Cash-rich companies in China are able to snap up mining assets driven into retrenchment by slowdown in Chinese demand for coal
It is ironic indeed that China is in talks about a $2bn (£1.3bn) purchase of a gold producer, African Barrick, whose value has been hammered down at least in part by the lack of confidence surrounding the Chinese economy.
Cash-rich companies from the People’s Republic are in a perfect position to snap up mining assets around the world that are being driven into retrenchment by a slowdown in Chinese demand for all kinds of coal, ore and minerals.
Some of this slowdown results from deliberate policies by the government in Beijing, but it would take a heroic conspiracy theorist to believe these were being pursued so that more commodity firms can be hoovered up by China on the cheap.
Certainly in the case of African Barrick Gold, the share price is down well below its 2010 float on the London stock market. But demand for gold in China is still growing – partly as a hedge against falls in other investments.
There is no doubt that China’s first-half GDP growth of 7.8% – its lowest level in three years – is causing a huge slump in the price of most commodities, and severe pain for the miners who benefited so much from China’s previously soaring demand.
Some coal prices recently hit a two-year low and BHP Billiton said on Thursday that increasing costs and falling prices meant “clearly there may be some impact on jobs in some areas” of its Australian coal operations.
The company, which is expected to unveil its first profit fall in three years next week, has abandoned an $80bn five-year spending plan that it unveiled less than a year ago when commodity prices were still flying high.
Last week Rio Tinto said it would be closing the Blair Athol coal mine in Queensland before the end of the year with the loss of 140 jobs, and reported a 22% slump in first half-profits to $5bn compared with the same period last year. And this week Eurasian Natural Resources Corporation (ENRC) – a FTSE 100 company – said it would be cutting its spending this year by $300m and reviewing its long-term investments of $8.8bn as earnings plunged 40%.
ENRC’s chief executive, Felix Vulis, talked about a “volatile market environment and pricing uncertainty” that has come just after the Kazakh-focused iron ore miner has spent $5bn on acquisitions.
ANZ Bank has recently cut its overall commodity price forecasts by 4% for this year and 3.4% for next. Now is a good time to buy – that is, if you have $3.2