EY’s 2015-2016 Risk Report Recommends Miners Invest Now in the Future

Related topics: ASI · Industries · Mining
"A rollercoaster ride" might be the only way to describe 2015 in the mining industry—minus the fun and thrill. Fueled by an economic slowdown in China and a collapse in commodity prices, mining companies globally have been feeling the pain and are turning to drastic measures as they try to cope.

In what reports say is China's largest layoff in recent history, the Heilongjiang Longmay Mining Holding Group Co. announced in late September that it would lay off approximately 40% of its workforce, a staggering 100,000 workers, in order to "stop the bleeding." Anglo American announced in early December it would release 85,000 workers over the next few years in a restructure that would shed 60% of assets.

general and specific intelligence working togetherCommodities price graphs were pulled from NASDAQ on Dec 12th, 2015. Y axis is adjusted to each commodity's price; They are not relative to each other.

With most miners reeling in a similar manner it might come as a surprise that one research group recommends mining companies begin now to invest in future growth. "The switch to growth is looming and assets are now still relatively cheap and ripe for opportunistic acquisition," states EY's Business Risks Facing Mining and Metals 2015-2016 report.
"Given the long lead time to develop new supply, decisions to invest for future growth have to be made now or long-term returns will be lowered."

"It is the paradox that long-term reinvestment and growth is essential for the sustainability of the sector and yet public capital markets are still demanding the opposite," the report continued. "Switch to Growth" made the No. 1 spot in EY’s 2015-2016 risk rankings.

Drastic short-term measures, such as cost cutting and layoffs, can only do so much before long-term solutions must be addressed. "Having reached a ceiling on cost reduction, mining companies have since made substantial progress with their productivity initiatives and working capital solutions," EY's report reads. "We believe that real productivity gains will only come from an end-to-end transformation." EY places "Productivity Improvement" in the No. 2 spot of their 2015-2016 risk rankings.