In the last year, executives at mining companies have adopted a new catch phrase: “A Lack of Clarity.” This phrase supplanted the previous challenge of “Operating in Uncertain Times.” There are very noticeable, common trends taking place industry-wide. Mining companies are gravitating toward plans that embrace Tier 1 assets, optimizing existing production processes at those operations, and selling non-core assets. The honeymoon period for many of these executives is about to expire and they find themselves in an awkward position. They have to explain a new strategy to shareholders who are unhappy about the company’s stock performance while at the same time they are selling off mining operations—sometimes at a steep discounts over what the company paid only a few years ago. When shareholders and analysts ask about the outlook? The answer more recently has revolved around a lack of clarity, as if the future was previously predictable.

Not long ago, returns on investment were certain. When the mining business found itself behind the demand curve on the global commodities super cycle, whether the mining company was going to make a profit was not as much of a consideration as how much profit the company would make. For the moment, those days are behind the industry; that is clear.

Variables beyond the mining executives’ control, such as the global economy, regulatory issues, and labor unrest, are also clouding the future. Europe has recently witnessed a modest recovery in manufacturing, but the U.S. has not. Some indicators are suggesting a slowdown in China and Brazil. Those negative influences will outweigh any gains made in Europe from commodity-demand perspective.

The spectacle in Indonesia is a prime example. Many of the major mining companies were not expecting the country to follow through on its new law to ban exports of unrefined ore, but the Indonesians have so far held steadfast, which has prompted thousands of layoffs by mandating companies process ore domestically before shipment overseas. As this edition of E&MJ was going to press, the Indonesian government implemented the ban despite last-minute changes to ease the impact on Freeport-McMoRan Copper & Gold and Newmont Mining Corp.—two of the country’s largest taxpayers.

During January, 70,000 South African platinum miners walked off the job at Anglo American Platinum Ltd., Impala Platinum Holdings Ltd. and Lonmin Plc. The Association of Mineworkers and Construction Union (AMCU) said the walkout was contingent on a 50% monthly salary increase for their lowest-paid, entry-level miners to $1,150/month in the area northeast of Johannesburg. South African platinum producers lost a combined 879,400 oz. of production in 2012 and 2013 strikes while workers gave up $108 million in wages, CEOs of the three producers said in a joint statement.

These situations obviously have a negative impact on financial performance of the mining companies involved, but they have a more profound effect on the thousands of people that rely on the mining business. Yet, there are other companies operating mines in more stable mining jurisdictions that will benefit from these controversial decisions. These are not the best of times, but they are certainly not the worst of times. When the leading mining companies attain clarity, look for the market to turn quickly.
Steve Fiscor, E&MJ Editor-in-Chief,