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Big mining shares keep tumbling as China data ups anxiety

Mining's mess exemplified by this slimes dam disaster in Brazil.

Mining's mess exemplified by this slimes dam disaster in Brazil.

12th January 2016

By: Martin Creamer

Creamer Media Editor

  

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JOHANNESBURG (miningweekly.com) – Global mining stocks have lost $1.4-trillion since 2011, more than the combined value of Apple, Exxon Mobil and Alphabet Inc, according to Bloomberg Business, which reports that its world mining index has dropped to an 11-year low.

The market capitalisation of diversified major Anglo American, for example, has fallen from $73-billion in 2008 to $4.5-billion in its pre-centenary year – a 90%-plus collapse.

Outside of gold, mining is going from one annus horribilis to another as Chinese turmoil spreads new year gloom.

The biggest mining company of them all, BHP Billiton, is fast regaining its Broken Hearted People tag, while Vale and Rio Tinto are looking dinosaur-like and Anglo is becoming a shadow of its former self.

On Monday, workers went on strike at BHP's Cerro Colorado copper mine in Chile and late last year Vale and BHP had their Brazilian assets frozen by a judge, who determined that their joint venture, Samarco, was unable to pay for widespread environmental damage and that both companies could be held responsible for the disaster at the iron-ore mine’s burst slimes dam, for which the government was demanding $5-billion in compensation (also see picture).

New York Stock Exchange-listed Vale has seen its share price decimated with political and economic uncertainty in Brazil putting an added burden on its position.

Bloomberg reports that the company is looking to sell its eleven remaining large iron-ore-carrying ships to reduce its $26-billion net debt position.

The Brazilian iron-ore mining company has reportedly drawn down $3-billion from a revolving credit line to pay debt due in this quarter and has another $2-billion available through a separate credit line.

"Certainly a clear indication of the delicate balance of the finances of the world's largest iron-ore miner," Investec Securities commented in a note.

In particular, the company is struggling to conclude the partial sale of its Mozambique coal assets, made up of Moatize and the Nacala logistics corridor.

Vale has agreed to sell 15% of Vale Mozambique, which owns and operates Moatize, to Japan's Mitsui, and leave itself with 81%, down from an original 95% as 5% is locally held.

As strain grows on the executives running troubled diversified mining giants, the Australian Financial Review has let it be known that Rio Tinto is beginning a search for a CEO to replace Sam Walsh, who has seen his company’s share price fall by nearly 10% since the start of the year.

In the case of diversified mining and marketing company Glencore, the severe strain of last year has given way to shareholder acclaim for quicker-than-expected debt reduction, with the latest move involving the chapter 11 bankruptcy filing by Glencore’s troubled US alumina company Sherwin and the proposed plan to incorporate it into Glencore’s Corpus Christi Alumina, in exchange for a $95-million debt forgiveness and $250 000 in cash.

Divestment by mining giants is intensifying, with Anglo announcing on Tuesday that it had sold its interests in Tarmac in the Middle East to a Bouygues group transport infrastructure construction company.

Anglo is also set to launch the auctioning of its niobium and phosphate mines in South America for an expected $1-billion.

Meanwhile, the prices of both copper and oil fell further this week and the protection that commodity diversification is meant to offer to the diversified majors is proving negligible in the face of an across-the-board commodity price rout.

Generally, China’s falling renminbi and stock market turmoil have pushed share prices down across the world.

“This is by almost any measure the worst start to the year for world markets since records began,” Financial Times economic columnist John Authers commented on Sunday.

Even relatively small renminbi declines are having a major impact on global markets, UBS Wealth Management chief investment officer Mark Haefele noted.

Chinese volatility is seen to be complicating the outlook for investors already impacted by the tensions between Iran and Saudi Arabia and the start of interest rate tightening in the US.

The global crisis that began in the US in 2007 and hit the Eurozone in 2010 is now seen by some fund managers to be impacting the developing world in what they regard as the third segment of a three-part rolling global financial crisis.

Edited by Creamer Media Reporter

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