This page has been archived and commenting is disabled.
Miners Buried In Billions Of Debt After "Colossal Misjudgment Of Demand"
If one had to craft a narrative around the state of the global economic “recovery”, it might go something like this. Wildly optimistic assumptions about the sustainability of China’s torrid economic growth (and the voracious demand for raw materials which accompanied it), led to overbuilding and oversupply in the lead up to the crisis. In the aftermath of 2008, not only have multiple rounds of central bank money printing failed to provide a meaningful boost to aggregate demand, but global trade has also been hampered by China’s transition from an investment-led, smokestack economy to a model driven by consumption and services.
As Goldman put it in May, "there are no other markets large and/or dynamic enough to offset a slowdown in China in the foreseeable future, and we forecast trade volumes to stabilize in the period to 2018." This has been bad news for commodities as the following chart makes abundantly clear:
It’s also bad news for the global mining industry which, as WSJ reports, borrowed “heavily” in anticipation of neverending Chinese demand. Here’s more:
As forecasts predicting endless growth in China’s appetite for raw materials became a matter of industry faith, mining companies borrowed extensively to build networks of pits, railway lines and port terminals. Megadeals abounded as a merger-and-acquisition frenzy took hold. Cheap borrowing costs, thanks to low global interest rates, fueled the splurge.
Now, as China’s hunger for resources ebbs and mining companies' profits suffer amid falling commodity prices, those debts have become an albatross around the industry’s neck.
Amid a slump in Chinese share prices last week, metals such as copper and aluminum fell to near six-year lows. Iron ore at one point hit its weakest level for a decade.
"There’s been a colossal misjudgment of future demand," said Dali Yang, professor of political science at the University of Chicago. “That long boom made it especially difficult for people to expect anything otherwise. Many bought the big story about urbanization, instead of thinking how things could go bad.”
The world’s largest mining companies by market value had accumulated nearly $200 billion in net debt by 2014, six times higher than a decade ago, according to consultancy EY, while their earnings only increased roughly two-and-a-half times. Large mining companies have written off roughly 90% of all the acquisitions they made since 2007, according to Citigroup Inc.
Even if top mining companies devoted all their earnings less investment spending to paying down debt, it would take up to a decade to clear the decks, according to a Wall Street Journal analysis of EY data.
Mining companies cut big project spending recently, but many still face the decision to reduce dividends to shareholders, or borrow more to keep funding high payouts, risking downgrades to their credit ratings that would drive up interest costs—even as they still need to spend to shore up aging mines. "Something has to give," said EY’s global mining leader, Mike Elliott.
An old-fashioned gold-rush mentality underpinned the mining sector’s debt binge. The logic was simple. As China’s economy grew, and more Chinese people moved from villages to cities, the country would need ever-increasing amounts of metals—particularly the steelmaking ingredient iron ore—to build homes, office buildings and other infrastructure.
"Analysts are popularly criticized for ?thesis creep, the incremental mutation of a call’s drivers over time, such that it’s not really clear that the original call was just plain wrong,” said Morgan Stanley mining analyst Tom Price. “I suspect the same thing’s happened here with the Big Mining’s view on China’s iron ore."
This serves as still more evidence of how central bank policy, ostensibly designed to stoke inflation and save the world from a brush with the deflationary boogeyman, has ironically served to perpetuate the global deflationary supply glut, a dynamic we've outlined on a number of occasions this year, but which found perhaps its most unequivocal expression in "When QE Leads To Deflation: A Look At The Confounding Global Supply Glut." Here's what we said in April:
Those who have access to easy money overproduce but unfortunately, they do not witness a comparable increase in demand from those to whom the direct benefits of ultra accommodative policies do not immediately accrue. Meanwhile, governments are reluctant to spend in the face of heavy debt burdens and increased scrutiny on fiscal policy in the wake of the European debt crisis while China, that all important source of voracious demand, is in the midst of executing the dreaded “hard landing.
Rock-bottom borrowing costs and easy access to capital markets made possible by accommodative central bank policies tempt insolvent producers to keep producing, contributing to their own demise by driving prices even lower, a vicious circle which creates Matt King's dreaded "zombie companies":
And finally, in an effort to connect all the dots, we'll close with the following from Credit Suisse, who notes that another theme we've been keen to emphasize lately is in fact serving to exacerbate sluggish demand for the world's commodities surplus:
Three years on from commodity price peaks and we are still searching for the floor in bulks pricing, let alone any recovery. This is not the usual bust after a mining boom, but the down-half of the supercycle. Rather than a couple of excess mines, the entire iron ore and coal sectors are geared towards growth that has gone missing. For the rest of the metals, with China's demand drive cooling, we have to return to looking at global growth. Unfortunately, money supply is contracting, with governments running austerity budgets and corporates returning cash to investors. Commodity consumption cannot grow when investment is spurned.
»
- 48905 reads
- Printer-friendly version
- Send to friend
- advertisements -
Miners gotta mine. Take out some debt and hope your product is bought at a good price.
Miners don't gotta mine. One day the producers will quit selling or form a cartel of their own, like bankers, big oil and pharma. When miners decide to quit giving their shit away- things will get interesting.
Things would, indeed, become interesting in such a scenario.
Nailguns are to Bankers as ________ are to Miners.
Bankers are to miners?
As the Comex is to miners?
As the BS CFTC is to miners?
As Gary Gensler is to miners?
As Vidal Sassoon is to Bart Chilton?
Maybe Ford is helping to prop up that Aluminum price. A little. Kinda.
And what is past is prologue...
The essentials...mining...metals...farming...agriculture...they are what the future needs and what the future will be.
All this shit that's been fucked up by the psychos and sociopaths in charge...they don't have a fucking clue how bad they've fucked up the planet.
But those who do know about the essentials...the food, the farming, the mining, the precious metals...those who see how the entire fucked up system is eating itself and imploding in on itself and who are stacking phyzz and supplies in order to HOPEFULLY make it through past the great monetary collapse and reset...
They will hopefully make it.
All others will be totally, seriously, utterly, catastrophically...........fucked.
Who the fuck are you going to be?
I'm a miner (well, corporate controller). We mine rock and make ready mix cement. We're in our annual upswing and we've recovered to $38 million since our 2006 $65 million. This fiscal year (March) I think we're going to hit the $40 million mark. That is ten years going by from where we were to where we are. Still $25 million below what we were doing.
Now, we're not mining gold or silver (though I suspect our Mining Exec sifts through the rubble), but I can tell you that we suffered a tremendous drop in 2007 and 2008. I (We) foresaw this and took steps...paying off all debt, reducing hourly workers to 35 hours per week, no bonuses, not one raise until 2012, a hiring freeze...we went from 500 employees to 150.
We pulled our belts extra tight and gave ourselves wedgies to remind us to keep expenses down.
Last year we actually went into debt for $8 million, acquiring multiple locations from a competitor. One of which was the first to generate over $1 million in sales in one month last month. I'm not comfortable with the debt, but we're getting ridiculously low interest rates. The $6 million was at 3%, we've bought a couple pieces of equipment (another $6 million) at ZERO FUCKING PERCENT.
I don't know how banking is going to survive ZERO FUCKING PERCENT interest, but I have a feeling that a shitload of us are going to wind up paying for these sort of loans...for the rest of our lives. And it won't be too much longer. Our rates are fixed, but I' thinking we're going to see a hell of a hike in banking fees, overcharge costs and, ultimately, monster haircuts.
I've seriously asked the President of our family run business to consider opening twenty or thirty new accounts across all the banks available to spread company cash lower than $100k per bank. We have the internet to do treasury management and a host of other options. So far, though, they don't want to hear it. One bank has everything and, even though it's owned by China, it's still one I monitor every day.
I really don't like the idea that our payroll is controlled, ultimately, by one bank holding all the cards. This just chaffs my ass.
On a personal note, I've been buying remimbi's at $50/$100 a time. Since 2004 I'm a remembi thousandairre. On top of the gold/silver. I don't know what is going to predominate, so I dabble in all (considering rubles, lately).
Im going to be the Militia captian who runs the area.
why can't the mine's just start selling paper metal...it's a lot easier.
dynamites
Nailguns are to Bankers as ETF's are to Miners.
When miners decide to quit giving their shit away- things will get interesting.
Miners are owned lock stock and barrel by the banks. The managers have had a good time loading up on debt and paying themselves exorbitant bonuses / ridic stock options etc. while spending like drunken sailors but reality is coming.
http://www.forbes.com/sites/timtreadgold/2015/01/27/threat-of-a-credit-d...
Yet Rio is on the verge of paying dividends via debt lol
Might be good for silver prices though.
When you can conjure paper trinkets which, magically vary in nominal terms, are borrowed into existence (in an endless cycle of debt/debasement) and can coerce the world to accept those paper trinkets at gunpoint, buying up the competition is trivial.
Strange how nothing of true value is worth a shit anymore.........
i took a handful of copper and a hanful of fiat to a bank to secure a loan... to a store to buy a car...
the copper might as well had been gravel rocks, for all the 'true' value it had. true value is relative.
I hear ya. Couple years ago I fell out of a boat, my wallet in my pocket. Lucky for me though, I got to shore and lay out all my paper dollars on the deck. I let them dry, nice and flat. And wouldn't ya know it.... PRESTO, value restored.
I went to the store and bought a 26 of JD, downed it, woke up hung over like crazy, puked up my lucky charms, then went looking for my boat.
Them FRN's are really valuable, even over the long term. I mean, under water means nothing. Thank you Mr. Yellen!
Whaddyaa mean you don't want a trillion in MBS's or a hundred billion in CDO's Squared!
C'mon! Don't be a Party Pooper!
Everybody is doing it!
how about miners of money?
There is very little debt in the gold/silver mining sector. Its sort of the red headed step child of the base metals mining sector. Which means that it is largely immune to these issues, and should behave positively during a generalized deflation. Much like the 1930s.
Well...certainly "market discipline" is being enforced on the like of ABX...certainly wouldn't call them "debt free" though.
Got watch out for "asteroid mining" now too...and yes "that is refined product" unlike the "raw ore producers."
Another good article missing an important point though..namely China itself is a major commodity producer.
Certainly if you've been trading Aussie Dollar you know that now...in particular coal.
The irony which is VERY well presented here is that "Quantitative Easing" actually SUBTRACTS from demand as Japan which invented QE discovered "to it's dismay."
In short...."nothing beats hard money."
American Coinage is the best...ironically probably since Ancient Greece.
Ancient Greek coins have been found as far away as the Phillipines so I am told.
"And you don't just move coinage"...especially gold which is VERY heavy.
Funny that this site thinks counterfeit gold would be anything other than lead. Real gold is very soft...LIKE THE WAY I TYPE!!!!!
As in "YOU JUST PAID A MILLION DOLLARS FOR FUCKING TEN POUNDS OF LEAD!??!!!!"...
"Something quite interesting took place on Friday last week. The U.S. Mint updated its figures showing sales of its Gold Eagles surged to a level not seen for more than a year. Sales of Gold Eagles have been strong ever since the financial turmoil in Europe increased significantly with the threat of a Greek Exit.
Sales of Gold Eagles increased from 21,500 oz in May to 76,000 oz in June due to investor’s concern on the financial fallout of a Greek Exit. However, this was nothing compared to Gold Eagle buying during the remaining days of last week. When the U.S. Mint updated their figures on Monday, July 6th, Gold Eagle sales jumped to 21,500 oz… the same amount sold during the entire month of May. Over the next few days and after the suspension of Silver Eagle sales, Gold Eagle sales reached a total of 30,500 oz. Then on Friday, the updated their figures to a stunning 65,500 oz. In just the past few days, 35,000 oz of Gold Eagles were sold:"
http://srsroccoreport.com/gold-eagle-sales-surge-on-financial-turmoil/go...
hee, hee.....there's demand alright...in REAL MONEY that is....
Yes, you brought up a good point. The manipulated market pushed margins so low for precious metal mining, only the strongest companies managed to stick around. Any bad or excessive investment in gold, platinum, or silver have been weeded out, more than free market forces would dictate. If the manipulated markets disappear, they are set for major gains.
How about miners of credit?
How about miners for a heart of gold.........?
Neil Young - Heart of Gold/Lyrics (Full HD)How about hookers with hearts of gold?
https://www.youtube.com/watch?v=udkqfsJbrlY&feature=player_detailpage#t=56
Zion's banksters have inundated them with fiat debt, which is wealth stolen from the people, and now can seize the assets for nothing, as the fiat debt was "printed." Ditto the small oil and fracking firms.
The only way out of Zion's trap is a firm and hardy "No!," backed by guillotines.
Liberty is a demand. Tyranny is submission..
What is Zion: "Zionism is a fifth-column system of organized plunder that operates on a national and international level via fraudulent-reserve banks, dependent governments, and connected and derivative firms."
I would expect horse shit like this from the squid. They're a paper pushing bank afterall.
When the Central banks go even moar "full retard" printing, we'll see how cheap commodities are then.
+1 Yen. I notice that my preorder of the latest silver ATB coins is suspiciously not being shipped after last week's whack on silver. I swear that my timing is off as I seem to be buying RIGHT BEFORE THE FUCKING DIP lately. That is OK. I am holding. I want delivery though. Come on folks let's go here will ya?
Australia may see some ripple from this....
Australian housing market facing 'bloodbath' collapse: economistshttp://www.smh.com.au/federal-politics/political-news/australian-housing...
Taint pretty in Canada so I'm told as well.
Talk about a metallurgists paradise. "Nothing beats Canada" and in particular Quebec which has dirt cheap energy.
Be interesting to see if Bombardier goes bankrupt here actualy. Talk about being able to mint money.
Interesting and odd that GE is looking to France when they could be looking towards Quebec. Bombardier makes everything...an "industrialists dream come true."
No taint is pretty.
Problem with BBD is they're mismanaged as fuck, and pretty much controlled (still) by the founding family.
It is my belief that the Ukraine fiasco was about the elimination of Ukrainian mining and metalurgy by conflict in the Donbass region. The high grade coal that would be stopped would make the rest of the Ukrainian ferro-metal industry collapes, but that still lefyt the raw product to be availed to those industries that may require it. Note that titanium has gone up significantly since the events of last September, the fighting round Donetsk Airport and the retreat from Slayvansk.
Unfortunately, this reduction in production didn't avail to much, as the production repreive from the Ukraine was to small relative to the over production that was going on world wide. The market has to much elasticity and ability to over-produce, unlike the precieved grain markets, but that may be chalanged, as in the US over 40% of the corn (maize) is used to produce additive to fuel; gasoline.
2008 Cement production basically ceased in the US. We've been buying from inventory stockpiles up until now. Cement price jumped from $70 to $80 last month. Shit's stirring.
oh so you mean nobody wants to buy some stupid useless metal, not just at 16$ cause that is 5x the price it was a few years ago but really at any price because they just don't give a shit about it. See this. Whats it gonna do sit there and look nice? The face value if you pay the ~4$ premium for an actual US issued silver currency is only one dollar. So you pay about a four dollar markup on a coin worth one dollar at walmart, a coin mind you which costs in 19-20$ to obtain today. Yea sure, sign me up for 100...
The last "run on actual coinage" was World War II.
In theory you could get that in the USA because refining is so cheap.
Plus you have "SpaceX."
Talk about giving a "Bulker" a headache. No wonder no one wants that North Dakota oil and natural gas to end up in Duluth. Those are thousand footling ore ships.
Build a REFINERY there...
+1 but you can't build anything in Minnesota because it is not allowed here anymore. I still live here for some reason.
Diehard Vikings fan afraid of being laughed at, perhaps?
As soon as they start winning again, you are free to leave with your pride intact.
SpaceX
Getting weekly checks from "The SpaceShip Company" still gives me a Star Trek hard on.
Well, the paper dollar, issued in 1863, is now worth only about 11 cents. I'll take the metal.
TRNE, so what did you buy and sell today then? Much like every other troll, you didn't tell what you bought and sold for paper profit today. That would be because you didn't buy or sell anything today and really never have. My question for you is this: Why do you care what I buy? What do you buy?
And yes, it does just sit there and look pretty kind of like my motorcycle collection and gun collection and ammo collection. At least I know where it all is. You not so much. And for your bio, you can forget the "premium salesman" bullshit. You have never sold anything in your life. I have. End of story.
Imagine for a moment there are no central banks artificially maintaining ridiculously low interest rates, and rational lenders are free to assess risks and set appropriate rates for borrowing in the various markets - but constrained by serious cash reserve requirements. Further assume there is nothing TBTF, no derivatives that allow risk to be dumped, and hedges only on currency exchange fluctuations.
OK, OK. But for that one brief moment...
Yep. A lot of things could have been done right. 20% down on real estate. Keep transferable mortagages. No free dole money without work. No more public money after kid #1. 15% bank reserve requirements. Loans on credit like credit cards off the balance sheets as assets. No no no to the repeal of Glass-Steagall. Metal back behind our currency, even if just 20%. Sigh. Now we're looking into a gaping hole. We never had to get there so soon. Well everyone, take a deep breath...
'I've been a miner for a heart of gold'...
Have you been to Hollywood? Have you been to Redwood? Did you cross the ocean for a heart of gold?
Lucky Mom. Made it through some tough times in the depression down south. No shoes to wear, or shoes that didn't fit. Screwed up her feet. Then she lived through some of the most prosperous times the US would ever see. Died two months before Obama was inaugurated.
Sorry for your loss, happy for her gain.
My mom lost all her teeth in the depression, no money for dentists or to pull them, was all done at home after feeding her a shitload of bourbon at 13.
Dad says he was so hungry school chalk smelled like food and he'd pass out everytime something was written on the board. His best memory is going into a huge building the Salvation Army ran and getting new shoes, pants, and a belt. And they gave him a sandwich,,,he describes it as "a big fucking sandwich with ham, lettuce, cheese, mayonnaise, and mustard...it was the only thing I ate that week."
I'm thinking our kids and grandkids are going to experience my dad's childhood. I'm so sorry for that.
there hasn't been as much a "colossal misjudgement of demand" as there has been a "colossal COLLAPSE of demand".
misjudgements and excess expectations do play their part, but it's the demand-side collapse that nobody, especially none of the banks, would ever look at or talk about.
DEMAND COLLAPSE is what we have, beating on "excess supply" is simply misdirection and obfuscating the rea issue.
Francisco D'Anconia, you magnificent basterd!
The best line in the article is about the consequences of central planners. In general, this is a consequence of fake numbers as in fake, stock prices, employment numbers, fake bond prices and generally fake economic data. Companies have to act on it and try to read the tea leaves.
Chinese and American stock markets reached record highs. Unemployment is around the historical minimum of 5%, right? Money is cheap.
It's all crap and eventually the real economy with real values will have to be discovered.
Since most silver production is a by product of other metals mining this is extremely bullish for silver. Yet...the price falls.
I'm all for the price falling. I'm loading up on dry powder and ready to spring.
What a perfect example of the Austrian business cycle in the face of cheap rates in action.
You don't think that this was part of the plan of the big banks to cripple China? ... then you are delusional. What country has more mining and more collateral tied up in metal commodities than China? If you guessed "none" then you are correct.
Slowing manufacturing demand, a real estate reversal, killing the commodity sector though price manipulation and then attempting to kill the Chinese stock market bubble... all to make China weaker ... much weaker.
This is not the work of governments. This is the work of the banks... in collusion.
True...but all I can say is wait for the counter strike. We screwed Russia, now we are trying to screw China....oh yeah, they are going to hit back in a big way.
This year I'm mostly mining tomatoes, peppers, potatoes and corn.
With Colorado having received more than double its average rainfall already this year, I'm hoping for the Mother Lode.
I'm in California, bracing for floods. El Nino is on the way and this draught shit is pretty much a goner.
Planting anything in my desert is a no go unless there's a shitload of irrigation, which I lack.
Tried to grow tobacco, but the water gets leeched out too fast. Haven't tried veggies, but watched neighbors make the attempt...just can't keep the ground wet enough in the summer.
We DO grow some tremendous wild gourds, though. And jimson weed (locoweed), that shit is everywhere!
BTW, don't touch locoweed, you can get very, very sick...and have LSD hallucinogens as a result. (Many year poker of locoweed)
I'd try to harvest jimson weed for idiots, but can't risk touching the stuff. The sap alone will fuck you up.
What about rare earths? map those out per corp...it might give you a better idea of where they are making money.
No mention in this article of the biggest commodity of all...OIL!
With China in contraction there will be no growth for any of the wanna-be's.
Miners of Uranium seem to have increasing demand...
"There’s been a colossal misjudgment of future demand,"
jee, I wonder if the Austrian bussines cycle theorie could link that misjudgement to money printing and low interest rates, which gives entrepeneurs a wrong idea about consumers massively saving and future pent up demand from those savings resulting in a distortion of the structure of production.
"corporates returning cash to investors" SAY WHAT??? In what universe is that happening? No, corporates are busy using that same cheap cash that is now sinking the mining industries to buy back their own stock, which artificially raises the price and volume, making the market go higher with absolutely NO real support. When this game of musical chairs ends, it is going to be UGLY. Stand by for the government (meaning you and I) to bail out major corporations again/next. But do not worry, those "corporates" will still be getting thier multi-million dollar bonuses.
Isn't Rio Tinto a Rothschild's company or did they sell it to the marks?