Analysis of Global Mining Prospects in 2016

Investors lost confidence in the mining industry, mining companies failed to invest in investment, global mineral exploration and development investment fell for three consecutive years, and new discoveries decreased. Mining companies have to rely on selling assets and accepting mergers and acquisitions in order to survive. In the case of falling prices of most mineral products, the minerals needed for emerging industries represented by lithium have been highly sought after, and prices have risen.

It is expected that this kind of mineral consumption change due to industrial transformation and upgrading will continue in 2016, and the impact of the appreciation of the US dollar on the mineral product market cannot be ignored. Although the global recovery is still slow, China and India will continue to play the twin engines of world economic growth. Emerging economies represented by South Asia will be a new driving force.

Slow recovery of world economy, decline in energy and mining industry

In October 2015, the International Monetary Union (IMF) in the “World Economic Outlook” report lowered the 2015 world economic growth rate from the previous forecast of 3.3% to 3.1%, and adjusted the 2016 growth rate from 3.8%. The low was 3.6% (Table 1). Although the recovery of advanced economies such as the United States and the euro zone has accelerated, the slowdown in the growth rate of developing and emerging economies has exceeded the original expectation, and the ratio of GDP growth in the two major economies to the world’s economic growth reached 79% in 2015. Therefore, the slowdown in the growth rate of developing economies and emerging economies has a huge impact on world economic growth. The IMF believes that the decline in commodity prices, currency devaluation, and financial market turmoil are major factors for the economic downturn in emerging economies. If commodity prices stabilize in 2016, new and developing economies may change, such as relying on iron ore. Stone and oil are exported to Brazil, Russia, and some countries in the Middle East and Latin America.

The latest "Global Economic Outlook" released by the World Bank on January 6, 2016 also lowered world economic growth expectations. The economic growth rate in 2015 was revised down to 2.4% from the previous forecast of 2.8%. In 2016, the economic growth rate was lowered from 3.3% to 2.9%. The World Bank believes that global economic growth was lower than expected in 2015, mainly due to the collapse of commodity prices, weak trade and capital flows, and a series of financial fluctuations that have exhausted economic vitality. The main factors affecting future world economic growth are: 1 whether high-income countries can maintain the recovery momentum; 2 whether commodity prices can stabilize; 3 whether the Chinese economy can gradually shift to a growth model dominated by consumption and services. The report anticipates that South Asia will become the bright spot for future global economic growth. Eurasian regions will gradually stabilize and recover. Latin America and the Caribbean will emerge from the recession with a moderate recovery, and the Middle East and North Africa will accelerate. The report specifically mentioned that the economies of India, Vietnam, Pakistan, Ethiopia, and Bulgaria will accelerate growth. Energy, mining and infrastructure construction will drive economic growth in countries such as Mozambique, Tanzania, Ghana, Libya, Congo, Cote d'Ivoire and Peru. The changes in the GDP growth rate of the world's major economies since 2009 are shown in Figure 1. The changes in the GDP growth rate of the world’s major mineral exporters since 2009 are shown in Figure 2.

Mineral exploration and development investment continues to decline, recreating the industry-wide crisis

According to a report issued by SNL Metals and Mining Company in November 2015, according to the company’s survey of 1,798 mining companies investing more than 100,000 U.S. dollars in mining companies, the world’s non-ferrous metal exploration investment budget for 2015 was US$8.77 billion, taking into account the The survey respondents may account for 95% of the total exploration investment budget, so SNL estimated that the world non-ferrous metal exploration investment budget is 92. O billion US dollars, a decrease of 18% compared with 2014 (Figure 3). This is also the first time since the financial crisis in 2008 was less than 10 billion US dollars, and basically the same as in 2009. From the point of view of minerals, gold is still the mineral with the most exploration investment budget, accounting for 45%. From the perspective of the exploration stage, grassroots exploration was below 30% for the first time, accounting for 29%, while the proportion of deep mining and peripheral exploration continued to rise to 34.2%. From a regional point of view, Latin America is still the region that attracts the most investment in exploration, accounting for 28.3%. In terms of company size, large mining companies are still the main force of mineral exploration, accounting for 48.8%. SNL expects that the reduction in investment in mineral exploration in the short term will continue.

With the reduction of investment in global mineral exploration, although overall new discoveries have been reduced, there are also some bright spots. Deep exploration of deep-water oil fields and onshore oil and gas fields in Brazil continued to make great progress. Egypt discovered super-heavy gas fields in the Mediterranean. Turkey's HotMaden copper and gold mines, Chile's Alturas gold mine, Monti copper and gold mine in Western Australia, Colluli potash mine in Eritrea, Angola's Lu Luo diamond mines are rare world class mineral deposits. China has discovered superlarge associated lithium deposits in Pingyi, Shanxi and coal in the Zhungeer coalfield of Inner Mongolia, which was discovered for the first time in the world. It is a new type of metallogenic model and has potential economic value.

Some mining companies focus their exploration and development on projects of small scale but high grades in order to obtain a quick return and shorten the project cycle. Even super-large or giant deposits also cut investment scale and reduce design capacity. As a result, the investment in the development of global mining projects continued to drop substantially. According to statistics of SNL metals and mining company's Swedish office (formerly the Swedish raw material group), investment in mining projects in 2014 decreased by 16.1% from the previous year, of which investment in greenfield development projects decreased by 29.2%. The decline continued in 2015 and is expected to decrease by about 10% from 2014 (Figure 4).

The shrinking mineral market has affected the exploration, development, and smelting of the entire mining industry chain. Australian mining has become the industry with the highest unemployment rate in the country. Mining companies cutting production or closing mines will inevitably bring about a large number of workers to lose their jobs. Workers in some countries, such as Brazil, Chile, and South Africa, are caused by mining companies cutting investment or reflecting the interests of workers. From the perspective of minerals, oil, coal, iron ore and other bulk minerals have the greatest impact. The sluggish mining industry has also caused a lot of brain drain.

The price of bulk mineral products is expected to stop falling and rebound, while the price of minerals needed for new energy and new materials will soar after a sharp increase in mineral prices.

Affected by various factors such as slowing demand, oversupply, and appreciation of the US dollar, the prices of international mineral products have fallen sharply in the past year or so. Most mineral products prices have fallen to the lowest levels since the financial crisis in 2008. It even hit a new low for more than a decade. At the end of 2015, international crude oil prices have fallen by 70% from June 2014 highs, iron ore prices have fallen by 60%, and copper prices have fallen by 20% (Figure 5, Figure 6). The sharp drop in the prices of energy and mineral products has a direct impact on the exports of important mineral resources countries such as Russia, Brazil, Chile, Saudi Arabia, Venezuela, and Nigeria, which in turn affects the development and stability of the entire economy and society.

The fall in the price of mineral products directly led to a sharp drop in the income of major exporters of mineral products. In 2015, the export volume of Brazilian iron ore was 366 million tons, which was an increase of 6.3% from 344 million tons in 2014; however, the export volume was reduced from US$25.8 billion in the previous year to US$14.1 billion, a decrease of 45.4%. Despite the increase in copper production and exports, Chile’s mineral exports in 2015 still fell by 17.6%, from US$41.9 billion in the previous year to US$34.5 billion in 2015.

As the price of international mineral products has already fallen dramatically, it is expected that there will be limited space for further declines in 2016. However, the dual pressure of oversupply and slowdown will remain. The appreciation of the US dollar will continue to put downward pressure on dollar-denominated mineral prices. Taking into account the gradual increase in mining companies' production cuts, geopolitical instability, and miner appeals, the situation of serious supply oversupply of mineral products will change, and the chances of prices rebounding will increase.

In 2015, not all minerals prices were falling, and minerals related to new energy and new materials, such as lithium, phosphorus, cobalt, chromium, and antimony, were rising. Taking lithium as an example, in early 2015, the price of battery-grade lithium carbonate was 43,000 yuan/t. After several rounds of major adjustments, the market price at the end of the year has been raised to 123,000 yuan/t, and individual companies have even quoted 160,000 yuan/t, rising. Nearly 3 times; Lithium hexafluorophosphate prices at the beginning of the year were only 85,000 to 90,000 yuan / t, to the end of the year soared to 260,000 yuan / t, an increase of 3 times. It is expected that the price of minerals for new energy and new materials will continue to rise in 2016, but the increase may slow down.

Mining companies' mergers and acquisitions fell to a new low since the financial crisis and are expected to rebound in the short to medium term

According to statistics of SNL metals and mining companies, global gold and base metal mergers rebounded in 2014 from their lows in 2013, but overall they are still at a relatively low level (Figure 7). Although the mining company’s market value and mine assets have already shrunk dramatically, large mining companies have difficulties in operating and there are not many companies that can use funds to conduct mergers and acquisitions.

According to Ernst & Young's statistics, BHP Billiton's split ($8.7 billion) was not included. In the first half of 2015, there were 170 global mining mergers and acquisitions, a year-on-year decrease of 43%, and the amount of mergers and acquisitions was US$12.7 billion, a year-on-year drop of 30%; Increased by 2% and 13%. Ernst & Young believes that since the securities market is avoiding risks and lenders are highly reluctant to lend, it has become the biggest difficulty and risk faced by small and medium-sized mining companies. In the case of difficulties in the issuance of stocks, more funds, such as **, equity and convertible bonds, need to be collected.

BHP Billiton, Rio Tinto, Glencore, Barrick, Anglo American and other international mining giants had to transfer and spin off assets acquired in previous years in order to reduce debt and improve profitability. In May 2015, BHP Billiton completed the separation of non-core assets and separated a company named South32, which operates aluminum, thermal coal, manganese, nickel, lead, zinc and silver. In 2015, Chinese mining companies carried out a number of M&A activities, such as Zijin Mining’s purchase of the Poguea gold mine in Papua New Guinea and the Congo (Kim) Kamoa ultra-large copper deposit.

As of the end of 2015, Shell's acquisition of British Natural Gas Corporation (BG) for US$70 billion has been approved by relevant regulatory authorities in Brazil, the European Union, Australia and China. This means that the largest oil and gas industry M&A in the past 10 years has taken another important step forward. A survey completed by Ernst & Young in early December 2015 showed that almost 90% of oil and gas company executives expect oil and gas industry mergers and acquisitions to rise by 50% in the next year, and two-thirds of companies hope to be able to conduct mergers and acquisitions during this period.

Important Mineral Resources Countries Accelerate the Reform of the Mining System and Proactively Deal with Downstream Mining

In the face of the continuing sluggish global mining market, important mineral resources countries have accelerated the pace of adjusting mineral resources policies and regulations. The countries that passed the new mining law in 2015 included countries such as Kenya and Burkina Faso. The United States also passed the highly-regarded space mining law. Comprehensive national mineral resources policies and regulations change can be attributed to the following characteristics.

First, in the past, countries that focused on the export of oil and gas and other energy minerals began to attach importance to the development of the mining industry. Such countries are represented by Nigeria, Ecuador, and Venezuela. For example, Nigeria announced at the end of 2015 that it would review all existing mineral rights and consider formulating policies to encourage exploration and development. At present, the mining industry accounts for only 0.34% of the country's GDP, but the country’s mineral resources are very rich, so the Nigerian government We hope to use the mining industry to counteract the negative impact of the plunge in oil prices on the national economy.

Second, in many countries, in order to increase the government's revenue in the mining industry, it is necessary to improve the government's equity in mining projects or to raise the royalty rate by amending the law. However, the process is arduous and the result is not satisfactory. Such countries are represented by countries such as Zambia and Kenya. Some countries also set up regional mining developments to force mining companies to pay in order to promote the economic and social development of local communities.

Third, more countries implement the policy of exporting ore and mandatory local metallurgical processing, extend the mining chain, and increase the added value. Such countries are represented by South Africa, Indonesia, Zambia, Zimbabwe and other countries.

Promoting reforms in the energy and mining industries, opening up more investment entities, and promoting mining recovery have become an important measure for most countries to respond to the deepening of the global mining industry. A small number of unopened countries have begun to relax the prospects for mining foreign investment. The work of promoting the reform of administrative examination and approval and accelerating the efficiency of examination and approval is still continuing. At the same time, the promotion of the local social development of mining projects has also received more and more attention.

Although the overall recovery of the world economy is slow, it should be noted that the economic growth rates of China and India, two large countries with a population of more than one billion, are all around 7%, which means that the economies that exceed one third of the world’s population are growing at a rapid rate. At the same time, with a population of more than 100 million people, with the exception of the severe contraction in the economies of Brazil and Russia, other countries have either maintained a fast or slow growth. Therefore, it is reasonable to have confidence in the growth of the world economy. Looking forward to 2016, South Asian countries such as VIP (Vietnam-India-Indonesia-Pakistan) will continue to maintain a relatively high growth rate and become a new driving force for world economic growth.

China has become the world leader in the production and consumption of minerals required by emerging industries such as lithium, rare earth, fluorspar, boron, vanadium, and graphite. It has profoundly affected the global mineral exploration and development pattern. According to the statistics of the Ministry of Industry and Information Technology, in 2015, China produced a total of 379,900 new energy vehicles, a four-fold increase year-on-year. Of which, the production of pure electric passenger cars was 428,800, a three-fold increase compared to the same period of last year, and the production of pure electric commercial vehicles was 147,900, an increase of 8 times year-on-year. According to the estimated consumption of 30kg of lithium carbonate per pure electric passenger car, and 50 tolookg per pure electric commercial vehicle, only pure electric vehicles can increase lithium carbonate consumption by 12,000 tons, which is a 20% increase over the previous year's consumption of lithium carbonate. The large-scale development of electric vehicles in China has affected the global market for lithium and other mineral products. Lithium, graphite, vanadium and other minerals have become new hotspots in global mineral exploration, with exploration and investment increasing.

In 2016, China's new energy vehicles will also maintain rapid growth, and the demand for lithium and other minerals will explode. At the same time, the electricity consumption of automobiles will also increase substantially, which in turn will drive demand for large minerals such as coal.