The mining industry is facing a lot of negative factors, they are squeezing revenue, reduce cash flow and force corporate management team to make more difficult choices. Fears that the soaring demand for investment due to insufficient supply is limited, pushing up commodity prices such as copper, coal and iron ore, the so-called "super-cycle" is to come to an end.
"The bull market can not last forever"
"Bull market can not last forever," said Managing Director of Accenture Mining Rachel Bartels, "but the underlying demand for commodities will not disappear in China and India is not yet complete urbanization, Africa and even not yet started process. "
However, the challenges faced by the mining enterprises and even a year ago. Chaoda Group (Xstrata), Anglo American and Eurasian Natural Resources Corporation (ENRC), including mining companies this year to cut the growth project expenditures, many companies also promised to evaluate the plans for the future.
Six months ago, the (mining companies) like the Bulls stormed out of the gate, comparison and who want to be able to spend more money, "Deutsche Bank stock analyst Rob Clifford said," Today, they cautious. "
Miners unable to meet the cash flow in the first half of the capital expenditures and dividend payments. Debt levels in the industry is expected to continue to rise.
Clifford said the miner is entering a downturn phase, but at this time continued to maintain a strong balance sheet, expected debt will continue to increase in the second half of this year. He said: "However, slightly faster than expected."
UBS (UBS) analyst Myles Allsop said: "In the current uncertain macroeconomic environment, we expected to see that investors will favor more defensive diversified enterprise, rather than single commodity group. "
Despite the difficult road ahead, but several of the largest Mining Group by the first half of this year increased dividends, while the the poor Kazakh Copper Group diversified firms reduced dividends.
Control their own costs
Recent iron ore price collapse sparked fears of the market, Rio Tinto and Vale do Rio Doce, the two companies are highly dependent on the iron ore business. In the past three months, iron ore prices fell by about a quarter.
But analysts pointed out that the low-cost operators Rio Tinto in the Pilbara region, Western Australia, will provide protection in the case of iron ore prices fell further.
The recent mining companies a good news is that the momentum of its rapid rise in the cost of production seems to be weakening. Rising costs eroded profits and push up the cost of the development of large-scale projects of the mining enterprises. With the slowdown in input prices rising trend of oil, rubber and chemicals, Anglo American production costs in the second half of the year is expected to rise by about 2%, less than 4% in the first half of this year and 8% in 2011.
Allsop said: "slowdown due to rising raw material prices, the mining company's self-help measures come into play, we really felt that the trend of rising costs has now slowed down." He said self-help measures to staff reductions as well as shutting down The higher cost of production of the mine.
The cost of labor is also a problem, experienced engineers and operator sustained shortage. Workers in the labor market in countries such as South Africa, Australia and Kazakhstan, also require raising the level of wages. Bartels, management's ability to control costs will become increasingly important in view of future mineral prices will be under pressure. She said: "Mining Group may not be able to control their own income, but they are able to control their own costs."
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