South32’s Worsley alumina refinery. Photo: South32
Mining leaders and analysts say there is more pain to come for the sector before the big miners are able to scoop up assets from their struggling competitors.
In an interview with Fairfax this week, Graham Kerr, chief executive of recent BHP Billiton spin-off South32, suggested there would be at least another six months of the sector coming to terms with the new commodity norm before top quality assets could be acquired from their distressed owners.
“Think back to the global financial crisis where a lot of people had real problems and a lot of good assets didn’t make it to the marketplace,” Kerr reportedly said.
“People want to hang on to the crown jewels. That’s the other thing that plays on our minds.
“And another thing is – I’m not sure the pain has finished.”
South32 last week announced a US$1.75bn net loss in the first half of the 2015/16 financial year, down from a net profit of US$339m over the previous six months.
Despite the loss, which came off the back of a 27% drop in revenue, Kerr assured the market he was comfortable with the company’s position.
“The continuing optimisation of our high quality operations and balance sheet has enabled us to reduce net debt by almost US$300m, despite continued weakness in commodity markets,” Kerr told the Australian, London and Japanese stock exchanges in a February 25 statement.
“Our low financial gearing and operational leverage is a powerful combination and the decisive action we are taking across our portfolio will strengthen short term cash flow.”
UBS mining analyst Glyn Lawcock, also quoted by Fairfax, seemed to agree with Kerr’s assertion that top tier assets would be hard to get, but suggested there was still space for such acquisitions.
“In the minerals space, copper is the one commodity of interest, but then it is for many,” he noted. “The prospect of getting a tier 1 asset cheap is low, but at least this time in the cycle is when we may see them available.”