Based on the market capitalisation of over 2,400 of the world's listed mining companies, the industry's valuation was just US$1,280 billion at the end of December. This is unchanged from the end-November figure, and so mining's aggregate corporate value remains at a 17-month low.
The latest monthly 'Industry Monitor' report from S&P Global Market Intelligence notes that the industry had reached an almost five-year high of US$1,640 billion at the end of January last year. Since then markets have gone into reverse after what had been a promising recovery in 2016 and 2017.
This news comes at an especially bad time in the UK. Quite apart from the ongoing shambles over Brexit, the third week in January is commonly regarded as the most depressing time of the year. This week combines the end of the festive season, bad weather and the traditional breaking of new-year resolutions.
Fairy tales are one way of relieving the gloom in Europe at this time of the year. Charles Perrault was the first of the great recorded authors of fairy tales. Writing in France in the 18th century, his romantic stories included 'Cinderella', 'Sleeping beauty', and 'Beauty and the beast'.
The brothers Grimm collected folk stories from German households in the 19th century, including 'The elves and the shoemaker' and 'Hansel and Gretel'. Hans Christian Andersen, who grew up in a Danish village, poked fun at vanity with 'The little mermaid', 'The Emperor's new clothes' and 'The ugly duckling'.
It seems that such stories have been keeping us sane for thousands of years. A report published two years ago by university researchers in Durham and Lisbon concluded that some fairy tales are older than the earliest literary records, with one dating back to the Bronze Age.
Using techniques normally employed by biologists, academics have studied links between stories from around the world and found some had prehistoric roots. The stories had been thought to date back only to the 16th and 17th centuries.
Durham University anthropologist Dr Jamie Tehrani estimates that 'Rumpelstiltskin' is about 4,000 years old. Analysis established that 'Jack and the beanstalk' was rooted in a group of stories classified as 'The boy who stole the Ogre's treasure', and could be traced back to when Eastern and Western Indo-European languages split more than 5,000 years ago.
The folk story called 'The smith and the devil', about a blacksmith selling his soul in a pact with the devil in order to gain supernatural abilities, was estimated to go back 6,000 years to the Bronze Age.
Pacts with the devil spring to mind from Satyajit Das's book 'A banquet of consequences' that was published in 2016 — available in the US as 'The age of stagnation'. Das believes that financialisation of the sector made commodities more vulnerable to market forces.
Das argues that commodities prices have been weakened by the financialisation of mining. Cash flow from future metals sales has been monetised to raise debt to finance expansion, and the need to service this debt has kept production levels artificially high.
As Das explains, commodities have been increasingly converted into tradeable equivalents. This collateral value of commodities has secured an expansion in borrowing and boosted trading activity. Derivatives have allowed new participants, other than consumers and producers, to invest in, and trade, commodity price expectations.
As Das was quoted in the Financial Times as saying three years ago, "Resource companies now face a testing combination of lower revenue, restricted access to finance and, in many countries, currency losses on dollar borrowing. The need to maintain cash flow to service debt requires production levels to be maintained, even if it is below cost. This delays the withdrawal of supply and the correction of prices."
As noted above, there was a correction during 2018 in metals prices and mining equity values, and this malaise has continued into 2019. The aggregate market capitalisation of the industry's top 100 companies increased slightly, month on month, in December, reaching US$1,080 billion (two-thirds of the value of the entire industry). This compares badly, however, with this top group's value of US$1,350 billion a year ago.
Clearly, we need to continue telling ourselves fairy tales. The classic ones are where frogs are kissed by princesses, wolves huff and puff, and gingerbread men run away. The analogies with mining are not hard to find.
This blog is based on a column originally published in January 2016 by SNL Financial (now part of S&P Global Market Intelligence).
Leveraging off the scale of Australia's largest mining event to bring an unrivalled network of thousands of investors to Sydney.
Australia's largest mining event connecting global mining leaders with technology, finance and the future.
Americas' premier mining investment event, connecting miners with money, and investors with opportunity.