Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Most cobalt producers are likely to be losing money on every ton of cobalt they produce after a price slump last year, Benedikt Sobotka, chief executive at metals miner Eurasian Resources Group (ERG), said on Tuesday.
Chinese-owned companies are aggressively expanding cobalt mining in Congo and Indonesia despite the price drop, as they strive to gain market share in the metal used in electric vehicle (EV) batteries.
“Cobalt had a terrible year in 2023. The lack of supplier discipline in adding new capacity has really pulled the rug under the cobalt market,” Sobotka told Reuters‘ Global Markets Forum at the World Economic Forum in Davos.
The market fundamentals, however, remain intact as global EV penetration rates are growing, he added.
ERG, 40% owned by the Kazakh government, has assets in Kazakhstan, the Democratic Republic of Congo and Brazil producing cobalt, copper, aluminium and ferroalloys. In 2022, its core earnings, known as underlying EBITDA, totalled $3.4 billion and free cash flow was $481 million.
Sobotka added that shipping disruptions in the Red Sea were not affecting the company. “If it was Malacca Strait, it would be very different,” he said, referring to one of the key Indian Ocean gateways.
This year could see a pick up in mergers and acquisitions (M&A) in the mining industry, Sobotka said, but stopped short of saying whether ERG would take part in any deals.
“Our industry is still very fragmented and that is not a good starting point for deploying large capital in order to increase supply of critical materials for the energy transition,” he said.
“In most companies one or two countries and even sometimes single mines are more than 50% of their enterprise value. So, something happens in one country or one mine, and you wipe out half of your company’s value. That is a clear sign that we have to get bigger and more diversified.”
(By Divya Chowdhury, Savio Shetty and Polina Devitt; Editing by Mark Potter)
Comments