu Joins Peers to Signal Mining Rebound Remains Elusive – by Masumi Suga (Bloomberg News – January 31, 2017)

Komatsu Ltd., the world’s No. 2 supplier of construction equipment, said industry-wide demand from miners fell 13 percent in the last quarter, signaling that the rebound in commodities prices is yet to feed through into better sales of the giant trucks and excavators used in extracting minerals.

The Tokyo-based company, which also supplies builders and produces industrial machinery, reported lower earnings Tuesday for the third quarter through December, with net income down a fifth on the year to 30.8 billion yen ($271 million) and revenue slipping 10 percent to 430.6 billion yen, according to a statement.

“We stick to our earlier view that the timing of a recovery will come” in the next fiscal year or after, Yasuhiro Inagaki, senior executive officer, said on a conference call, referring to the mining equipment market. Continue Reading →

Metals mania raises hopes – and concerns – by Ian McGugan (Globe and Mail – January 26, 2017)

Metals mania is back. Since the start of January, the Toronto Stock Exchange’s mining sector has surged to double-digit gains, led by the likes of Ivanhoe Mines Ltd., HudBay Minerals Inc., First Quantum Minerals Ltd. and Teck Resources Ltd., each of which has rocketed ahead by 27 per cent or more in less than four weeks.

The big gains reflect a growing consensus that global growth is picking up, fuelled by solid growth in China, an improving outlook in Europe and enthusiasm about U.S. President Donald Trump’s spending plans.

However, the leaping share values also raise questions about whether investors may be getting ahead of themselves. Continue Reading →

Moody’s base metals optimism rises despite seeing price fall back this year – by Henry Lazenby ( – January 19, 2017)

TORONTO ( – Market analyst and ratings agency Moody’s Investors Service has adjusted upwards its pricing sensitivities for base metals in 2017, but says despite the recent run-up in base metal prices not being sustainable, some of the positive sentiment will remain.

Moody’s said Wednesday it expected the market to be more volatile than usual, based on continued high trading activity, as traders and investors responded to changing market sentiment on growth expectations.

Metal prices have risen in response to stimulus spending in China and expectations that the incoming US Presidential administration under Donald Trump will increase infrastructure spending. Continue Reading →

Mining’s Next Big Boom – by David Fickling (Bloomberg News – January 11, 2017)

Here’s something to give a fresh shot in the arm to copper, the second-best-performing base metal over the past three months: the prospect of strike action at its biggest pit.

Management at BHP Billiton Ltd.-run Escondida in Chile have rejected union demands for a 7 percent pay rise and 25 million peso ($37,300) bonus, and talks are ongoing ahead of a vote by workers on a final proposal Jan. 24, Bloomberg News reported Wednesday.

As Gadfly argued in September, the risk of industrial action is one of the major supply-side factors supporting copper at the moment. Escondida accounted for about 1.2 million metric tons of mined copper in 2015, so any stoppage could sharply tighten a market that Bloomberg Intelligence estimates will see a 453,000-ton surplus this year. Continue Reading →

COLUMN-Funds keep the faith with the base metals turnaround story – by Andy Home (Reuters U.S. – January 11, 2017)

LONDON, Jan 11, 2017 – This time last year the base metals complex was all doom and gloom. The London Metal Exchange (LME) index of prices touched 2,049 in January 2016, its lowest reading since the dark days of January 2009, when the world seemed to be spiralling into full-blown depression.

China came to the rescue then and it came to the rescue again last year, Beijing policymakers once again pumping money down the twin metals-intensive channels of infrastructure and construction to reinvigorate economic growth. The LME index has since recovered to 2,768. True, performance has been mixed, largely reflecting each individual metal’s supply dynamics.

But the worst seems to be over for base metals prices, with more upside to come. That, at least, is what fund managers are betting on. There was some marginal reduction in fund positions over the course of December but the money men appear to be largely keeping the faith with the broader turnaround story. Continue Reading →

Don’t count mining shares out yet – by Ian McGugan (Globe and Mail – January 11, 2017)

Mining shares aren’t the dirt-cheap bargains they were a year ago, but still have room to rise in 2017. A pick up in global growth coupled with less in the way of new production should support metal prices this year, observers say.

While nobody sees stock-price gains to match last year – when Barrick Gold Corp. doubled, Glencore PLC tripled and Teck Resources Ltd. quintupled – the sector still seems reasonably priced and could benefit from factors ranging from Trumponomics to momentum trading.

“We think 2017 should be a positive year for miners,” Jatinder Goel and other Citigroup analysts wrote in a report this week. “We believe most commodities are moving up the recovery curve,” concurred David Gagliano and his team at Bank of Montreal. Continue Reading →

2017 to be a positive year for mining sector following strong 2016: Citi analysts – by Sunny Freeman (Financial Post – January 10, 2017)

The mining sector will enjoy a positive year of growth in 2017 following a strong performance in 2016, an industry analysis by Citi suggested Monday.

Mining stocks will have a strong 2017, thanks to industry-wide trends toward increased free cash flow, upward earnings momentum and the potential to return excess capital to shareholders, Citi said.

However, it added, they are unlikely to see the same percentage increases in share prices as they did in 2016. The odds of mining overperforming the rest of the market are weak. Last year’s strong mining and commodities performance follows five straight years of underperformance. Continue Reading →