Cycles make mining even harder

Cyclical nature of global commodity prices adds to difficulty of getting whatever you mine out of the ground

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There were several updates from the mining sector last week, both from some of the industry giants as well as junior miners, which are much earlier in their journeys.

Before going any further, it’s useful context that Valterra Platinum (previously Anglo American Platinum) has enjoyed an increase of 44% in its share price over 12 months, whereas BHP is down 10% over the same period. Based on that, you would think that BHP is struggling in its operations while Valterra is shooting the lights out, right?

Mining isn’t hard just because of how difficult it is to get the stuff out of the ground safely and efficiently. No, it’s hard because even if you do that perfectly, your fortunes are primarily tied to global commodity prices for whatever commodity you happen to be extracting from Mother Nature. And if your operations hit a rough patch, those prices can save you (if you get lucky).

BHP has just reported record production in both copper and iron ore for the year ended June. Thanks to this excellent outcome, it also expects to hit its unit cost guidance across almost all its operations, as a period of efficient production is always great news for unit costs.

But it hardly matters, as the average realised price for iron ore was down 19% for the period, while steel-making coal fell 27% and energy coal was down 11%. Copper was the only positive story, with a 7% increase in the average realised price.