In a two-part retrospective, we look back the mining sector in 2014. First we start with the fate of the top 100 miners \u2013 some ugly stuff here \u2013 but then turn to some more positive and perhaps underappreciated developments.<\/p>\n
It wasn\u2019t a good year to be a big miner. Ranking the top 100 mining companies by market cap near year end and tabulating their 52-week share price performance tells the ugly tale (see below). BHP Billiton, still the world\u2019s largest company, shed an astounding $31 billion or 27% of its market cap. <\/p>\n
The next seven names at the top were all losers. Rio Tinto and Glencore\u2019s share prices were off by about eight percent; Vale\u2019s dropped 41%; Anglo American\u2019s was down 10%; Norilsk\u2019s was down seven percent; Freeport\u2019s shareprice slumped 37%; and Southern Copper ended close to, but not quite, the even mark.<\/p>\n
In looking back on 2014, it\u2019s not hard to account for the share price pain of the top miners. Last year was abysmal for iron ore, oil and coal prices \u2013 chief commodities for many of the diversifieds. Meantime, investor sentiment toward the miners and their prospects seemed to reach new lows. In the past couple years, there was a great deal of shuffling in mining management reflecting shareholder unhappiness with business plans, share price returns, thin cash flow and capital expenditure blow outs.<\/p>\n
The cratering iron ore price, especially, caught many in the market off guard. Though a decline in iron ore was bound to come, BMO mining analyst Tony Robson notes in an email, \u201cmost of us were thinking late 2014 or 2015, not early\/mid 2014.\u201d <\/p>\n
And he, as others, expected a \u201csteady decline not a savage collapse\u201d. An unprecedented gulf between supply (growing) and demand (slowing) emerged in 2014, one that is by many accounts here to stay.<\/p>\n
Some analysts and mining management lambaste the diversifieds for angling to maintain market share through mine expansion. Ivan Glasenberg \u2013 chief executive of Glencore \u2013 has cut into BHP Billiton and Rio Tinto for their strategy to grow amid an iron ore glut as being ill conceived and bad for business. Likewise, analyst John Tumazos, of John Tumazos Very Independent Research, derides the business strategy.\u201cThe iron ore companies are uniquely delusional,\u201d Tumazos says. <\/p>\n
He points to clear signs that Chinese steel demand, which dominates iron ore use, is set to be lacklustre relative to supply growth for years to come. But \u201cthe guys that own 400 tonne trucks just don\u2019t want to admit it\u201d.Looking beyond iron ore, it was equally tough for some other mining sectors. The major gold miners are well off over the year, especially Barrick. The top gold miner, by production, shed some 30% over the year. Goldcorp, the top gold miner by market cap, was also in negative territory \u2013 just. And it was a similar fate for many of the other large gold miners. Newmont was down near 15%. Polyus lost five percent. And so on. If the price of gold wasn\u2019t obliterated in 2014 as in 2013, it muddled along for much of the year. This, combined with investors sceptical of growth plans by the major gold miners, undercut the gold miners.<\/p>\n
In uranium \u2013 where prices were weak until a recent bump up \u2013 it was much the same. Cameco, the leading uranium miner was down 15%. <\/p>\n
The legacy of the Fukushima disaster in Japan lingers. As David Talbot, a Dundee Capital Markets analyst, notes, it will likely take a return of Japan reactors to turn the market around. \u201cJapanese restarts will likely be largest issue,\u201d he says.<\/p>\n
\u201cGetting Japan back into operation is likely to be a strongly psychological driver \u2013 if not necessarily about real demand.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"