Is now the right time to invest in mining? A research analyst weighs in
Timing is everything. It’s a saying that can apply to a lot of situations, and finance is certainly one of them—whether you’re looking at buying and trading stocks or acquiring a property or business, the right timing is crucial. Even the smallest price fluctuation can have major consequences, and the most successful businesses are those who know exactly when to strike.
With commodity prices falling, many in the mining sector have been wondering if now is the right time to buy. To tackle that question, CNBC recently interviewed Paul Gait, senior research analyst for metals and mining at investment research firm Sanford Berstein.
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When asked if the sector has a “buy” rating at current commodity levels, Gait gave a confident yes. “We’ve maintained a buy throughout this kind of weakness,” he said, acknowledging current prices as a flaw in the industry—especially in the iron ore market—that must eventually be righted in order to avoid serious consequences down the line. “If we look at the kind of levels of cash that the mining industry typically generates, and needs to generate in order to maintain the supply of commodities that are just absolutely essential to the world’s economy, pushing prices down much further than this really starts to compromise that ability.”
In the interview CNBC also asked whether there are many potential buyers on the market looking to make acquisitions. Gait also confirmed this, pointing to acquisitions in the past couple of years including Glencore’s purchase of Rio Tinto’s Clermont Mine in 2013 and Barrick’s recent sale of 50 percent stake of its Zaldívar copper mine to Antofagasta Plc.
“I don’t think it’s a sense that there aren’t buyers for assets,” said Gait. “I think the issue is valuation, not necessarily whether or not there’s an appetite to acquire. [...] I think what there is, is that there’s a mismatch between what buyers want to pay and what sellers want to receive. So the buyers want to pay on-the-spot commodity prices, and sellers want to receive on what they think is a longer term equilibrium fair value. It’s that discrepancy that’s causing the slowdown in M&A activity generally in the sector.”
For a more detailed analysis, check out the whole interview here at CNBC.
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.