Saturday, December 4, 2010

Mining Firms Race to Bulk Up

Commodities have had nice price run up. Gold is well over $1,400 an ounce. West Texas Intermediate Crude Oil ($WTIC) continuous contract prices ended just shy of $90 per barrel yesterday. In December 2008, it traded as low as $35.13 -- a 254% high/low price increase. Unleaded Gasoline continuous contract ($GASO) has increased from a December 2008 $0.82 low to close yesterday at $2.35, a 286% run up. So what does this mean for the extractive industries? See the following WJS article:

Wall Street Journal


"Tom Whelan, a partner at Ernst & Young's mining and metals practice said that the these deals stem in part from a cash buildup among mining companies. Commodity prices for iron ore, copper, zinc, coal and other metals and minerals recovered quickly after the economic downturn in 2008.

"We've had 18 months of spectacular earnings," he said. "Major and mid-tier producers are getting cashed up quite nicely."

Moreover, building a new mine is becoming more difficult due to political and social concerns, as well as worries about fickle foreign governments changing rules.

"Getting a social license to cooperate has become so difficult," says Glenn Ives, chairman of Deloitte & Touche in Canada and head of its North American mining group. Still, he said, mining companies are willing to take risks because of strong prices.

The high commodity prices "are making every region, no matter how dangerous, attractive," including Afghanistan." More>>>>

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