Affected by the weak economic recovery and sluggish demand, the global mining sector continued its previous downturn in the first half of 2016. Although the global commodity markets have recently shown some signs of a slight rebound, they remain at lower levels compared to the peak years of the mining industry.

     ●The state of economic development determines the outlook for the mining industry. In the future, the mining sector will find it difficult to replicate its past pattern of dramatic booms and busts. Mineral prices are unlikely to experience significant fluctuations again; instead, low-level oscillations may become the dominant trend—and this is likely to persist for some time. The development trajectory of the mining industry will no longer follow a U-shaped or V-shaped curve, but rather an L-shaped one. The traditional model of mining development can no longer keep pace with the new realities. In the future, mining enterprises must shift their development paradigm. It’s no longer feasible to simply hope for a return to the old days when profits could be made even while “lying down.” Instead, they must accelerate technological innovation, enhance production efficiency, upgrade their products, and build new business models in order to achieve profit growth, secure their future, and adapt to the “new normal” in the mining industry.

After five consecutive years of decline, the mining sector remained generally sluggish in the first half of 2016, and the outlook remains grim. However, certain areas within the mining industry have also seen some new developments. It is of great significance for China’s geological work to analyze and summarize these emerging trends and new developments in global mining, as they can serve as valuable references for decision-making.

     1. The global economy is struggling to recover, and the overall outlook for the mining industry remains bleak.

Since the outbreak of the 2008 financial crisis, the global economy has broadly gone through the following three stages of development:

The Stage of Binary Polarization (2009–2012): Emerging economies such as China and India delivered impressive performances, standing in stark contrast to developed economies that were mired in deep economic difficulties.

The New Stage of Binary Polarization (2013–2015): Emerging economies showed clear divergence. China and India performed well, while resource-dependent countries such as Brazil and South Africa experienced a marked downturn. Developed economies also exhibited divergence: the U.S. economy demonstrated strong recovery momentum, whereas the EU, Japan, and other developed economies continued to decline. Overall, developed economies performed better than emerging economies.

The Phase of Comprehensive Decline (Since 2016): Driven by the shale (oil and gas) revolution, U.S. economic growth has entered a downward phase as it is affected by persistently low international oil prices. Both advanced economies and emerging economies are experiencing a simultaneous downturn, resulting in an overall decline.

Since the beginning of this year, international organizations such as the IMF have been continuously lowering their forecasts for global economic growth. In January, the IMF lowered its 2016 global economic growth forecast from 3.6% to 3.4%, and in April, it further revised the forecast down to 3.2%. The outlook for global economic growth in 2016 is far from optimistic.

Affected by weak economic recovery and sluggish demand, the global mining sector continued its previously subdued trend in the first half of 2016. Although the global commodity markets have recently shown some signs of moderate rebound and recovery, they still remain at lower levels compared to the peak periods of the mining industry in previous years.

     II. International oil prices have bottomed out and are now rebounding, oscillating at low levels; major oil and gas giants are advancing their “abandon oil, shift to gas” strategy.

Over the past six months, international oil prices have experienced a modest rebound from their recent low, rising from around $30 per barrel at the beginning of the year to a recent intrayear high of $50.26 per barrel. However, overall, international oil prices remain at relatively low levels. The price increase over the past six months has been driven primarily by factors such as the Canadian forest fires, Saudi Arabia’s freeze-on-production agreement, internal conflicts in Nigeria—a major oil-producing country—and a decline in U.S. shale oil production. From a fundamental perspective, the underlying reason for persistently low oil prices is an oversupply. Although U.S. shale oil production has been declining, this has been offset by OPEC’s high output. Moreover, the outlook for global economic recovery remains weak, making it difficult to significantly reverse the current oversupply situation in the near term, and thus unlikely that oil prices will return to very high levels anytime soon.

Meanwhile, the drastic deterioration of the human living environment caused by rising global temperatures has gained widespread recognition worldwide. To curb the rapid rise in global temperatures, it is essential to limit greenhouse gas emissions. As the energy sector is the largest contributor to these emissions, it must swiftly establish a low-carbon energy system and complete the transformation of its energy mix. Among energy sources such as oil, natural gas, and coal, natural gas generates the highest amount of heat per unit of greenhouse gas emitted. Consequently, “shifting from oil to gas” has become a key strategic approach for countries and major corporations alike. For instance, Shell of the Netherlands and TotalEnergies of France have both shifted their future energy focus toward natural gas. Shell’s CEO, Ben van Beurden, even stated that Shell has already transformed itself from an oil-and-gas company into a gas-and-oil company.

     III. Major metallic minerals showed significant price increases, with financial factors likely serving as the primary driving force.

In the first half of 2016, global commodity markets witnessed a broad-based rally rarely seen in recent years. Gold prices rose from a low of $1,062 per ounce in January 2016 to nearly $1,300 per ounce by early May, representing an increase of nearly 23%. Iron ore prices climbed from a low of $39 per ton in January 2016 to a high of $68 per ton by late April, with an increase exceeding 70%, though they remained at relatively low historical levels. Copper prices rose from a low of $4,300 per ton in January 2016 to around $5,000 per ton by late March, marking an increase of approximately 16%.

From the perspective of the fundamentals of the mineral commodities market, the currently disappointing macroeconomic data have not fundamentally altered the reality of insufficient demand, and the situation of oversupply remains unchanged. Therefore, there must be other forces behind the recent price increases. In the first quarter of this year, approximately 24 billion U.S. dollars of new capital flowed into mineral commodity-related funds. Additionally, the covering of short positions by short sellers and the global environment of negative interest rates have also been significant drivers pushing investors toward mining investments. These factors have influenced the price trends of major metals—including gold, silver, and iron ore—over the past half-year. Consequently, financial factors appear to be the key driver behind the recent rise in metal prices. As a result, volatility in mineral commodity prices has intensified, and any rebound lacks sustained support.

     IV. The supply-and-demand fundamentals for nickel and tin are reversing, and prices may re-enter an upward trend.

Although most minerals are likely to remain in a volatile state in the future due to weak demand, nickel and tin represent two notable exceptions that deserve special attention. According to data released in May by the International Nickel Study Group (INSG), driven by a one-third surge in nickel demand fueled by the expansion of stainless steel production in China, the global nickel market’s supply-demand gap widened rapidly from 6,000 tons in February to 8,200 tons in March. The entire nickel market could enter a state of overall supply shortage in 2016. Tin is also a mineral worth watching in 2016. Affected by supply-side reforms, both supply and inventories in the tin industry declined simultaneously in 2016. Looking at production from China and Indonesia—the two major tin-supplying countries—output fell sharply year-on-year in 2015, and global tin mine production declined by more than 25,000 tons compared to the previous year. Meanwhile, tin exhibits significant growth potential in new consumption areas such as chemicals and lead-acid batteries. Based on these trends, it can be inferred that the supply and demand fundamentals for both nickel and tin may reverse in the future, potentially leading to renewed upward price trends.

     V. Affected by the downturn in mining industry confidence, global M&A financing activities in the mining sector continue to decline.

Mining M&A activity showed a sustained downward trend in the first quarter of 2016. Compared to the first quarter of 2015, total transaction value plummeted by 45% to US$3.3 billion, while the number of deals declined by 17% to 72 transactions. In the first quarter of 2016, gold, coal, and steel ranked as the top three in terms of transaction value. In addition to the ongoing volatility in mineral prices, a loss of confidence in mining investments has also emerged as a significant factor. It is foreseeable that mining M&A activity will remain sluggish in the future.

In the first quarter of 2016, total mining financing exceeded 60 billion U.S. dollars, remaining flat compared to the same period in 2015 but down 24% from the fourth quarter of 2015. Factors such as market volatility, the direction of U.S. monetary policy, and the slowdown in China’s economic growth have reduced liquidity in capital markets.

     Six, mining companies continue to streamline operations to withstand the severe cold; persistently low prices could lead to “low grain prices hurting farmers.”

The prolonged downturn in the global mining industry has led to a sharp decline in mining sector profits, prompting large, globally diversified multinational mining companies to continuously divest assets. These divestitures are temporary measures aimed at reducing costs and improving operational efficiency in the short term. In the first quarter of 2016, the three largest mining mergers and acquisitions were all asset divestitures: for instance, Barrick Gold sold its non-core Bald Mountain gold mine project; Rio Tinto sold its stake in the Bengalla coal mine adjacent to Mount Pleasant—both transactions designed to raise cash and reduce corporate debt. However, it is worth noting that mineral prices have been lingering at historically low levels for an extended period. If prices fail to rebound from this deeply depressed range back to “normal” levels and this situation persists too long, it will undoubtedly harm the healthy development of the mining industry. The phenomenon of “low grain prices hurting farmers” could well play out in the mining sector as well.

     VII. Key raw materials required for new energy and new materials are drawing significant attention, and Luoyang Molybdenum is accelerating its strategic deployment.

Over the past six months, Luoyang Luanchuan Molybdenum Group has completed two transactions that could significantly reshape market dynamics: First, in April, the company acquired British-American Resources Group’s niobium and phosphate businesses in Brazil for US$1.5 billion; second, on May 6, it announced the acquisition of 100% equity in Tenke Fungurume, Congo’s largest copper-cobalt mine, which is owned by U.S. mining giant Freeport-McMoRan. Niobium is a mineral resource that is both rare and difficult to value. It is primarily used to produce higher-strength, lighter-weight industrial steel pipes and aerospace components—making it an indispensable key raw material for the aviation industry. There are only three places on Earth where this metal is mined, and its price per kilogram is seven times that of copper. Cobalt, meanwhile, is essential for manufacturing cathode materials for lithium batteries and is a metal that China severely lacks. Based on cobalt production figures from 2015, the Tenke mine accounted for approximately 16% of the global market share. The acquisition of the Tenke mine undoubtedly provides strong resource support for the development of new energy industries in China. Luoyang Molybdenum’s two strategic moves carry significant strategic importance.

     8. Australia and Canada are both stepping up efforts to enhance technological innovation in order to boost the competitiveness of their resource sectors.

In response to the downturn in the mining sector, traditional mining powerhouses Australia and Canada are placing greater emphasis on technological innovation by increasing investment or establishing independent departments to bolster their efforts in this area. In February 2016, Australia established the National Energy Resources Development Center (NERA), which became one of Australia’s six national industrial development centers. The center will focus on leveraging the existing competitiveness of Australia’s mineral resources sector, fostering innovation, and driving research initiatives. By promoting industry-led collaboration, innovation, and knowledge sharing, NERA aims to inject greater dynamism and productivity into Australia’s resource sector. The Australian government will provide the center with A$15.4 million over a four-year period.

Canada, meanwhile, is promoting technological innovation in deep-mining exploration by establishing a platform for scientific and technological innovation centered on the challenge of deep-sea mineral exploration. Canada’s Ultra-Deep Mining Network (UDMN) is a commercially driven Network of Centres of Excellence (NCE), initiated by the Centre for Excellence in Mining Innovation (CEMI). The network aims to support mining development and advance commercially viable R&D projects, ultimately facilitating the deployment and application of innovative technologies in the mining industry. Supported by members from both the mining and oil-and-gas sectors, the UDMN actively involves small and medium-sized mining companies, industry intermediaries, research centers, and universities. Through this network, the UDMN will continue to position Canada and Ontario as global leaders in deep-mining expertise, thereby ensuring that the country maintains its status as a premier destination for natural-resource investments.

     9. Resource-supplying countries are increasing their supply, making the global sources of mineral resources more diversified.

Affected by the ongoing global economic downturn, the supply of bulk mineral resources remains oversupplied, turning the market into a buyer’s market. This has compelled global mineral-resource-supplying countries to adjust their strategies and roll out new initiatives aimed at attracting investment and enhancing competitiveness. Meanwhile, value pockets with resource potential—benefiting from improved policies—are gaining favor in the mining market, ensuring that the supply of mineral resources will become even more abundant and diversified.

In Australia, the government of South Australia released, in February 2016, a state-level development strategy for copper mining and a development strategy for iron ore mining, aimed at attracting exploration investments in both copper and iron ore, promoting the discovery of new copper and iron ore deposits in South Australia, and enhancing the region’s competitiveness. Similarly, at the end of 2015, Ontario Province in Canada issued a new mineral resource development strategy to foster the thriving growth of the mining industry. This new ten-year strategy is designed to attract new investments and support innovation in mineral exploration and development. The new strategy has four key strategic priorities: ensuring the competitiveness and innovativeness of the mining sector; prioritizing safety and environmental friendliness; promoting efficient management; and safeguarding the prosperity of future generations.

In some regions with relatively promising resource potential, market attention has been steadily increasing this year, driven by improved policies—such as Guyana and Argentina. The Aurora gold mine in Guyana is the country’s second-largest gold mining project in history, with gold reserves approaching 100 tons and favorable conditions for development and exploitation. Although exploration at this gold mine began as early as the 1990s, it wasn’t until late 2011 that Guyana Goldfields secured mining rights, and the mine only started production in 2015. The same holds true for Argentina: at the end of 2015, Mauricio Macri was successfully elected President of Argentina, and he announced plans to establish the country’s first-ever Ministry of Energy and Mining. Media widely believe that this move will greatly boost Argentina’s mining sector.

     X. The reform of natural resource taxes and fees will regulate the development of China’s mining industry.

On May 10, 2016, the Ministry of Finance and the State Administration of Taxation jointly issued the “Notice on Fully Promoting the Reform of the Resource Tax,” announcing that China would fully launch the resource tax reform starting July 1, 2016. According to the notice, building on the previous implementation of a value-based taxation reform for six categories of resources—crude oil, natural gas, coal, rare earths, tungsten, and molybdenum—the current reform will extend value-based taxation to the vast majority of mineral products.

This reform will reduce the rate of mineral resource compensation fees for all resource commodities to zero and abolish locally imposed fee and fund programs that violate regulations on mineral resources. In addition, the Ministry of Natural Resources is currently exploring the establishment of a national equity fund system for mineral resources. Through this reform, we will further promote the shift from fees to taxes, streamline the tax and fee relationships in the resource sector, and further standardize China’s mining market.

Looking at the current global economy, the United States, developed European countries, and Japan have already completed their industrialization processes and achieved the task of transforming and upgrading their industries; as a result, demand for bulk mineral commodities has essentially stabilized. China’s economic development has entered a “new normal,” and it now faces challenges such as resolving overcapacity in traditional industries and strengthening supply-side reforms. Consequently, the resource industry chain will undergo structural changes, causing consumption of bulk mineral commodities like coal and iron to essentially reach peak levels. It is expected that in the future, the economic development of India and ASEAN countries will also find it difficult to match the growth rate and scale of China’s golden decade over the past 10 years, leading to generally stable global demand for bulk mineral commodities—and in certain periods, demand may even decline.

The state of economic development dictates the trajectory of the mining industry. Looking ahead, it will be difficult for the mining sector to replicate its past pattern of dramatic booms and busts. Mineral prices are unlikely to experience significant fluctuations again; instead, low-level oscillations may become the dominant trend—and this is likely to persist for some time. The development of the mining industry will neither follow a U-shaped nor a V-shaped trajectory, but rather an L-shaped one. The traditional model of mining development can no longer keep pace with the new realities. In the future, mining enterprises must shift their development paradigm. It’s no longer feasible to simply hope for a return to the old days when profits could be made even while “lying down.” Instead, they must accelerate technological innovation, enhance production efficiency, upgrade their products, and build new business models. Only by doing so can they achieve profit growth, secure their future, and adapt to the “new normal” in the mining industry.