The stories that shaped the past decade in mining

JANUARY 1 not only brings a new year, but also a new decade. <i>MNN</i> reflects on the key themes of the past 10 years.

 Image: iStock/smshoot

Image: iStock/smshoot

Blockbuster deals

M&A is a common theme in any industry, and while the huge and often poorly timed takeovers of the previous decade (remember Rio Tinto's US$38.1 billion takeover of Alcan in 2007?) but the last decade has seen multiple super-mergers in mining.

Late last decade, BHP scrapped a bid for Rio in favour of a joint venture of their respective iron ore operations, which was also later pulled.

The two sat out M&A in the 2010s as bad decisions came back to haunt them.

Earlier this month, Lion Selection's Hedley Widdup argued the 2011 listing of Glencore was one of the decade's most significant events, with the previously private commodities giant raising 2-3 weeks' worth of London turnover in one hit.

But it was what happened after the listing when things got really interesting.

Months after listing, in early 2012, Glencore and Xstrata announced a US$90 billion merger.

Glencore already owned 34% of Xstrata and initially, the deal was friendly, with the merged company to be known as Glencore Xstrata International and be led by Xstrata chairman Sir John Bond and CEO Mick Davis. Glencore CEO Ivan Glasenberg would be deputy CEO.

However, after objections from Qatar and shareholders due to hefty severance payments, in September 2012, Glencore upped its offer and went hostile just hours before shareholders were due to vote.

After meeting regulatory requirements to sell off a bunch of assets, the deal went through and Davis found himself out of a job.

The ink was barely dry when Glencore dropped the Xstrata from its name.

In late 2014, Rio confirmed Glencore had been in contact over a potential merger, which was unanimously rejected by its board.

Only weeks ago, speculation mounted again over a possible Glencore-Rio tie-up thanks to the Australian Financial Review, which noted Glasenberg and CFO Steve Kalmin were both in Australia.

The 2010s also changed the landscape of the gold sector.

Sector leaders Barrick Gold and Newmont Mining were in merger talks in early 2014, which was likely to involve a major Australian spin-off company, but negotiations were terminated by Newmont which then criticised Barrick chairman John Thornton.

"While we were hopeful that we could achieve that goal, it has become evident to us over the past several weeks that the type of constructive, mutually respectful and partnership-oriented relationship necessary to realise the potential benefits of that combination does not yet exist," then-Newmont chairman Vincent A Calarco wrote in an open letter to Barrick in April 2014.

On the eve of the 2018 Denver Gold Forum, Barrick announced a merger with market darling Randgold Resources, which one onlooker likened to Barrick paying $18 billion for a CEO in Mark Bristow.

The deal cemented Barrick's flailing status as the world's largest gold miner by market capitalisation.

Main rival for the crown Newmont followed weeks later with a friendly tie-up with Goldcorp, which after once eclipsing both majors as the world's most valuable gold producer, had struggled in recent years.

"It appears from where I sit that Goldcorp was in bad shape," Bristow commented after the announcement.

Weeks later, Barrick went hostile on Newmont, proposing a $17.8 billion nil-premium after becoming frustrated over a lack of progress on merging the two companies' Nevada assets.

Newmont rejected the "egocentric" bid, labelling it as nothing more than a ploy to derail the Goldcorp deal.

Barrick dropped the bid about a fortnight later when a deal was reached in Nevada, and the Newmont Goldcorp deal went ahead.

As of this month, Newmont has curiously dropped the Goldcorp from its name.

The rise of gold's new mid-tier

There's arguably nothing the past decade that has transformed the Australian mining space and its big players as drastically as the rise of the new gold mid-tier.

At the turn of the decade, the largest ASX-listed gold producers were Newcrest Mining, Lihir Gold, Sino Gold, Kingsgate Consolidated, Dominion Mining, Avoca Resources, St Barbara, Medusa Mining, Gold One International and Resolute Mining.

Only the top three had market caps north of A$1 billion with large gaps between each.

Lihir was acquired by Newcrest, Sino by the Chinese, Kingsgate and Dominion merged before falling into trouble (and out of production), Avoca became Alacer Gold and exited Australia (though it remains listed on the ASX), Medusa faded, and Gold One was taken over by BCX Gold.

Only St Barbara and Resolute remain in the top 10 today.

While Newcrest remains the largest listed producer by a long way, the retreat of Barrick and
Newmont from Australia early in the decade gave rise to a new wave of producers.

Northern Star Resources was a shell late last decade when a young mining engineer called Bill Beament was tasked by then-chairman Chris Rowe with finding an asset.

Northern Star had just $124,000 in cash when it struck a deal with Intrepid Mines to buy the operating Paulsens mine in early 2010 for $27 million, comprising $15 million upfront and $12 million in royalty payments.

The impressive turnaround of Paulsens allowed Northern Star to acquire Barrick's Plutonic mine in late 2013 for $25 million, the Kanowna Belle and Kundana mines for $75 million and Newmont's Jundee mine in 2014 for just $82.5 million.

It moved offshore in 2018 with the US$260 million acquisition of the Pogo mine in Alaska.

The company launched its biggest buy yet this week with the $775 million acquisition of Newmont's 50% stake in the Super Pit.

Northern Star's market cap has gone from just A$11 million in mid-2011 to about $6.5 billion now.

Closest peer Evolution Mining didn't even exist in 2010.

It was created in 2011 via the merger of Jake Klein's Conquest Mining and Catalpa Resources.

Newcrest took a 33% cornerstone stake in the new company by selling it the Mt Rawdon and Cracow mines in Queensland, adding to the Mt Carlton, Pajingo and Edna May operations.

In April 2015, Evolution announced the $300 million scrip acquisition of La Mancha Resources' Mungari operation in Western Australia.

The introduction of Egypt's La Mancha as a major shareholder put Evolution in a stronger position to go after the real prize - Barrick Gold's for-sale Cowal mine in New South Wales.

The company took a step up in 2015 when it acquired Cowal, though many balked at the US$550 million price at the time. Canaccord Genuity now values the asset at A$1.82 billion.

Evolution followed it up in August 2016 with the A$880 million acquisition of 30% of Glencore's Ernest Henry copper-gold operation in Queensland, an innovative deal that averaged down its costs due to the copper credits.

The company has since sold Edna May and Pajingo, but last month, became a buyer once again when it paid US$375 million for Newmont's Red Lake mine in Canada.

Another mover and shaker has been Saracen Mineral Holdings, which will next month celebrate the 10-year anniversary of its first mine, Carosue Dam.

In early 2014, it acquired Thunderbox for A$40 million and brought it back into production at a rate of about 150,000ozpa.

But its most transformative deal came last month when it acquired Barrick's 50% Super Pit stake for US$750 million.

Saracen is now a 600,000ozpa producer and the company is already eyeing a near-term lift to 785,000ozpa.

At the start of 2010, Regis Resources wasn't even in production but a successful board spill led by former Equigold directors in 2009 rapidly changed that and the company poured gold from its first Duketon mine in mid-2010.

Two more mines followed at Duketon, with the operation now heading underground.

Regis paid A$150 million for Newmont's McPhillamys project in NSW in 2012, but a lengthy permitting process means it's still yet to be developed.

The two remaining mid-tiers - St Barbara and Resolute - have had interesting decades.

St Barbara was capped at less than half a billion in 2009 and had a shaky start to the decade due to its disastrous $556 million takeover of Allied Gold in 2012.

Allied held the Simberi mine in Papua New Guinea and the Gold Ridge mine in the Solomon Islands, which was suspended in 2014 due to flooding, and later sold the troubled project.

The company was at the brink when mining engineer Bob Vassie took over in mid-2014 and he has since admitted those early days were touch and go.

St Barbara turned its operations around, repaid its debt, and reinstated dividends, with shares going from 4c to as high as $5 during that time.

The company acquired Canada's Atlantic Gold for A$780 million in May, a deal which is yet to fully prove itself in the market, and coupled with operational issues at Gwalia, has seen its share price pull back to about $2.50.

Still a $1.7 billion, three-mine producer, St Barbara will start the new decade with a new leader in Craig Jetson, who will take over from Vassie in February.

In the case of Resolute, it was also new leadership that revived the market's appetite for the company.

Former investment banker John Welborn took over from Peter Sullivan in 2015 and ramped up the company's profile.

The balance sheet has been restructured and a dividend established.

In late July, the company announced the US$274 million acquisition of Toro Gold, private operator of the Mako gold mine in Senegal, making the company a three-mine producer.

Booms and busts

While the global financial crisis hit in 2008, in 2010 miners were still riding high thanks to insatiable Chinese demand.

But fast-forward to mid-decade and it was a struggle for survival for not only the juniors, but for some of the sector's biggest names.

The gold miners had already gone through it in 2013 when the gold price plummeted by $400/oz over several weeks, but the diversified majors still enjoyed strong prices for a while longer.

It was 2015 that really proved to be mining's annus horribilis with commodity prices and equities falling to pre-GFC lows.

It led columnist Dryblower to wonder if he'd been in a coma for the past decade when looking at the share prices of BHP and Rio.

A report that same year by EY found that net debt had steadily risen over the first half of the decade while earnings fell.

Asset sales kicked off and BHP spun off its unwanted assets into South32, a company people dubbed ‘CrapCo' until it got an official name.

BHP's profit halved in 2015 and it went on to post the biggest loss in its history in 2016.

Heavily indebted Glencore called a trading halt in September 2015 and announced an equity raising, the suspension of its dividend and other debt reduction measures worth up to $10.2 billion.

The company had debt of close to $30 billion.

There were even doubts over whether Glencore and Anglo American would survive, with each miner's shares dropping by more than 50% in 2015.

"Mining companies gorged themselves on cheap debt in a race to grow production following the Chinese stimulus that occurred in the wake of the GFC," Investec said in late 2015. 

"The consequences are only now coming home to roost, as mines take a long time to build." 

UBS called for discipline heading into 2016.

"If commodity prices remain at current levels, then we believe some tough decisions are going to need to be taken," it said.

January 2016 proved to be the bottom, with commodity prices and sentiment steadily improving as the impact of debt reduction measures took effect.

In October 2016, Investec said mining companies had gone from "pariahs to market darlings" as opposed to the same time in 2015, when they were "rightly preparing for the worst".

The turnaround was strong enough to allow Glencore and Anglo to call off some of their planned asset sales.

Canadian mining identity Sean Roosen marvelled at Glencore's resurgence during 2017.

"They made almost $4 billion last year. That's a heck of a turnaround when you think about it," he said in early 2018.

"One day you are selling your house, the next day you're up $4 billion!"

Iron ore's survival of the fittest

It's been an extraordinary and dramatic decade in the iron ore market.

The turn of the decade had seen a planned merger of BHP and Rio Tinto's Pilbara iron ore operations scrapped, and the two embarked on an unprecedented period of growth as Chinese demand showed no signs of abating.

Rio's operations produced 220 million tonnes of iron ore in 2010 and the company approved a staggering US$7.2 billion of Pilbara investment, while the 2011 financial year saw BHP produce 134.4Mt and approve $8.4 billion of iron ore investment.

Those major investments have seen BHP's output for the most recent financial year (FY19) rise to 238Mt, while Rio is targeting 2019 production of 320-330Mt.

In 2010, newcomer Fortescue Metals Group was producing at a rate of around 40Mt per annum, but late that year, it approved an $8.4 billion expansion to 155Mtpa and now produces around 170Mtpa.

At the turn of the last decade, offshore producers Sinosteel and Cleveland-Cliffs, and local producers Grange Resources, BC Iron, Mount Gibson Iron, IMX Resources, Atlas Iron and Territory Resources were all around, while CITIC Pacific, Ansteel/Gindalbie Metals and Hancock Prospecting were planning large new operations at Sino Iron, Karara and Roy Hill, respectively.

Murchison Metals and Mitsubishi Development's dream of a A$4.4 billion Oakajee port and rail development was still alive.

In April 2014, minnow Padbury Mining announced it had secured $6 billion in funding to build Oakajee, which saw two of its directors later banned for misleading the market.

There were a large number of companies trying to get African iron ore projects off the ground, including Rio Tinto and Vale at Simandou in Guinea, which continues to cause both companies headaches to this day.

Aside from all the corporate machinations, it's been a transformational decade for iron ore pricing.

In 2010, annual benchmark sales contracts for iron ore were abolished, making way for quarterly contracts and a more fluid spot market.

Iron ore traded at about US$150 per tonne in 2010 and peaked at just under $190/t in early 2011.

Miners got a jolt when the price briefly dipped below $100/t in late 2012 for the first time in three years.

In 2014, the price fell from around $135/t to $80/t by year-end, but it was 2015 where things really got tough for even the strongest producers.

The price averaged about $56/t in 2015, dropping as low as $38/t due to oversupply, despite then-Rio CEO Sam Walsh saying an iron ore price in the $30s would be "fantasy land".

Atlas and BC suspended operations.

"The current state of the industry has been a disaster for everyone. It's ripped the heart out of the industry … it's ripped the heart out of the country," then-FMG CEO Nev Power said in April 2015.

"There's no winners in this, only losers."

FMG chairman Andrew Forrest suggested miners cap production, and led calls for the government to investigate the majors, even launching a website and petition.

Then-treasurer Joe Hockey declined but warned producers to "behave collectively in a mature fashion".

Cleveland-Cliffs CEO Lourenco Goncalves described the situation earlier this year as "the Australian and Brazilian championship of the stupidity".

The iron ore price slump prompted a race to the bottom on costs, which only widened the gap between the big four - Rio, Vale, BHP and FMG - and the struggling juniors.

BHP spent the first half of the decade producing iron ore at a C1 cost of just under $30/t, while Rio claimed the lowest cost crown in 2014 with unit costs of $20.40/t.

FMG's FY14 costs were $34/t.

All three are now producing at C1 costs of $12-14/t, which has made for a strong 2019 given the unexpected surge in pricing due to supply interruptions.

Iron ore prices briefly touched a five-year high of $120/t in July and currently sit at around $90/t.

Tailings dam disasters

The past decade will be memorable for all the wrong reasons for Brazilian major Vale.

On November 5, 2015, a tailings dam breach occurred at the Samarco mine, jointly owned by Vale and BHP.

The contents of the Fundao dam flooded nearby villages, killing 19 people and leaving hundreds homeless.

The initial story about the Samarco tragedy also happened to be MNN's most-read story of the decade.

A teary BHP CEO Andrew Mackenzie said his tour of the disaster zone was heartbreaking.

An independent report released in 2016 revealed design deficiencies and structural defects led to the failure of the dam.

The legal, criminal, financial and environmental ramifications continue for the two companies, with the pair settling a New York lawsuit for $50 million last year.

Earlier this year, BHP has been served with a $5 billion class action lawsuit over the collapse, the biggest legal claim in UK history.

The disaster prompted global miners to review their own tailings dams and in late 2016, the International Council on Mining and Metals announced a new agreement to improve the management of tailings dams.

The news of another Brazilian tailings disaster at a Vale mine in January was met with disbelief.

On January 26, the dam at Vale's Feijão iron ore mine in Brumadinho, Minas Gerais, failed.

An estimated 270 people were killed or are still missing.

IndustriALL described it as a crime and said Vale had failed to learn from the past.

Vale has suspended multiple mines this year due to safety concerns.

An internal report by the company, released last week, pointed to heavy seasonal rain, poor drainage and a brittle wall structure as key factors in the catastrophic Brumadinho tailings dam failure almost a year ago.

The disaster has been another setback for miners' standing in the broader community.

"After the Brumadinho tailings dam failure, a trust gap opened up. We're trying to close the gap and foster safer management," ICMM CEO Tom Butler said last month.

The electric vehicle revolution

The latter part of the decade has seen the rise of battery metals as the world looks at ways to reduce emissions.

The first mention of the ‘electric vehicle revolution' in MNN's archives was a quote from entrepreneur Robert Friedland in early 2016 when he was spruiking his South African platinum project.

The term would come to be well-used over the following years.

The excitement around EVs and lithium-ion batteries culminated in a rush of juniors clamouring to get in on the trendiest metals.

The theme was validated by the majors, which started talking up the metals that were used to make lithium-ion batteries.

Elon Musk's US car company Tesla helped draw mainstream investor attention to the cause.

Graphite was all the rage early on, but 2016 was all about lithium, with flurries of activity in cobalt, vanadium, rare earths and nickel following in the next few years.

At least 60 Australian juniors pivoted to lithium in 2016, with a few genuine contenders emerging.

Pilbara Minerals boss Ken Brinsden likened lithium to iron ore in the previous decade, with China catching on first and the rest of the world taking a while to catch up.

The rush to secure supply from reputable sources has seen carmakers invest directly in miners.

In cobalt, customers have been looking to source production from outside the Democratic Republic of Congo, where child labour is prevalent.

This year has been tough for the lithium sector, with Mt Marion being about the only Western Australian lithium mine to not be closed or curtailed due to spodumene oversupply and weak prices.

A delay in Chinese conversion capacity coming on and an end to EV subsidies has led some to question the EV revolution.

At the recent LME Week in London, participants noted the drop in EV sales, but disagreed the EV revolution was being overhyped.

"Are we getting a little bit overexcited? I don't think so - in our view … this is structural, it's happening, the investments are taking place and consumers are willing to buy into it. So to me it's more of a trend than hype," Pala Investments vice president Jessica Fung said.

That particular panel forecast 2025 EV penetration rates of 10-15% by 2025.

Brinsden last month admitted the current market malaise could be "reasonably lengthy".

The new decade will see the market rebound at some point as no one is arguing the validity of the EV revolution, but the timing remains unclear.

Did we miss anything? What do you think the key themes of the 2020s will be? You can let us know here.

A growing series of reports, each focused on a key discussion point for the mining sector, brought to you by the Mining News Intelligence team.

A growing series of reports, each focused on a key discussion point for the mining sector, brought to you by the Mining News Intelligence team.


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