MAC: Mines and Communities

London Calling 2012: Not much going for Gold

Published by MAC on 2012-08-13
Source: Nostromo Research (2012-08-10)

As night follows day, so "natural resources" investors tail-gate the fortunes of the world's most important mining companies.

As many of them report their largely poor first-half results for 2012, it's no surprise that London-based companies still remain ahead of most competitors.

However, their performances have hardly been of Olympian proportions.

According to Mineweb (8 August 2012), "few mining company stocks have ever got back to their peaks prior to the mega-crash of Q3 2008...as the global recession has bitten and commodity prices have, for the most part, been hit hard, the biggest global mining companies have seen their stock prices, and market capitalisations fall."

On average these so-called "marcaps" are around 30% below previous highs.

Among the global  Top Ten mining giants, Canada's potash miner PotashCorp is now stronger in the market than the world's number one gold producer, Barrick Gold, and copper-gold miner Freeport Mac Moran.

However, says Mineweb,"the differentials between some of the bigger ones have narrowed - in particular between Rio Tinto and Vale."

It's not hard to see that Rio Tinto - with plans to massively expand iron ore mining in Australia - may soon bolt ahead of the Brazilian company, and come in just behind BHP Billiton,  the world's leading corporate miner .

Resources Race

Here's where contenders currently line up for the resource races ahead:

BHP Billiton (listed in Australia and Great Britain), followed by Vale; Rio Tinto (listed in the UK and Australia); Anglo American (a pure "Team GB"); and Xstrata (based in London and dual-listed in the UK and Switzerland).

Meanwhile, the shine has come off gold.

Barrick and Goldcorp, says Mineweb, have "seen their stocks suffery...Of the other top gold miners, Newcrest and Newmont both come in just below the top 10 global miners of all types."

The world's leading mining e-weekly tries putting an optimistic spin on such lacklustre performances, commenting: "Even so, the overall market situation, coupled with [the companies] strong balance sheets and cash generation abilities, does give them some great opportunities to build at the expense of those further down in the pecking order."

But just how realistic is it that there will be a flurry of mergers and acquisitions (M&As) in the near-future? 

After all, there's increasing shareholder pressure on companies to return more profits to their own investor pockets, rather than splurge surplus cash on gobbling-up smaller runners in the field.

Mineweb admits:"With the global slowdown not showing any real signs of improvement, prices may continue to suffer until the markets, and commodity prices, begin to see something of a sustained upturn."

Nonetheless, "as weaker stock and commodity prices begin to adversely affect new mine developments and existing mine expansions, there is definitely the prospect that anticipated supply growth will not materialise" .

It's anyone's guess as to whether the medal winners of this year's Olympic games will triumph at Rio de Janeiro in 2016.

Nor should we place firm bets on which of today's leading mining companies will climb the podium in four years' time.

Or even which of them may still be in the running.

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