2016 in mining - Chinese demand and government intervention
2016 has been an unpredictable year for the mining industry. Mining equities have gone full circle from market pariahs to market darlings and government intervention, namely the changing mining policies, have hugely affected the mining sector.
International specialist banking and asset management group Investec, in its Sector Review note, has admitted the “largely unpredictable” year with mining companies now on a more certain financial footing but has stressed that due to developed market players such as Japan and Europe still struggling, it does not mean that the global market is returning to a cyclical upturn.
Here’s what we learned from the report:
- China is growing more and more in stature as one of if not the largest consumer and producer of several commodities, shifting the centre of “price discovery” away from Western markets
- With this in mind, Investec expected something of a rally for companies to increase supply, but the industry has remained disciplined. The report cites the recent announcement that Vale’s S22D project will be scaled up to full production at a must slower timetable than originally indicated.
- The cause of China’s increasing growth has come from direct intervention from Chinese government to stimulate their economy, especially in the residential construction sector. This of course has naturally changed the outlook of the mining sector, for example, the price of thermal and coking coal surged
- Looking around the industry, the nickel industry has been impacted heavily by the Government bans on Philippine mining, the stockpiling of Palladium in Russia is believed to be responsible for the strength in the price of the commodity
- In the UK, the Brexit vote has played its part on the mining industry. The weaker Sterling has created a higher demand from companies with US$ earnings
When the clock strikes five:
With commodity prices rising, there has been a revived interest from investors. As mining companies have recapitalised and repaired strained balance sheets, investors are suddenly seeing the brighter side to sector investment again. As a result of this, the Investec Mining Clock now sits at 5 o’clock, which recognises the unpredictable 2016 and extreme volatility resulting in an increased difficulty for mining companies and long term planning.
Investec specifically highlights Anglo American’s plans to divest coal and Glencore’s coal hedging, which was announced just before we saw a surge in coal prices.
It is this volatility, that Investec cites as the reason to remain cautious of calling the current market a cyclical upswing.
The Investec Mining Clock is designed to ullustrate the mining cycle, providing key information on when to buy and when to sell.
You can read the full note here.
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Vale invests $150mn to extend life of Manitoba operations
Vale has announced a $150mn CAD investment to extend current mining activities in Thompson, Manitoba by 10 years while aggressive exploration drilling of known orebodies holds the promise of mining well past 2040.
Global energy transition is boosting the market for nickel
The Thompson Mine Expansion is a two-phase project. The announcement represents Phase 1 and includes critical infrastructure such as new ventilation raises and fans, increased backfill capacity and additional power distribution. The changes are forecast to improve current production by 30%.
“This is the largest single investment we have made in our Thompson operations in the past two decades,” said Mark Travers, Executive Vice-President for Base Metals with Vale. “It is significant news for our employees, for the Thompson community and for the Province of Manitoba.
“The global movement to electric vehicles, renewable energies and carbon reduction has shone a welcome spotlight on nickel – positioning the metal we mine as a key contributor to a greener future and boosting world demand. We are proud that Thompson can be part of that future and part of the low carbon solution.”
Vale continues drilling program at Manitoba
Coupled with today’s announcement, Vale is continuing an extensive drilling program to further define known orebodies and search for new mineralization.
“This $150mn investment is just one part of our ambitious Thompson turnaround story. It is an indicator of our confidence in a long future for the Thompson operations,” added Dino Otranto, Chief Operating Officer for Vale’s North Atlantic Base Metals operations.
“Active collaboration between our design team, technical services, USW Local 6166, and our entire Thompson workforce has delivered a safe, efficient and fit-for-purpose plan that will enable us to extract the Thompson nickel resources for many years to come.”
The Thompson orebody was first discovered in 1956 by Vale (then known as Inco) following the adoption of new exploration technology and the largest exploration program to-date in the company’s history. Mining of the Thompson orebody began in 1961.
“We see the lighting of a path forward to a sustainable and prosperous future for Vale Base Metals in Manitoba,” said Gary Annett, General Manager of Vale’s Manitoba Operations.