Efficiency and Rationing will Increase in Mining Investments

As global economies come under increasing changes, industries are impacted in their future investment profiles. Emerson’s Juan Carlos Bravo, a member of the metals and mining industry team, highlights changes in Australia and how the mining industry is responding to these changes.

Emerson's Juan Carlos BravoYou may have have heard the news that mining boom in Australia is coming to an end, and most of it is due to cooling Chinese economic growth. But there are many factors that contribute to the cool down of the mining business in Australia and some of these are explain in the article, “BHP: Mining Boom Was Not Going to Last Forever“.

In this article Jacques Nasser Chairman of BHP explains how they are putting more attention to where they are investing. In the past decade, mining companies enjoyed higher commodity pricing and the goal was to bring new production online and maximize production as quickly as possible. Now mining companies are focusing on efficiencies and rationing, in terms of where they put their dollars.

He also mentioned that they are looking at how governments are behaving and this is a very important part of the investment cycle. He specifically referred to what is happening in Australia and the move made by Queensland’s government to increase the royalty rate on coal production. This action is causing BHP to slowdown or stop production at some mines. Mr. Nasser said that declining prices worldwide, a strong Australian currency, and high domestic labor costs are the factors that make capital expenditures the highest in the world, and causing that some mines run into negative cash flow.

In my opinion, what we are seen in Australia is happening worldwide. Companies will move away from high taxes, high labor cost and inefficient spending. Efficiency and rationing will dominate every aspect of mining investments, either for picking a region to invest, revamping an existing mine, picking up new technology to optimize production, or hiring new people. Miners will watch every dollar they spend and will pick partners that will help them stretch that investment as far as they can.

But let’s not be pessimistic and remember that mining is cyclical and the industry might be slowing down, but the investment will continue, albeit with a more watchful eye. Therefore, whomever is able to adapt to these changes – either miners, governments, or equipment supplier – will likely succeed.

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