The mining industry hasn't had much good news in recent years, so further signs of an economic slowdown in China rattled already-skittish producers. With financial-sector reform choking off growth in China's property sector, which uses vast amounts of raw material, a bloodbath for metal and mineral prices ensued. Companies' stocks sank to decade lows, and cost cutting became the critical part of every miner's strategy. Here are 2014's pivotal moments.
Iron ore glut
Iron ore lost 50 per cent of its value in 2014, falling below $67 (U.S.) a tonne because of weak demand from China and a glut of supply. The world's biggest producers – Rio Tinto Group, BHP Billiton Ltd., Vale SA and Fortescue Metals Group – responded not by cutting production, but by continuing to increase it, despite the low prices for the steel-making ingredient. Their strategy has taken a toll on smaller, higher cost producers, such as Cliffs Natural Resources Inc. and Labrador Iron Mines Holdings Ltd. Both have suspended operations at iron ore mines in the Labrador Trough, a 1,600-kilometre-long area that straddles Labrador and Quebec. Two iron ore mines there, Bloom Lake and Wabush, have been shuttered, putting hundreds out of work.
Metallurgical coal glut
A similar story played out with metallurgical coal, which is also used to make steel. Too much supply and tepid demand from China left markets awash in so-called coking coal. Prices for the mineral have dropped 60 per cent over a three year period to $110 a tonne. The weak price has prompted companies to suspend projects and mothball mines in Western Canada.
The mega merger that never happened
You don't normally see companies publicly disparage each other, but that's what happened when Barrick Gold Corp. and Newmont Mining Corp. canned their merger talks in April. Barrick said Newmont reneged on their agreement, while Newmont said it could not work with Barrick chairman John Thornton. The deal between the world's two largest gold producers would have consolidated their overlapping operations in Nevada and cut as much as $1-billion in annual costs. According to both Barrick and Newmont, merger talks are completely dead.
Gold and the Fed
In the first quarter of the year, gold rose 15 per cent to $1,387 an ounce. That was the high point of 2014 – and nowhere close to the $1,900 peak that gold touched in 2011. Bullion then proceeded to fall as low as $1,140 an ounce, after the U.S. Federal Reserve halted quantitative easing and Japan's Abenomics stimulus sent the U.S. dollar soaring. Gold, which is often considered a hedge against inflation, was dumped in favour of interest-bearing investments, such as U.S. bonds. The weak gold price put pressure on higher cost producers. such as Canada's Iamgold Corp. and South Africa's Harmony Gold Mining Co. Ltd. Shares of gold miners like Barrick, Iamgold and Kinross Gold Corp. sank to decade lows.
Anyone want to buy a mine?
Barrick, BHP Billiton, Yamana Gold Inc. and Vale all tried to sell mines, only to yank them from the market when they could not generate enough interest or get the desired price. Yamana tried to sell some of its mines in Brazil before deciding to create a subsidiary within the company to house its "non-core" mines. Similarly, BHP tried to unload its Australian nickel operations and other mines. When that failed, it decided to hive some of them off into a separate company. Barrick attempted to get rid of one of its American gold mines that is near the end of its life, but has stopped looking for a buyer. And Vale tried to sell some of its nickel assets in Manitoba, but had to hang onto them.
Deal makers say there is still a price gap between what buyers are willing to pay and owners are willing to accept. Then again, some companies took whatever they could get. The Asian owners of Grande Cache Coal sold the Alberta coal miner for $2 (U.S.).
Ring of Fire woes
Ontario's Liberal government vowed to spend $1-billion (Canadian) to build a road to the "Ring of Fire" mineral belt in Northern Ontario. The promise comes at a particularly rough time in the mining industry. There is little demand for chromite, the most prolific mineral in the ring, and investors are not interested in funding new mines. Cliffs Natural Resources, which halted work on the Ring in 2014, is trying to sell its chromite properties and wants no part of the project. Among the players, from the miners to the federal and provincial government to the First Nations communities that surround the area, there is no consensus on the best path forward.
Peter Munk retires as Barrick chairman
It was a bittersweet goodbye for the charismatic Peter Munk who founded Barrick three decades ago and has said the gold company was his life. The 87-year old Mr. Munk has since taken advantage of Barrick's low stock price and increased his position in the miner.
Mr. Munk was succeeded by John Thornton, a former Goldman Sachs executive who has presided over an unprecedented amount of change at Barrick. Nearly every veteran Barrick executive has left or been replaced and about half of the Barrick board members are new. Mr. Thornton has made some unorthodox changes at Barrick, getting rid of the CEO position and appointing a former British military commander as chief of staff.
Bill Doyle exits Potash Corp
Bill Doyle, whose name became synonymous with potash, retired as chief executive officer of Potash Corp. of Saskatchewan Inc. after a 27-year career with the miner. Mr. Doyle used his prolific marketing skills to sell fertilizer to the Chinese and other growing economies. He blocked a hostile bid from BHP Billiton in 2010. When Uralkali killed its marketing partnership to increase sales volumes at the expense of potash prices, Mr. Doyle called it "the single dumbest thing that I have ever seen." While announcing Mr. Doyle's exit, Potash Corp. surprised investors by appointing outsider Jochen Tilk, a long-time mining executive with no fertilizer experience.
The ghost of private equity and Mick Davis
All the talk of private equity providing another source of funding for cash-strapped miners did not materialize. Private equity firms that have long specialized in mining deals, such as Waterton Global Resource Management, continued to make small investments. But the big private equity houses? Nowhere to be seen.
Speaking of private equity, Mick Davis, who built Xstrata PLC into a mining giant before it was gobbled up by Glencore PLC, continued to raise funds to build his new mining company. So far, he has raised up to $4.8-billion (U.S.) though he has yet to deploy any of it – something to watch out for in 2015.