Mine: When the going gets tough

Review of global trends in the mining industry 2009

In the sixth addition of Mine, we discuss global trends in the mining industry based on an analysis of the financial performance and position of the global mining industry as represented by the largest top 40 mining companies by market capitalisation. Mining companies benefitted from strong commodity prices in early 2008, but the year was clearly divided into two parts, with the good times quickly turning bad as the global economic crisis took hold in the last quarter and commodity prices went into freefall.

The short-term outlook for mining looks bleak, and without management intervention margins will be quickly eroded. Market capitalisation of the top 40 mining companies decreased by 62 percent compared to the S&P 500 which declined by 38 percent over the same period, as shareholders lost confidence and share prices plunged. The full effect of the downturn is not evident in the 2008 financial information, however first quarter releases of a number of companies report significantly reduced profits and in some cases operating losses. There is no doubt that the industry is facing tougher times, and steering a path through this downturn will require tough decisions from the leaders of the top 40.

In a special section called View from the top, we explore the challenges facing the leading CEOs. Our discussions highlighted that the conditions have created two kinds of companies; the ‘haves’ and the ‘have nots’, and actions will depend on which type of company the CEO is leading. Keys to managing in the current environment are having a motivated and experienced team, determining ways to reward and retain the most motivated people, making proper investments in capital, the ability to turn the cost tap on and off quickly may be the difference between success and failure, and maintaining the ability to be transparent.

Most indicators point toward a tough period for the industry as the short-term issues dominate the agenda. Success in the long-term will depend on how the mining industry reacts when the going gets tough.