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Addressing distress in the mining industry
Between a rock and a hard place
Commodity prices are hitting new levels of volatility, with many dropping to significantly lower levels than witnessed over the past few years. Demand fundamentals, while still forecast to remain strong over time, have stuttered in recent months, particularly as China comes off its ultra-high growth rates. Resource nationalism has resurged in mining jurisdictions around the world, as governments continue to raise tax and royalty rates aimed at the industry. And through it all, costs continue to escalate.
As a result, share prices are suffering, companies are taking massive impairments, executive management is being replaced, boards are increasingly leery and regulators have become more vigilant. Conditions in the industry have deteriorated in response; marginal mines are being shuttered, development projects are being re-sequenced and deferred, and some distressed companies are even entering into formal restructuring proceedings.
The ramifications of inaction can be fatal. With global operations, immense capital expenditures and extremely long time horizons, mining companies are too complex to turn on a dime. Failure to actively consider all available options or pursue opportunities to staunch current losses now could hamper not only future productivity and profitability, but even long-term operational viability.