Mining industry’s depressed cycle only short-term, assures EPCM firm
 | Mining industry’s depressed cycle only short-term, assures EPCM firm | 34 KB | Download |
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 Preview | Hatch’s Mining and Minerals Processing Director for Africa Lister Sinclair | 3.22 MB | Download |
“The depressed cycle in which the global mining market has currently found itself in can largely be attributed to a ‘cooling off’ of the Chinese Gross Domestic Product (GDP); the European Sovereign-debt crisis and fears of a renewed global recession; low commodity prices; and the tight lending of funds by the banks to mining houses – many of whom haven’t yet recovered from the effects of the 2008 recession,” explains Sinclair.
In March 2012, China lowered its official growth rate target for 2012 by saying that it would cut its annual GDP growth target for the first time in eight years, from 8% to 7,5%. The reduction in the Chinese growth rate, which is as a result of China’s deteriorating trade with Europe and investment constraints brought on by rising public debt and inflation, will have an effect on various markets around the world, including the mining market.
China dominates the global trade in just about every commodity, including iron ore (representing 47% of world trade), copper (38% of world trade), nickel (36% of world trade), lead (44% of world trade) and zinc (41% of world trade). China’s trade growth is set to slow dramatically with a forecasted expansion of imports and exports pegged at 10% for 2012, compared to 20% in 2011.
“This ‘cooling off’ of the Chinese economy is already being felt by certain engineering, procurement and construction management (EPCM) firms as many of the mining markets rely on China to drive global growth,” explains Sinclair.
In a report published by professional services firm Deloitte titled, “Tracking the Trends 2012: The top 10 trends mining companies may face in the coming year”, commodity price volatility is highlighted as a trend that is being driven by market uncertainty. Declining U.S. domestic spending, a shaky European debt market, political instability and rising interest rates in Asia continue to take a toll on commodity prices, leading to an unprecedented level of volatility.
The report goes on to say that ongoing currency volatility and global political uncertainty is causing significant and unpredictable foreign exchange gyrations, making it difficult to contain costs in dollar terms. With significant cash at their disposal, many mining companies can absorb the effects of these increases; yet, most organisations understand that this does not represent a sustainable strategy. Sinclair points out that many mining houses are pushing ahead with project-related studies. The overall number of Front End Loaded (FEL) 4 projects coming from the mining houses has dropped dramatically, while the number of studies has increased significantly.
“Hatch Africa is currently working on a large number of studies, many of which we hope to eventually lead into execution. These projects are forecast to go into construction in the latter part of 2013,” explains Sinclair.
A large majority of the studies that Hatch is currently busy with falls within the coal, copper and iron ore sectors in the following countries: Mozambique, Zambia, Democratic Republic of Congo, Congo Brazzaville and South Africa. Surprisingly, Sinclair points out that Hatch is also currently busy with a number of platinum studies. “Despite the platinum industry grappling with depressed prices and pay-related labour disputes in South Africa, mining houses are pushing ahead with studies. They have no choice but to continue with some of their projects in order to have sustained business in the future.”
Despite a reduction in the Chinese growth rate, low commodity prices, tight lending and the European Sovereign debt crisis, the number of capital expenditure projects across the globe is mounting. The Deloitte report states this certainly is the case in the mining sector, as commodity prices continue to fluctuate and the gap between supply and demand widens. Declining assets across the sector and lower grade ores mandate investment in new development and exploration projects.
“There are currently many opportunities for mining houses to move into projects a lot quicker than what they would have been able to prior to the 2008 recession. In the next 18 months to 24 months, we will see a kick-up in the mining market, as well as another commodity boom,” concludes Sinclair.
Ends.
Notes to the Editor
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Hatch supplies process and business consulting, information technology, engineering, and project and construction management to the mining, metallurgical, energy and infrastructure industries.
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