The resource mining industry has made the best of a bad situation over the last 3 years. This drag on commodities remains firmly in place, but in this regard the precious metals have begun to stand out from other commodities.
As a result, we’ve been seeing a mix of both encouraging and bad news within the mining industry of late, with most of the good news centering on junior miners.
The Bad: Mining Industry Credit Risk
Naturally, we’ll start off with the bad news.
One industry-wide problem for mining firms has been the dwindling creditworthiness of some of the biggest players in the sector. (When a company’s credit rating gets downgraded, it makes it more expensive for them to borrow.)
According to Mineweb,
“Moody’s placed dozens of mining firms around the world on review for a credit downgrade on Friday as companies battle a slump in commodity prices due to oversupply and slowing growth in China.
Moody’s said it would review the credit ratings of 12 mining companies in Europe, Middle East and Africa (EMEA) and 11 firms in the United States to ‘recalibrate the ratings in the mining portfolio to align with the fundamental shift in the credit conditions of the global mining sector.'”
Mining giant Glencore PLC (LON:GLEN) recently saw its credit rating downgraded to one grade above junk status. Even the debt-ridden Greek government has its credit rating upgraded to B-. It is believed that more major firms in the mining industry, listed below, will also be evaluated for a potential downgrade.
Alcoa (NYSE, SWX:AA)
Anglo American PLC (LON:AAL)
Anglogold Ashanti (NYSE:AU; ASX:AGG; JSE:ANG)
BHP Billiton (NYSE, ASX:BHP)
Gold Fields (NYSE, JSE:GFI)
Newmont Mining (NYSE, SWX:NEM; TSX:NMC)
Rio Tinto (NYSE, LON:RIO)
Moody’s explains that it “will consider each mining company’s asset base, cost structure, likely cash burn and liquidity, as well as management’s strategy for coping with a prolonged downturn and the ability to execute on same.”
Beyond the credit risk situation the commodities sector is facing, the platinum mining industry got a dose of the bad news bug when a fire at one of the Impala Platinum (Implats) mines in South Africa forced a temporary closure of the project. 14 workers lost their lives at the company’s Rustenburg mine due to the fire.
In the wake of the fire, Implats (JSE:IMP) saw its share price drop, while the spot price of platinum surged. This reflected the expectation that a decline in output from Implats, the world’s second-largest platinum miner, could significantly impact the supply side of the market. The company reports that the fire has since been extinguished, though operations have not resumed yet.
The Good: Harmony Gold
While many of the major mining companies are facing credit risk evaluations, one smaller miner is moving in the opposite direction. Harmony Gold Mining Co. (NYSE:HMY) recently posted its third consecutive quarter of increased production after quarter-on-quarter output rose 2% and the average grade of its underground gold deposits improved 7%. This coincided with a weaker South African rand, which boosts the relative per-kilogram prices for the gold that Harmony sells to refiners.
HMY stock was up another 6.67% on Monday, a solid addition to a 3-month rally that has seen share prices surge better than 232%.