Part 1

Global mining giants belong to the some of the world’s biggest conglomerates, and the market they dominate is shrouded with mystery and riddled with the political intrigue of wheeling and dealing, cash cows, mergers and power struggles. These are some of the British stock market’s heaviest hitters, to the toll of hundreds of millions of dollars. But to get there, they must first tackle a set of problems unique to their underground area of operation.

Over the past six months, some of these mining giants have also been embroiled in corruption scandals. In March, a Chinese court convicted four Rio Tinto employees of accepting bribes and stealing trade secrets. The move was puzzling, since at the time, Rio Tinto was in the midst of negotiating a deal with China, the latter eying assets and mining titles in Australia. Though the miner denounced the employees’ act, maintaining it deviated from its corporate culture – the four were initially accused of looking for information on rival iron ore operations in Brazil and China, which many firms consider legitimate action – the affair illustrated the perils of conducting business in a country in which the market is so closely linked to the ruling party; which also rules the police and the court system.     

The world’s deepest-running elevator – a cage storming down the bowels of the earth at a speed of 3km/h – can be found in AngloGold Ashanti’s Moab Khotsong Mine, in South Africa. The mine also features a special temperature adjustment system, meant to make the environment more hospitable to the miners.
 
The Moab elevator project began in 1991, and the mine became operational in 2003. In 2013, the mine is expected to reach full production capacity, yielding some 30,000 ounces of gold every day.

Despite AngloGold’s stake in more than a dozen gold mines worldwide, and its credit as owning the world’s deepest-running mine elevator, the company is still considered  a minor player in its field. The mining industry has long been dominated by three giants: the UK’s BHP Billiton and Rio Tinto and Brazil’s Vale Do Rio Doce; each owning dozens of precious gems, coal and iron mines across the globe.
 
In April 2010, BHP reported uncovering evidence of corruption among its ranks, after the US Securities and Exchange Commission ordered it to make some information available for review.  BHP went on to reveal it had discovered several cases of anti-fraud regulations violations regarding deals involving high-ranking government officials. BHP maintains the SEC investigation focused on mineral exploration projects and had nothing to do with its business in China.  

As long as the global economy experiences growth, so do the mining companies. Nevertheless, financial crises, the likes of the global downturn of 2008, which caused a slump in both demand and prices, stomp their growth. A bad turn is relevant, of course, but there are also China and Indian to consider – top raw materials consumers, which were less affected by the recession than others.  
 
In March 2008, the world’s mining companies were at their height. The rapid growth of emerging markets (mostly India and China) sparked a price hike in the industrial metals market, with both production rate and prices setting record highs. Market projections suggested that the steady price rise noted between 2001 and 2008 was likely to continue over the next five years, but the global financial crisis shuffled the deck: commodities’ prices plummeted, taking profit margins and stock prices with them.

The mining giants have since recovered, as did commodities and stock prices. The current market climate favors the precious metal market once more, especially gold, which has added 25% since the beginning of 2010 and will soon mark a decade of steady price climb. Nevertheless, these are nominal terms, since in real terms, gold will have to exceed $2,000 an ounce to break its 1980 record.
 
Over the last few weeks, as dollar rates weaken – sparking investors’ interest in alternative avenues – metal prices have been reaching new highs again. Gold prices broke their 16th consecutive record in mid October, reaching $1,370.5 an ounce, and silver prices hit a 30-year high, at $23.93 an ounce. The mining giants’ stocks have also recovered, nothing their strongest performance since the 2008 crisis. This all makes for a robust bottom line, but does not free mining companies from their dependency on world economy.  

Each of the mining giant has evolved from different backgrounds, has different corporate policies – which often changes as a result of mergers and acquisitions – and dominates unique market niches. Next time, I will review the background and evolution of the world’s mining giants.

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