The only way the mining sector can realistically dig itself out of the current predicament is to acknowledge that mistakes had been made and make bold decisions for a turnaround. That is the advice from the billionaire chief executive officer of Glencore, Ivan Glasenberg.
As observed by writer, Agnieszka de Sousa, in the slides presented at the Bank of America Merrill Lynch mining conference in Miami recently, titled “Recipe for Better Returns,” Glasenberg commented: “Accept that volume growth cannot be an end in itself. Growth for the metals industry should mean cash flows and earnings, not digging up as many tons as possible.”
Underscoring that management should encourage “rational behaviour”, He added: “Profit can be improved by accepting lessons from the 12 years when mining companies poured cash into boosting production of everything from copper to iron ore.”
To remedy the situation, Glasenberg called on mining companies to adopt a more conservative approach and allocate capital based on cash generated. “The future can be different. Doing nothing on growth is often the best outcome.”
Glencore predicts that as companies lower production, spending by the world’s top five diversified miners is set to total $24bn this year, down from a peak of $71bn in 2012.