Before the economic crash, the mining industry was seeing new investors – companies such as steel manufacturers that were not miners by trade were getting into the business, said Steve Ralbovsky, partner, PricewaterhouseCoopers. Ralbovsky spoke at the Valve Manufacturers Associations’ Market Outlook Workshop held in San Francisco in mid-August.
“You had hedge funds that previously invested in the minerals themselves who were buying the mining operations,” he said.
The crash brought the whole thing tumbling down so that “stocks fell deeper in mining companies than the rest of the market,” he said. At the same time, the prices of the commodities themselves also fell deeply. For example, copper was $3.50 a pound before the crash and about $1.50 afterwards. Spending in the industry that had been going on before the crash was based on the higher prices, he explained. Once the sun returned, commodity prices recovered, but the caution remained and “no one did any big deals in 2009,” Ralbovsky said.
The industry today faces a number of challenges with perhaps the biggest one political risk, he said. The mining industry is part of the “pay your fair share” movement within the sustainability push, although that movement is more common in other places in the world than here in North America, Ralbovsky said. The movement seeks to balance the benefits that using a country’s natural resources bring with the needs of undeveloped areas.
However, it’s also created areas of the world where a country is seeking high rates of compensation. For example, there are some places, such as Australia, that have created high tax rates. In Australia, a Resource Super Profit Tax of 40% was originally proposed for mining. (New negotiations are underway to bring it down to 30%). Ralbovsky said that when the tax was first announced: “I had a miner who called the office and said to me, ‘we have 10 projects we were working on, and they all stopped yesterday [the day of the announcement].’”
But even beyond where the money goes, mining faces a number of political challenges simply because it is an unpopular industry, safety issues are involved and the materials are coming out of the ground. Still, opportunities do exist. On reality is that mining is a way to build infrastructure in emerging nations since mining companies often build roads and other public facilities for remote areas, Ralbovsky said.
He advised valve companies that want to get into new parts of the world to look into local manufacturing, local marketing facilities or local partners “so you can be viewed as a local supplier.”
He also said there may be opportunities in the coal industry in the area of retrofitting for additional controls on smelters and refineries, and that companies whose customers are uranium miners “are about to get very busy” as nations turn increasingly toward nuclear for electricity generation. At the same time, U.S. coal companies are now expanding in many areas of Asia through mergers and acquisitions. In China, however, mining companies face the same constraints as other industries because of the government’s finger in the industry (most Chinese mining companies are at least partially government owned.)
FORECAST: The major players in the industry are holding pat but some may need to divest operations going forward to achieve better results. U.S. coal companies will be looking to export because of pricing and will be looking to expand in other countries as well. Business will pick up in the uranium industry.