In a market-oriented economy, economic booms and busts, as well as fluctuations in commodity prices—both up and down—occur cyclically, following certain temporal patterns. The mineral commodities market is no exception. According to research by Bart Melek, senior economist at BMO Nesbitt Burns Inc. in Toronto, Canada, since World War II, the price cycles for mineral commodities have generally been as follows: energy commodities cycle every 55 months, base metals every 50 months, and precious metals every 45 months. After a prolonged period of price increases, commodity prices are bound to experience a rapid decline, with declines typically exceeding 50%.
　　Since 2002, after experiencing a remarkably prolonged boom lasting five years, the global mining industry took a sharp downturn in the second half of 2008. Starting from the fourth quarter, the financial crisis triggered a dramatic collapse in prices of major mineral commodities. Compared to their peak levels, international futures prices for oil, copper, and other metals plummeted by more than 60%.
　　Affected by the sharp plunge in mineral prices, many mining companies have swiftly shifted from profitability to losses, forcing them to cut production and even shut down some mines in order to reduce operational losses. As global capital markets are experiencing a period of intense volatility, it has become increasingly difficult for mining companies to secure financing as smoothly as in previous years, making investment reductions an unavoidable choice. There is no doubt that 2009 will be the year when the global mining industry faces its greatest challenges. Under the turbulent and ever-changing global mining environment, China’s mining sector will need careful planning and proactive responses to achieve healthy and stable development.
　　 I. The financial crisis has hit the real economy, pushing the global economy to the brink of recession.
　　The subprime mortgage crisis triggered a slump on Wall Street, which in turn set off a global financial storm. One view holds that the financial storm is confined to the financial sector and capital markets and will not harm the real economy. Therefore, the U.S. government’s $700 billion bailout of the financial system will quickly bring this financial storm to an end. Another view, however, argues that the financial storm has disrupted the flow of funds in capital markets, prompting banks to tighten lending and making it difficult for businesses to secure financing. This inevitably leads to reduced investment, thereby impacting the development of the real economy.
　　The unfolding situation has confirmed that the financial storm has indeed inflicted severe damage on the global economy. Due to excessive debt, some countries have even experienced “state bankruptcy,” with each person averaging hundreds of thousands of dollars in debt. With such enormous debts, investment and consumption are bound to suffer significant setbacks, and these countries’ economies may not recover their vitality for years to come.
There are differing explanations for the causes of the financial storm. Some attribute the crisis to problems within the U.S. financial system, even going so far as to blame the financial storm on excessive financial innovation. Others argue that excessively high oil prices are the root cause of the U.S. financial turmoil. Given that the global supply-and-demand dynamics for oil have not undergone any major shifts, yet international crude oil prices have been swinging wildly like a roller coaster—what exactly is driving these dramatic price fluctuations? The answer lies in international speculative capital. Every minor disturbance in the global oil market serves as an excuse for these capital players to stir up trouble and create market volatility. Under the influence of speculative capital, international mineral prices have significantly deviated from their intrinsic values, giving mining companies the false impression of a “century-long boom.” As a result, these companies have lost their sense of risk, leading to “crazy” investments that have spiraled out of control. No one can accurately estimate how much capital has been invested in the global mining industry over the past few years—and which amounts will prove irrecoverable. If mineral prices continue to plunge sharply, it won’t just be mining companies that suffer; a vast network of investment banks, institutions, and individual investors will also be dragged down into the mire.
　　With falling prices of mineral products, countries that rely heavily on the mineral commodity market—such as Russia, Brazil, and Australia—will see their economic revenues directly affected by the sharp decline in mineral exports. This is especially true for OPEC nations like Saudi Arabia, Venezuela, and Iran.
　　In short, the financial storm is not only affecting the United States but also reaching every corner of the globe, pushing the global economy to the brink of recession. According to the World Bank’s November 2008 forecast, the world’s economic growth rate in 2009 would be just 1%, lower than the International Monetary Fund (IMF)’s earlier prediction of 2.2%. In December, the World Bank, in its “Global Economic Prospects 2009,” projected that global economic growth in 2009 would come in at 0.9%, and global trade volume would decline for the first time ever—by 2.1%. All countries would be affected. Although the United States, Australia, the European Union, and other nations have successively introduced economic stimulus plans, including increased investment in infrastructure, the ultimate outcome remains to be seen.
　　 II. Resource-intensive industries are shrinking, mineral consumption is declining, the mining market is undergoing a reversal, and mining companies are launching waves of layoffs.
　　The subprime mortgage crisis directly hit the U.S. real estate market. Unable to make monthly mortgage payments, some subprime borrowers were forced to hand over their homes to banks, leading in the short term to an oversupply of properties and a drop in prices. More importantly, this phenomenon had a psychological impact on the real estate industry. Some real estate investors abandoned their investment plans, resulting in a sharp reduction in real estate investments. As the real estate sector contracted, demand for energy-intensive raw materials—such as steel, cement, glass, copper, and aluminum—related to it also declined, thereby causing resource-intensive industries to shrink as well.
　　Some investment institutions have already lowered their forecasts for 2009 energy consumption. For example, Credit Suisse, J.P. Morgan, and UBS have revised downward the global daily oil consumption from 86 million barrels in 2008 to 85.7 million barrels, a reduction of 300,000 barrels. For countries where construction steel accounts for a large share of total consumption—such as China, where steel consumption makes up 50%—a contraction in the real estate sector will inevitably lead to a substantial decline in steel demand. The same holds true for other major steel-consuming nations like the United States, Japan, South Korea, and the European Union. Consequently, global steel consumption growth in 2009 is expected to slow down or even turn negative. As for coal consumption, in China and the United States—countries that together account for more than half of global consumption—their production and consumption growth trends for 2009 are projected to slow down, and China is likely to face an overcapacity situation.
　　With the economic downturn and reduced consumption of energy and raw materials, demand for mineral products—directly linked to these factors—has declined, leading to significant changes in the supply-and-demand dynamics of mineral commodities. Mining companies are facing difficulties in selling their products, experiencing a drop in orders, and witnessing a substantial increase in inventories, which has resulted in declining revenues and profits. Compared to 2008, global mining companies’ profits in 2009 are expected to fall by more than 50% overall, making large-scale losses among enterprises virtually inevitable.
　　Fearing that the market would not recover soon, mining companies have been forced to carry out large-scale layoffs in order to cut costs. Vale has targeted the Voise' Bay nickel mine in Canada as its first casualty, deciding to suspend operations at the mine for one month and laying off 1,300 workers in Brazil and worldwide. Meanwhile, 5,500 workers have been placed on standby with pay, while another 1,200 workers have temporarily left their jobs. Due to the slow progress in developing Mongolia’s Oyu Tolgoi copper-gold mine and ongoing, intermittent negotiations with the Mongolian government, Rio Tinto has decided to halve the workforce at the joint venture currently exploring and developing this mine. On December 9, 2008, Rio Tinto announced that 90 percent of the 530 workers at the Córumbá iron ore mine in Brazil would be sent on a one-month leave of absence. At the same time, the company planned to lay off 14,000 employees worldwide, including 8,500 contract workers and 5,500 regular employees. Swiss metals group Glencore announced that it would cut its global workforce by 20 percent by the first quarter of 2009. Xstrata announced that it would reduce its workforce at the McArthur River lead-zinc mine in Australia by 200 employees and lower production from 2.5 million tons to 2 million tons. In November 2008, U.S.-based Freeport-McMoRan laid off 800 employees and is likely to further reduce its workforce. Germany’s ThyssenKrupp Group dismissed 2,100 temporary workers and also shortened working hours for its permanent staff. Brazil’s Companhia Siderúrgica Nacional (CSN) decided to give 2,200 workers a collective 20-day holiday from December 25 to January 15, 2009. At the start of 2009, Alcoa announced plans to lay off 13,500 employees—equivalent to 13 percent of its global workforce—and slash its 2009 investment budget by 50 percent, bringing it down to just 1.8 billion U.S. dollars. On January 8, 2009, Teck Cominco announced that it would cut its global workforce by 13 percent, totaling 1,400 employees.
Table 1: Some Enterprises That Have Closed or Reduced Production Since December 2008
　　 III. Prices of mineral products have plummeted in a collapse-like fashion; it will still take time for the overall situation to stabilize.
　　The financial storm has triggered extreme panic in global stock and futures markets, with declines of unprecedented magnitude and speed rarely seen in recent decades. October 2008 will go down in history as the “month of stock and futures crashes.” Futures prices for international crude oil, copper, platinum, palladium, and other commodities plummeted by more than 50%, while stock indices such as the Dow Jones, Nikkei, and Frankfurt Stock Exchange generally fell by over 20%.
　　Since the year 2000, despite no major changes in supply and demand conditions, mineral prices have soared steadily, with dramatic increases—for example, crude oil prices have risen from just over 10 dollars to as high as 140 dollars. Similarly, even though supply has not significantly overshot demand, prices have suddenly plummeted, indicating that supply and demand alone do not fully explain fluctuations in mineral prices. In recent years, the international market has seen massive amounts of capital speculating on mineral prices. According to analysis, the U.S. financial crisis hit the four major investment banks, which, in order to repay their debts, massively sold off the metal futures they held. This, in turn, undermined investors’ confidence in metal futures, triggering a sharp decline in metal futures prices. Subsequently, driven by investors’ psychological expectations, the downward trend in these futures prices was further exacerbated.
　　In September 2004, the European Central Bank, the central banks of the 12 eurozone countries, the Swiss National Bank, and the Swedish Riksbank unanimously agreed to cap total annual gold sales over the next five years at a maximum of 500 tons. This agreement expired in September 2009. For countries around the world, when gold prices are high, they can choose to reduce their gold reserves in exchange for liquidity, thereby alleviating bank funding shortages. Consequently, it remains highly uncertain whether the ECB’s agreement on limiting gold sales can be renewed after its expiration in 2009. Should the agreement not be renewed, it would undoubtedly deal a severe blow to the international gold market. As for countries not covered by the sales-limitation agreement, some central banks may already have sold gold to obtain cash.
After plunging by 50% to 60% from their previous highs, mineral prices have halted their downward trend and begun to rebound somewhat. However, panic has not yet dissipated; lingering fears remain, and sharp fluctuations could still occur. It will take some time for the market to stabilize overall. We estimate that the market will gradually stabilize in the second half of 2009 and begin to regain its upward momentum in 2010.
　　On December 12, 2008, Goldman Sachs significantly lowered its 2009 price forecasts for metals, cutting aluminum prices from $2,020 per ton to $1,300 per ton, copper prices from $3,835 per ton to $2,700 per ton, nickel prices from $11,095 per ton to $8,000 per ton, and zinc prices from $1,310 per ton to $1,080 per ton. However, not all mineral prices will decline—zircon and titanium dioxide, due to supply shortages, are expected to see a moderate increase in price.

　　 IV. Mining investment reached a recent high in 2008, and significant progress was made in the exploration and development of certain mineral types; however, a substantial reduction in future mining investment is inevitable.
　　Mining investment has been steadily increasing since 2002, reaching its peak in 2008. Tight supply of mineral products and soaring prices have spurred capital flows into the mining sector, enabling mining companies to secure financing with remarkable ease. The boom in mining investment has spread globally.
　　According to a survey by Citigroup, global investment in oil and gas exploration and development is estimated to have reached US$354.6 billion in 2008, an increase of 9.3% from the US$324.4 billion invested in 2007. Additionally, according to statistics from the Canadian Mineral Economics Group, global exploration investment in non-fuel solid minerals (excluding coal and iron) exceeded US$14 billion in 2008, representing a 23% increase over 2007 and marking the highest level since the company began conducting this survey.
　　Since Venezuela launched a large-scale assessment program for oil and natural gas reserves in 2006, its proven reserves of crude oil and associated natural gas have increased significantly. In 2008, Venezuela discovered new reserves of 10.3 billion barrels in the Iguana Zuata field, located in the Junín 2 block of the Orinoco Heavy Oil Belt. As a result, the country’s total oil reserves rose to 153 billion barrels (approximately 21.5 billion tons), placing it third in the world, behind only Canada. Currently, Saudi Arabia ranks first in terms of crude oil reserves, with 264 billion barrels (37 billion tons); Canada is second, with 179 billion barrels (25 billion tons). According to forecasts by Venezuela’s Ministry of Energy, its proven oil reserves are expected to reach 235 billion barrels in 2009, surpassing Canada and moving Venezuela into second place worldwide.
　　Colombia’s gold exploration has made significant progress. AngloGold Ashanti has identified gold resources of 12.9 million ounces at its La Corosa gold mine in Tolima Province, a deposit that is considered potentially one of the top ten gold mines worldwide. The Gramalote gold mine, located in Antioquia Province in the northeast, is another large gold deposit recently discovered by the company. At GreyStar Resources’ Angostura mine, the measured and indicated resources total 1,020 ounces (320 tons) of gold and 49.8 million ounces (1,550 tons) of silver; additionally, inferred resources are estimated at 3.43 million ounces of gold and 18.3 million ounces of silver.
In 2008, major gold deposits with increased reserves included Sukhoi Log in Russia, whose reserves rose to 2,200 tons; and Collahuasi in Chile. Copper reserves increased from 1.76 billion tons (with a grade of 0.89%) to 2.2 billion tons (with a grade of 0.82%), while the total resource base grew by 28% to 5.14 billion tons (with a grade of 0.83%).
　　In early December 2008, Northern Dynasty Minerals Ltd. announced the latest resource estimates for the Pebble copper-gold deposit located in southwestern Alaska. Based on the most recent exploration data from 2008—covering a total of 476 drill holes—the measured and indicated resources for the Pebble West deposit, which is relatively shallow, and the Pebble East deposit, which is deeper, are as follows: 48.5 billion pounds (22 million tons) of copper; 58.7 million ounces (1,780 tons) of gold; and 2.87 billion pounds (1.3 million tons) of molybdenum. Whether viewed from the perspective of any single mineral species, Pebble is a giant deposit.
　　Over the past few years, due to the sharp rise in mineral prices, some previously abandoned or closed mines have been reopened for mining operations, and a small number of these mines have even begun to exploit their tailings. However, as mineral prices have plummeted, these mining activities—characterized by high costs and low revenues—will inevitably be forced to halt. If these companies are operating with substantial debt and have invested large amounts of capital in previous years, they are highly likely to incur losses right after starting production when mineral prices fall sharply. The greater the output, the deeper the losses will be. Yet if they stop production altogether, they won't be able to repay their debts. As a result, these companies will find themselves in an extremely precarious and difficult situation.
　　The economic situation is grim, and prices of mineral products have plummeted. These negative factors will inevitably affect investment by mining companies. The trend of steadily increasing global mining investment in recent years could well reverse in 2009. The period from 2008 to 2009 is likely to mark a turning point for mining investment. Due to inertia, 2009 won't see catastrophic impacts, but a substantial decline is inevitable.
　　Some companies have already announced the cancellation or postponement of investment in various projects. For example, BHP Billiton has postponed its Escalante molybdenum expansion project, which was expected to require an investment of US$120 million, while Freeport-McMoRan Copper & Gold Inc. has delayed its EI Abra project, involving an investment of US$450 million. In 2009, Rio Tinto planned to cut exploration and development investments by US$5 billion, Anglo American reduced its spending by US$4 billion, and Alcoa invested US$1.8 billion—half of its previous level.
　　 V. 2009 was a pivotal year in the struggle for maritime and polar rights, as the balance of interests was completely reshuffled.
　　Although the global mining sector is cooling down, the struggle over territory and resources shows no sign of abating. Global warming, coupled with the Arctic region’s vast oil reserves buried beneath its seabed, has made the Arctic a hotspot for territorial claims by numerous countries. According to projections by the U.S. Geological Survey, the Arctic may hold as many as 100 billion barrels of untapped oil resources. Despite the harsh environmental conditions in the Arctic, large-scale mining can still be profitable—as long as the mineral deposits are located relatively close to deep-water ports and are of considerable size. Examples include the Pebble massive copper-gold-platinum deposit recently discovered in Alaska, USA, and the massive sulfide deposits in the Snowy River Bay area of Greenland. Thus, whether it’s the act of planting national flags on the seafloor or conducting military exercises, all these actions serve one overarching purpose: resources. The year 2009 marked a pivotal moment in the international struggle over marine resources.
　　According to the pre-planned schedule, in 2009, Canada’s Nautilus Minerals was set to begin pilot mining of seafloor massive sulfides—known as “black smokers”—in the Bismarck Sea, within Papua New Guinea’s territorial waters. The company is the first “pioneer” to attempt commercial-scale extraction of seabed sulfide deposits. Although these seafloor massive sulfide deposits are inconvenient to mine, their high-grade nature means they do not require crushing or other beneficiation processes, giving them considerable mining potential. However, if copper and gold prices continue to decline, whether these deposits will remain economically viable remains uncertain. Regardless, deep-sea massive sulfide mining will become a new frontier in the global mining industry. Should deep-sea solid-mineral mining prove feasible, it will inevitably spark intense competition over exclusive economic zones in the world’s oceans, setting off a new wave of “grabbing the seas.”
As early as 1908, the United Kingdom was the first to assert sovereignty over Antarctica. Subsequently, countries including New Zealand, Australia, France, and Chile also successively put forward claims of sovereignty over Antarctica. Meanwhile, the United States and the former Soviet Union repeatedly reserved their right to make territorial claims in Antarctica. After several rounds of negotiations, in 1959, 12 countries—including the United Kingdom, France, Argentina, and Japan—signed the Antarctic Treaty, temporarily “freezing” all existing territorial claims in Antarctica. Following this, the relevant countries signed the Protocol to the Antarctic Treaty on Environmental Protection, deciding to impose a comprehensive ban on mineral resource exploration and exploitation in Antarctica for a period of 50 years, thereby bringing the competition for Antarctica to a seemingly temporary lull. By 2009, the 50-year “freeze” period stipulated in the Antarctic Treaty was set to expire, prompting the participating countries to undertake a new round of treaty revisions. Consequently, the issue once again came to the forefront of international attention.
　　Moreover, in accordance with Article 76 of the United Nations Convention on the Law of the Sea, which governs the submission of applications for sovereign rights over the seabed beyond the continental shelf, the countries concerned will submit their relevant applications and supporting documentation to the UN Commission on the Limits of the Continental Shelf by May 2009. For those countries involved in disputes over territorial waters, this represents both an important opportunity and a significant challenge.
　　 Six, with continuous breakthroughs in minerals such as oil, can Brazil’s mining industry stand out uniquely?
　　Since 2007, Brazil has achieved breakthrough progress in oil exploration—the first such advancement globally in nearly 30 years. At a depth of 2,100 meters beneath the seabed in the Santos Basin off its southeastern coast, Brazil has discovered several oil fields—including Tupi, Tupi Sul, Iara, Guaro, Carioca, and Parati—as well as the massive Jupiter gas field. The Tupi oil field alone holds reserves ranging from 5 to 8 billion barrels, while the Carioca field may contain up to 33 billion barrels of crude oil. In November 2008, officials from Brazil’s energy regulatory agency claimed that the country’s offshore pre-salt oil reserves could reach as high as 80 billion barrels. By 2012, production from the Tupi field is expected to reach 300,000 barrels per day (15 million tons per year), significantly boosting Brazil’s overall crude oil output. Recently, Brazil’s offshore oil industry has attracted considerable attention from numerous countries, making Petrobras—a Brazilian state-owned oil company—an important target for investment by international capital.
　　The Tupi oil field is currently the largest deepwater oil field, located beneath deep-sea salt layers (5,100 meters below the seabed). Salt-layer structures are also present on the seafloors of the Gulf of Mexico and West Africa. Following the discovery of the Tupi field, other oil companies in the Gulf of Mexico, as well as West African nations such as Angola, Gabon, and Equatorial Guinea, have begun actively exploring the potential for extracting crude oil from beneath these salt layers. In short, the breakthrough in exploration of sub-salt oil fields has not only enhanced Brazil’s position in the global oil industry but has also spurred the development of oil exploration worldwide.
　　Offshore oilfield exploration is characterized by high technical difficulty and large-scale investment, resulting in substantial development costs. The extraction process and pipeline construction both rely heavily on the support of the steel industry. It is estimated that the Tupi area alone will require 5,000 kilometers of steel pipes for oil exploration. Brazil boasts abundant iron ore reserves with high grade. Moreover, with the recent development and utilization of large-scale nickel mines such as Onca Puma (with an annual output of 58,000 tons), Brazil’s steel industry is attracting investments from global steel giants including ArcelorMittal, Nippon Steel, POSCO, and Baosteel. As a result, Brazil is emerging as another hotspot for the development of the global steel industry. It is projected that before 2012, Brazil will invest tens of billions of dollars in the development of its steel industry. From January to October 2008, Brazil’s crude steel production reached 29.7 million tons, representing a year-on-year increase of 6.5%, a growth rate higher than China’s 3.9%. Demand for steel in Brazil remains robust, and domestic steel prices generally exceed international prices. From January to September 2008, Brazil saw its first net import of flat steel in two decades.
　　The country’s economic development and robust demand for raw materials have spurred investment in Brazil’s mining sector. It is reported that, within the three years leading up to 2012, Brazil’s mining industry is expected to attract investments totaling 57 billion U.S. dollars. These investments will be directed toward minerals such as iron ore, copper, aluminum, and nickel. Regionally speaking, the Amazon region alone could draw as much as 40 percent of these investments. Although the financial crisis may affect mining investments in Brazil, there is no doubt that the country will remain one of the world’s most closely watched mining destinations in 2009.

　　 7. Follow market principles and proactively respond to changes in the global mining landscape.
　　In the face of cyclical fluctuations in the global mineral markets, we must squarely acknowledge the existence of this inherent pattern. Going against market trends and defying objective laws can only bring enormous negative impacts—or even disaster—to China’s mining industry. During the recent boom in the mineral markets, countries such as Australia, Brazil, Chile, Russia, Saudi Arabia, Venezuela, and Canada have reaped tangible benefits. Yet our own country, which is equally rich in mineral resources, has consistently found itself in a relatively passive position. Not only have we failed to enjoy the substantial profits brought about by high prices, but we’ve also suffered huge losses due to massive imports of oil, iron ore, and other commodities. For instance, at the height of global coal prices in 2007, China experienced an unusually large surge in coal imports. The underlying reasons for this phenomenon can be traced to two main factors: First, the Chinese government tightened its coal export policies, deliberately restricting coal exports; second, energy supplies along China’s coastal regions became strained, leaving a gap in domestic coal supply that could not be filled without resorting to large-scale coal imports despite soaring prices. However, when global coal prices plummeted in 2008, China’s coal imports fell by 6% month-on-month, while its coal exports surged by 23%.
　　The global mineral market is undergoing rapid and unpredictable changes, influenced by numerous factors, making it extremely difficult to grasp its underlying trends. Regarding the cooling of the global mining sector: First, avoid overreacting—blindly halting production or resorting to mass layoffs is not a wise approach. Second, prevent mining companies from expanding production simply to maintain revenue and profit levels. It’s essential to put in place appropriate control measures, imposing strict quota restrictions on the export of superior mineral products to ward off vicious competition and price wars. Companies should be encouraged to enhance their operational efficiency through measures such as production cuts, adjustments to product structures, and stockpiling mineral resources, thereby safeguarding our limited resources.
　　Given the long-term nature of mining development projects, for some new projects, we should avoid arbitrarily halting them out of concern about market conditions. It’s possible that by the time the mine officially begins operations, the market for mineral products could have improved. Therefore, we can appropriately extend the project’s commissioning timeline and carry out mine construction in phases and stages. If certain projects have not yet been put into development, we can take a more cautious approach and delay their initiation. For some mining areas with poor hydrological and transportation conditions located in remote regions, development should be strictly prohibited.
　　The global mining boom has spurred the exploration and development of mineral resources in China, leading to year-on-year growth in mining investments. Significant exploration achievements have been made in major minerals such as coal, oil, and copper. However, it is important to recognize that although the resource estimates for some minerals are increasing, their reserves have been declining steadily over the years—a phenomenon that must be given serious attention. Upon closer examination, one reason is that, driven by soaring prices of mineral products, the calculated resource estimates tend to be artificially inflated when delineating ore bodies. Another factor is the over-exploitation of certain mineral types.
　　As the mining bubble bursts and investment cools down, the global mining industry is once again returning to a path of healthy development. For China’s mining sector, capital and technology will surely replace markets and labor as the key competitive advantages in participating in global resource allocation. The opportunities far outweigh the challenges, and we are fully capable of breaking free from the vicious cycle of “when mineral prices soar, the world supplies China; when the market slumps, China supplies the world.”