Miners begin to find a 'level of stability'
Commodity prices are bouncing close to their bottom, and majors are finding a new level of stability they weren't enjoying a few years back, says Dr. Andy Robertson who sat down with MINING.com two weeks ago.
Robertson has a storied career in mining having co-founded SRK, Gemcom and Infomine, which also runs MINING.com. On February 16 Robertson will be inducted into the International Mining Technology Hall of Fame.
Audio from interview is embedded at the bottom of the post.
MINING.com: We've seen a lot of commodity volatility, and we've seen gold has had a bit of a bounce. What are commodity prices telling you?
Andy Robertson: Hopefully, we are getting to the bottom in all commodities at this stage. The past year or so we've seen the final dropping of the last two commodities that were holding up mining, and that's iron ore and copper. The iron ore drop has been over the last seven to eight months, and the copper price over the last three months. Whether copper's reached the bottom I think is still a question. Where iron ore is going to go to is still a question. But I think in the rest of the commodities I feel we are bouncing close to the bottom. I also feel that many of the major companies—those that are surviving at the current prices—are now finding that there is a level of stability, which they weren't enjoying a few years ago.
MINING.com: You're sound slightly optimistic? It seems like we have hit a bottom or we are close to the bottom?
Andy Robertson: One always wishes for optimism. I believe if there aren't any large bumps on the road, that is probably where we are now. But my crystal ball is as clear as your crystal ball. The big concerns are what are the knock on effects: the decline in demand from places like China and the continued struggle for economic revival in places like Europe.
MINING.com: When you talk to miners how are they operating in this market?
Andy Robertson: Well of course it really depends upon where you are on the commodity cost curve. If you are in the upper third and you are still making money and you are still able to produce with reasonable profits and certainty, there is obviously opportunity. Your investors are deeply concerned because if they are dependent upon the cash flow that comes from your continued profitability, they are disappointed by the lack of return. But if you are in the bottom half and getting close to being marginal or you are actually below the line, times are pretty tough. While there is some relief because your labour side is eased, you can increase your productivity from the same amount of people. You can also get concessions from your suppliers. But if that is not enough to pump you over the bottom line, you are living on reserves and those reserves are clearly diminishing.
MINING.com: Can you talk about the particular miners that are doing well? Is it a matter of being a particular commodity group?
Andy Robertson: Well look at the low cost iron ore producers. If you are selling iron ore at $70 per tonne and your production costs are down in the thirties, you are still making money and that is an opportunity to grab market share. But it is not a cost-less opportunity. It's an opportunity that is costing you large profits that you were counting on. And if you still have large capital commitments that you have to take care of, it's a pain. But it doesn't compare to the pain of those who don't have that margin. It certainly gives you an advantage to look at acquisition and growth. But its growth within the market, not growth of the market.
MINING.com: When we last talked, we were just at the start of a softening in costs. Have you seen these costs worked through? Are miners getting better concessions from suppliers? Are personnel costs lower?
Andy Robertson: Well absolutely, we've seen concessions on salaries, wages, conditions, happening in many, many locations. I think there are some locations where those concessions are coming harder than others. I think South America is one of those areas where concessions for some companies will come with greater difficulty than in other areas. I think the areas like Australia and surprisingly South Africa—the realism that has come has been a great benefit to mining. One is certainly seeing significant reductions in costs.
MINING.com: One of big stories has been the collapse in oil prices. Can you talk about the advantages and disadvantages.
Andy Robertson: It depends, again, upon what part of the mining community you sit in and where you sit. If you are in Alberta and the oil sands, the pain there is huge. But moving outside of that and into the metals, there is clearly an advantage to having lower fuel costs. But not only are those fuel costs lower, there is also a downward pressure on energy costs because it effects other things like gas and other energy sources as well. Lower energy costs have a knock on effect. Again if you are in Alberta and you are paying less for gas at the pump you may be expecting to pay a lot more in taxes in order to sustain the reduction in revenue. Governments are going to have to look at where they are going to get their replacement income.