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Green Shoots?

Green Shoots?

Last week we uncovered a short article that described ‘Green Shoots’ potentially emerging within the mining industry. We found this interesting because we’ve recently spoken with a number of friends and contacts involved in mining, geology and engineering who’ve said the same thing.

The article is below:


‘Green shoots’ finally appear in mining industry according to report

After a tough couple of years, green shoots are finally starting to show in the nation’s mining industry, according to the sixth annual Mining Business Outlook Report by Newport Consulting. 

The group recently interviewed 50 mining industry leaders, the Productivity Commission and state resource bodies to assess current trends and confidence. 

But Newport managing director David Hand said while sentiment had improved of late, it did not mean the industry was in recovery mode. 

And he said while the independent “pulse check” confirmed that the industry was starting to adjust to the tough new conditions, industry needed to now capitalise on these green shoots. 

“[There is a] slight return in confidence, which in our view is a outcome of miners accepting the commodity price conditions that they face is ongoing, but beginning to find ways to drive their businesses forward,” he suggested. 

After a “very tough” 18-24 months, virtually all of our contacts now independently believe that the market (in both resources and energy) appears to have ‘bottomed’. Are they right?

Now, this may just be biased hope for greener pastures, but the opinions were qualified by observations that more and more mining companies and explorers are looking to move forward after rebasing their cost levels. What’s more, after a prolonged period devoid of choice, the number of job opportunities ‘coming down the pipe’ has picked up noticeably in recent months.

Yes, this is a small sample, but we like stay as close as we possibly can to developing trends within sectors. You might recall our warnings on the downturn and to avoid mining services companies like the plague? Has the time come to reverse this position?

If you are seeing any similar signs of an uptick (however small) within the resources and energy sector, we would love to hear your thoughts.

Russell Muldoon is the Portfolio Manager of The Montgomery [Private] Fund. To invest with Montgomery domestically and globally, find out more.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.


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  1. Hi Russell,
    This is my experience. Having worked for 15 years in production/technical roles in mining companies, I joined mining services companies 7 years ago, designing processing plants. Having worked for three of the top engineering design companies, I was finally made redundant in January (interesting taste as I had never been made redundant in my life before). But after a couple of months I started back again with one of the engineering & design companies. I think a lot of the EPCM companies have hit the wall, although some are not doing badly. It is not boom time, like 3-7 years ago, but there may be some green shoots around. My recent company started design of a new gold plant somewhere in Europe-Middle east ( confidentiality issues here). All I can say the project cost is not small beer. There are some studies, some of which may be converted to projects. But most activities are in gold, rare earths to my knowledge. Some large iron ore projects (such as Sino Iron) are yet to deliver (many years late behind schedule and many times over budget. I suspect it will never deliver the original budget. Another wastage of Chinese government money? Also in between my recent company and having holidays, I spent some time in a small mining equipment supplier + designer. Interestingly they are busier than anyone else. But all small projects, high grade, small plants. Mining companies are choosing low capital cost options at the moment. Oh, in terms of salaries, rates, conditions; they have also come down quite a bit. A low Aussie dollar makes us much more cost effective now, in terms of hourly rates, compared to US (at least 30-35%). 7-8 years ago biggest complain was our hourly rates, but that excuse seems to have disappeared now.

    • Russell Muldoon

      Great stuff Yavuz. Thank you for sharing your insights. I too believe that the next 12-18 months will be very interesting in the EPCM space with lots either going broke or looking to move into other areas competing away returns until there’s one really big shakeout. Still an avoid.

  2. My opinion is we really haven’t had a complete capitulation yet in commodities even though they are down a large amount over the last 4 yrs.

    There has been a huge ramp up in capacity across nearly all commodities. Miners are adapting to the lower price environment by producing even more. They are reducing costs which also reduces the marginal cost of production.

    We haven’t really seen many high profile bankruptcies yet in this space either. So when we get to the depths of despair after further capacity has been taken out, then I’ll be more interested.

    • Russell Muldoon

      The cost front is interesting – whilst its easy to lower wages and stop buying the best equipment, if one believes that some mines, in order to survive at present, have not only been increasing production to sell more at lower prices, but have also been deliberately targeting the highest grade areas of their ore reserves to further lower costs per tonne (lower strip ratio), what does that do to the longer-term business economics of the mine if the prices dont recover before all of the good and easy to extract stuff is gone? Its a big gamble.

      • Excellent comment Russell, picking the eye of orebody is common these days. Because it simply delivers to the bottom line, but only in the short term. In the long term, the economics of the process / plant has to be worse. That means marginal cost of production goes up. Also compliance costs are higher these days. If you have the process plant ready but running out of ore to process and someone else next to it has the orebody proved but do not have a plant (lack of money), there may be interesting combinations in these sorts of scenarios. And it is already happening.

  3. Interesting article Russell, based on what I’m seeing I suspect you may be on to something. I’ve emailed a friend of mine who works as an engineer in the mining industry to get her thoughts (I’ll get back to you on that), but in the meantime I’ll share my own.

    Currently I follow a number of different mining companies in different stages of their life, but all have significant projects in the pipeline:
    * Northern Star has recently acquired the Hermes and Central Tanami projects which it is currently developing, plus extensive development work at their 5 operating mines. In fact while I was typing this NST released a resource and reserve upgrade of 44% and 26%, this included 8 new discoveries made in the past 12 months. NST has spent $50m on exploration in the past 12 months and intends $74m in FY16 on exploration and development.
    * Western Areas has the Cosmos project which it recently acquired from Glencore, plus the Mill Recovery Enhancement Project.
    * Sandfire Resources has the Springfield project near its existing DeGrussa mine where it’s recently been drilling the Monty target and has just started drilling at the Homer target. SFR also has a number of exploration projects which it is actively working at in SA, NT, Qld, NSW, Papua New Guinea and Montana in the USA.
    * Even the very small end of the market is starting to show signs of life, with Stavely Minerals, a tiny explorer looking for small underground deposits around Ararat, was able to successfully raise capital last year and despite falling from highs is still above its IPO price.
    * Syndicated Metals just raised some fresh capital and is almost certain to bring its Barbara JV project with CopperChem (a subsidiary of WHSP) into production in the next couple of years.
    * TNG Limited just released the feasibility study for their Mount Peake Vanadium-Titanium-Iron project, with capital costs of $970m, NPV estimate of $4.9B, an IRR of 41% and estimated life-of-mine net cashflow of $11.6B. I suspect some of these figures are a little hopeful, they are indicative that the junior and mid-tear mining sector has life returning.

    As you can see there’s plenty happening in the mining sector in Australia if you know where to look. The mid-tier is the interesting space at the moment as there’s quite a few good acquisitions from the majors and some decent exploration success. It might be too early to jump in just yet for much of the industry, but it’s definitely worth keeping your eyes peeled.

    • Russell Muldoon

      Hi Patrick, all very interesting. All of our feedback to date suggests that the market has ‘stabilised’ / ‘rebased’ expectations and an uptake in merging activity is entirely necessary to get ‘scale’, ‘quickly’ in order to survive.

      However, whilst this provides some sense of normality in the short-term, and the activity suggests a ‘bottoming’ of sorts (positioning for the next upswing), all of our research tends to suggest another leg down is a very real possibility over the course of 2016.

      Its still too early we think.

      • Interesting conclusion Russell, most in the industry seem to think that 2015 will be the bottom, but I recall hearing the same thing many times before, so salt should be taken with any recommendation from ‘industry experts’ (I know how much the Montgomery team love ‘industry experts’ haha).

        My own analysis, which I’m confident would not be up to the standard of your team’s, suggests certain commodities (Nickel & Zinc mainly) should start to pick up later in the year, but others will take longer, with Iron ore looking the furthest away from a supply shortage. I actually can’t accurately forecast demand far enough into the future to work out when Iron might recover. I’ve not done any research on mining services companies yet, but I’ll start looking at some now with the intention to purchase once things pick up a bit.

      • Russell Muldoon

        The big demand driver for the past decade has of course been China. If you look closely at the trend in non-performing loans recently, you will quickly realise that they are struggling to contain the other-side of what has been one of the biggest build-ups in debt fueled growth the world has ever experienced in such a short period.

        Given this form of funding is currently not available to fuel another round of heavy fixed capital investment, It would be a brave man to believe that commodities are due for a bounce.

        Although I do agree with you that different commodities all have their own demand / supply characteristics and Im sure someone out there will be able to work out the safest place not to loose a lot (just a little…).

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