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.
Japanese trading firm Mitsui & Co warned Wednesday is set to post its first annual loss since being established in 1947 after a sustained rout in energy and metal prices forced it to book $2.3 billion (260 billion yen) in write-downs on projects from South America to Australia.
The Tokyo-based firm, Japan’s second biggest trading house, expects a net loss of 70 billion yen ($623 million) in the fiscal year ending March after booking impairment charges on assets including the Caserones copper project in Chile, the Browse LNG project in Australia and its Brazilian mining unit. The company had previously forecast net income of 190 billion yen.
About $1 billion of the total write-down was due to the Caserones copper project in Chile.
Last month, a Chilean court backed the country’s environmental authority on its decision to charge Caserones with the second-highest fine ever imposed in the South American nation, after the regulator found a number of infractions at the mine. The largest penalty so far — $16 million — was imposed in 2013 to Barrick Gold’s (TSX, NYSE:ABX) now shelved Pascua Lama gold and silver mine.
More than two-thirds of Mitsui’s profit comes from its resource business, such as iron ore, coal, oil and gas trading, which explains the major impact the plunge in commodity prices is having on the Japanese firm.
For every dollar drop in the price of crude, Mitsui’s profit falls by about 2.7 billion yen, the company said in a presentation last November.
Despite its loss forecast, Mitsui maintained its dividend forecast of 64 yen per share for the full year.
