[Snapshot]: State of the Market: Mining

March 09, 2019 | By: Mark Ferguson and Robert Anders

The following snapshot is an excerpt of the Q4-18 State of the Market: Mining report and March issue of the Industry Monitor report. They provide detailed analysis of mining industry performance that includes expert commentary from S&P Global Market Intelligence.

Year ends with sustained weakness

The fourth quarter of 2018 was marked by sustained weakness in most areas of the market. Commodity prices and stocks both saw selloffs. The GSCI fell to an 18-month low, with key industrial metal copper below US$6,000/t and nickel losing 18% over the quarter. The S&P/TSX Global mining index fell to 67.77 at year-end. The mining industry's aggregate market capitalization consequently fell 8% over the quarter to its lowest since the end of the second quarter of 2017.

At the turn of the year, pessimism turned to optimism due to increased hope for a negotiated settlement avoiding U.S.-China trade-dispute escalation and a rally by some of the base metals. Commodity markets were shocked, however, by the events of Jan. 25, when Vale SA's Corrego do Feijao tailings Dam 1 burst in Minas Gerais, Brazil. The human tragedy is clear and has not yet fully run its course.

• Market for Mining

Gold ended the quarter 7.6% higher than at end-September quarter and held onto its gains, rising a further 2.9% in January. However, the statements about further caution by the Fed have failed to stimulate a breakout in February — gold has failed to breach US$1,350/oz. Nickel continued to fall in the fourth quarter, by a further 18%, yet it has recovered these losses since the start of 2019. The London Metal Exchange three-month, or 3M LME, contract has subsequently risen to US$12,700/t on Feb. 20, due to improved macroeconomic statistics. Zinc price was broadly flat in the fourth quarter but has seen positive gains in 2019. The 3M LME zinc price hit a six-month high of US$2,801/t on Feb. 4, 2019. Global copper markets have remained constructive as the Chinese New Year (began on Feb 5) begins to dictate immediate purchasing decisions in China. LME cash contracts broke through US$6,000/t on Jan. 18 and subsequently rallied to US$6,151/t on Feb. 4. Iron ore prices have remained elevated into 2019 through Feb. 20, to average US$80.2/t. Prices are now up 5.4% year over year, broadly consistent with our expectation for annual average prices of US$78.7/t over the full year. These higher annual average prices are been driven by the removal of estimated approximately 50 Mt/y of production capacity at Vale's mines and is despite a marginal reduction in crude steel production volumes made in China.

• Mining Finance

Funds raised in the three months to end-December 2018 totalled US$3.85 billion, down 12% from the US$4.36 billion raised in the September quarter and the lowest quarterly amount raised since we started compiling these statistics at the beginning of 2013. Meanwhile, the number of financings by junior and intermediate companies rose slightly to 104 in February from 99 in January, and the US$143 million total raised was a 39% increase over the US$103 million garnered in the previous month. The level of capital raised continues to hover near historic lows.

• Merger and Acquisition

Metals and mining M&A activity collapsed in the December 2018 quarter, with the total deal value of US$3.10 billion coming in just below the US$3.24 billion in the year-ago quarter and marking the fourth-lowest quarterly total in four years. The decline in value came after three consecutive quarterly increases from the March quarter and an all-time high of US$16.59 billion in the September quarter, which included the US$6.06 billion Barrick-Randgold deal.

Mining Equities

Mining equities rebounded again in February, S&P Global Market Intelligence's aggregate market value of the industry's listed companies, based on 2,429 companies, rose 4% to US$1.44 trillion, up from a 17-month low of US$1.28 trillion in December 2018.

• Exploration

A rebound in initial resources and a slight increase in significant financings in February were no match for a dramatic decrease in drilling activity and a decline in positive project milestones as S&P Global Market Intelligence's Pipeline Activity Index, or PAI, fell to 64 from 76 in January, the index's worst showing in almost three years. The gold PAI fell to 92 from 105, while the base/other metals PAI fell to 42 from 47 over the same period. The PAI measures the level and direction of overall activity in the commodity supply pipeline by incorporating significant drill results, initial resource announcements, significant financings and positive project development milestones into a single comparable index.

Global drilling activity plummeted to a 22-month low in February, with the total number of distinct projects reporting drill results dropping to 201, from 259 in January.

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[Snapshot]: State of the Market: Mining

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