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.
The middle of March is a depressing time in the calendar, and not just because it means the annual PDAC conference is over. Ever since William Shakespeare wrote Julius Caesar in 1599, we have associated this time of the year with a warning; “Beware the Ides of March” (Caesar was assassinated on March 15, 44 BC).
We trace our calendar back to the Roman Republic, although the Romans did not number each day of the month from first to last, rather they counted back from three fixed points of the month. Kalends was day 1, Nones was day 7 and Ides was day 15 (‘Ides’ derives from the Latin for divide). Hence, days 2-6 in every month were described as “before the Nones,” days 8-14 were “before the Ides,” and the remainder were “before the Kalends” of the next month.
In Rome, the Ides of each month was a deadline for settling debts, and the Ides of March (Idus martiae) was marked by religious ceremonies. Despite Shakespeare’s best efforts, the middle of March is not historically a particularly risky time of the year for investors. Nevertheless, because the Prospectors & Developers Association of Canada has just held its convention, it is an opportune time to remind potential mining investors of the risks involved.
For equities generally, strategists at Morgan Stanley are amongst analysts to have warned that this is a “high risk month for the bear market to resume.” Morgan Stanley recently told clients that, after a slew of data showing the economy in a much more precarious position than previously believed, the stock market “could be poised for another forceful plunge in March.”
Mining equities follow a different cycle from shares in other industries, of course, but it is a cruel one.
Taking a long-term perspective, demand for iron ore, copper and other energy transition metals seems assured. Unfortunately, rising demand for mined commodities inevitably encourages investment in new supply. There is then pressure on the price of metals and minerals, which has a disproportionate impact on mining profitability (given that many of the mine development costs are fixed). Funds raised to finance an increase in production can turn out to have been inefficiently deployed, forcing companies to alter their development plans and reduce costs.
