Strategies for Mining Sector Survival

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... The key to survival will be access to cash, supportive shareholders, high quality projects and responsive management...

Keynote speaker Tim Read at yesterday's well-attended MineAfrica meeting in London painted a gloomy picture of the mining sector today, but did offer strategies which should be taken for survival in what he described as the ‘nuclear winter' facing the industry. He did end on a slightly more positive note though.

Read commented that he had never seen a fall like this in his 40 years in the broking, banking and mining sector and opened with an anecdote of advice from an elderly broker given to him in his early days in the City- "Buy on the World Cup, sell on the Olympics" - a formula which would have done investors extremely well in the past two years...

Read did comment that sectors of the market had suffered almost as badly in recent memory - base metals prices collapsed in the ‘70s, diamond prices in the ‘80s, but he hadn't seen such a ‘planetary alignment' before. And what was perhaps most remarkable was how quickly the downturn hit us...

But, on the more positive side Read did not think we were in for anything like the Great Depression of the ‘30s as the communications sector has improved so much and Governments are able to act far more quickly to put liquidity back into the markets.

And the good news! Industry has had to react quickly and we are already seeing the retrenchment of production, projects being shelved, capital and operating costs falling and equipment delivery times coming back. "Even in the Great Depression" said Read, "Metals prices started to recover". Looking longer term, he pointed out that research specialists CRU reckoned that the long term supercycle was still intact . He noted that there was a major GDP/capita: metals consumption correlation and that the BRIC countries in particular, where GDP still has huge potential for growth, were right at the bottom of the GDP per capita graph - and that for base metals the fallout has not actually been as bad as in 1974! We've been there before and survived.

And who will survive? Key would be access to cash, supportive shareholders, those with high quality projects and with responsive management...

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