For mining companies, it really was the worst of times.
2013 was a bad year for the industry in Canada and around the world. Metals prices fell, companies slashed costs, projects were suspended and senior executives continued to lose their jobs. A slowdown in China’s economy cast a pall over the sector.
Here were some of the pivotal moments.
Potash alliance breakup
Russian potash producer OAO Uralkali sent the crop nutrient industry into a tailspin when it broke up one of the two marketing alliances that sells potash to global markets. Before the breakup, the alliance of Uralkali and its Belarus potash rival, along with the rival Canpotex Ltd. group in North America, controlled 70 per cent of the potash market and had enormous sway over prices.
Now fertilizer prices are depressed and buyers have delayed making potash purchases as they wait for prices to fall further. That’s having a serious impact on Canada’s largest producer, Potash Corp. of Saskatchewan Inc., whose stock has fallen more than 20 per cent since mid-May.
Nickel prices fell
Too much nickel in the market and not enough demand sent prices of the silvery-white metal down about 20 per cent in 2013.
Now, Indonesia’s coming ban on raw mineral exports has the potential to be a game changer. The Southeast Asian country is a major nickel producer and wants to process more of the raw material to boost the value of its exports. But Indonesia does not have the infrastructure needed to process all the ore it produces, and how it will implement its ban, due to start in 2014, remains unclear.
“There will be a cutback in ore exports. But the question is by how much,” said Andrew Mitchell, nickel analyst with the Britain-based Wood Mackenzie, an energy and mining research firm.
Gold prices plunged
Gold plummeted nearly 30 per cent, reinforcing a new-found religion at gold companies – financial discipline. It’s a stark contrast to the motto of earlier years of growth, growth, growth. Canada’s three largest gold producers, Barrick Gold Corp., Kinross Gold Corp. and Goldcorp Inc., overhauled operations to preserve cash.
But the bad news is not over yet. The substantially weaker gold price will likely trigger companies to reduce the value of reserves that were calculated using a higher bullion price. “The swamp is still draining,” said Maison Placements Canada president John Ing.
After a difficult year, Barrick announced that its 86-year-old founder and chairman, Peter Munk, will resign and hand over the job to former Goldman Sachs president John Thornton at the company’s 2014 annual meeting of shareholders.
Mr. Munk, a philanthropist and Canadian business icon, started Barrick in 1983 and built it into the largest gold producer in the world.
In Mr. Thornton’s first public comments, he shocked the gold industry by saying he was open to hedging, or selling gold at a fixed price to mitigate fluctuations in bullion prices. Hedging helped underpin Barrick’s profits in the 1990s, but became a losing strategy during the 11-year bull market in gold.
Ring of Fire stalled
The Ring of Fire mineral deposit was the most exciting mining project to hit Northern Ontario – but became a story of unfulfilled promise.
The deposit of chromite, nickel, gold and other minerals was supposed to create jobs as well as billions of dollars in revenue. But a lack of infrastructure, regulatory delays, bickering among junior miners as well as weak commodity prices have brought development to a near-halt.
One of the companies trying to build a chromite mine, U.S.-based Cliffs Natural Resources Inc., stopped work on its project due to delays and stalled talks with the government.
Heads continued to roll
Rio Tinto PLC’s chief executive Tom Albanese left abruptly as the Anglo-Australian company recorded a staggering $14-billion (U.S.) writedown, most of which was related to its $38-billion acquisition of Canada’s Alcan Inc. in 2007.
BHP Billiton Ltd. CEO Marius Kloppers stepped down after facing criticism for asset writedowns and failed acquisitions (including a bid for Potash Corp. in 2010 that was rejected by Ottawa). The day his resignation was announced, the major Australian-based miner reported a sharp drop in profit.
In Canada, Detour Gold Corp. CEO Gerald Panneton resigned suddenly as the stock slumped amid concerns about the company’s cash flow.
Uranium may get a break in 2014
Japan is expected to restart some of the nuclear reactors it shut down after a 2011 earthquake and tsunami devastated its Fukushima nuclear plant.
As well, the U.S.-Russian Highly Enriched Uranium agreement, which allows Russia to recycle uranium from Soviet-era nuclear warheads, will expire at the end of the year. That is expected to cut about 24 million pounds of uranium from Western markets.
The cut in supply combined with increased demand for nuclear fuel should help boost uranium prices, which are down 40 per cent to about $34.40 a pound since the 2011 nuclear accident in Japan.
Canada’s Cameco Corp., one of the world’s largest uranium producers, stands to benefit.
It wasn’t just a hard year for senior mining producers. Explorers, mining bankers and lawyers also felt the pain.
Aside from Barrick’s $3-billion stock offering, junior mining companies were starved for cash and there were few mergers or acquisitions.
The biggest mining transaction of the year in Canada was JSC Atomredmetzoloto and an affiliate’s $1.35-billion deal to privatize Canada’s Uranium One Inc. The second-largest deal was Sherritt International Corp.’s $946-million (Canadian) sale of its thermal coal business.
Canadian mining companies cleaned house
Barrick nominated four new independent directors after shareholders criticized the existing board for being too close to Mr. Munk.
Then Robert Franklin and Donald Carty, two independent directors charged with listening to shareholders’ concerns and recruiting new directors, resigned abruptly on Dec. 17, less than two weeks after the first wave of boardroom changes was announced.
Kinross also appointed new directors.