JOHANNESBURG (miningweekly.com) – In what had been a miserable year for miners and bankers, the UK mining-investment sector had lost a quarter-plus of its value, and was £100-billion down on last year, Liberum Capital mining head Michael Rawlinson said at the weekend.
Equity issuance had been terrible, initial public offering markets had shut and a mere $1-billion had been raised in equity in London, compared with an average of $8-billion a year in the previous four years.
The bad deals of yesteryear had come home to roost, with UK public limited companies writing off $30-billion.
While there were many worst-deal UK candidates, the metric of the Toronto-listed Kinross Gold, which paid more for Red Back than its current $6.3-billion market capitalisation, was the most damning.
With statistics like those, Rawlinson found it no surprise that investors had exited mining investment and gone into real productive assets in the utilities, consumer and pharmaceuticals sectors.
The mining sector had brought itself down by buying when it should have sold and building when it should have sat on its hands.
After the UK mining index’s 73% value loss from May to October 2008, the sector went up 360% in 25 months and no large corporate CEOs lost their jobs.
However, in the latest 45%, 28-months decline, the only CEOs to survive were those who did not buy and build at the top of the market.
Moreover, the new crop of CEOs had been incentivised to cut costs and hold off from building and buying, which would eventually cause commodity markets to rise once again.
Investors now needed to work out how much more downside remained for the large diversified miners and then to buy, hold and wait for the upturn.
In the case of smaller stocks, decision-making was trickier.
“I don't know if we’re at the bottom, but it feels like we’re getting close. From a returns perspective, the risks look asymmetric to the upside,” Rawlinson said.