With commodity and oil costs right down and mines being shut down and new mines deferred, the seemingly inexorable rise in mining costs has been halted and is likely to turn to a sharp fall in the next couple of years. Costs for mining firms are sliding, a rare bright spot in a downturn that will help soften the impact of a crash in metals prices.
The biggest winners will be the major mining groups. . .For some mines teetering on the brink of profitability, the lower costs might prove a lifeline but may prove scant relief for small firms that run out of cash or have operations at the top of the cost curve.
During a commodities boom in recent years, mining firms enjoyed sharply higher metals prices, but some of those benefits to the bottom line were erased by surging operating costs. "In 2009,” says ING Analyst Nick Hatch, “we believe that comparable unit cash costs could fall 10% to 25% year-on-year, with further declines possible in 2010."
Freeport-McMoRan Copper and Gold Inc. said on Dec. 3 it expected net unit cash costs to fall by 25% in 2009. That scale of cost declines would help, but would still be overwhelmed by a collapse in metals prices. Copper has shed nearly two-thirds since hitting a record in July.
"I think we will have a clear-out in the market in the next month or two when a lot of juniors will give up," said Michael Loos of IMC Consulting Corp. Miners building new mines will gain from a sharp decline in rivals seeking equipment after boom times had resulted in waiting times of two to three years for key items, such as mills.