Bad mining investments coming home to roost: 2015 write-offs surge to $42bn

By Joe Deaux and Danielle Bochove

(Bloomberg) — A bid by some big mining companies to spread the risk of low commodity prices by expanding and diversifying in recent years has turned into a costly failure.

Over the past 12 months, major mine owners including Freeport-McMoRan Inc. and Vedanta Resources Plc have written down asset values by a combined $42.2 billion, 46 percent more than the previous period.

A mine shaft is seen near Carletonville, west of Johannesburg, July 20, 2015. South Africa's Anglo American Platinum (Amplats) said on Monday it was still considering how to dispose of its labour-intensive Rustenburg and Union operations but a stock market floatation was a likely option. REUTERS/Siphiwe Sibeko
A mine shaft is seen near Carletonville, west of Johannesburg, July 20, 2015. REUTERS/Siphiwe Sibeko

Just a few years ago, the companies were flush with cash as oil topped $100 a barrel, copper and gold were at records, and Chinese demand seemed unquenchable. In the seven years through 2014, mining companies made about $400 billion of acquisitions, data show. With commodities at a nine-year low, and China’s economy slowing, companies have stepped up writedowns of the assets they bought.

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Freeport, the biggest publicly traded copper miner, invested heavily in oil and gas in 2013, paying $9 billion to buy Plains Exploration & Production Co. and McMoRan Exploration Co. as the company looked to become a global resources giant. Last quarter it recorded a $3.5 billion net charge tied to oil and gas.

Vedanta, mainly a mine operator, gained access to India’s biggest onshore oil field in 2011 after buying a controlling stake in Cairn India for $8.7 billion. That unit accounted for almost all of a $4.5 billion impairment charge last fiscal year after crude prices plunged by half amid a global supply glut.

Teck Resources Ltd. became the second-largest exporter of coal used in steelmaking with a $13.8 billion deal to gain control of Fording Canadian Coal Trust in 2008. Four years later, it bought SilverBirch Energy Corp., giving it the rest of the Frontier oil-sands project it didn’t already own. Last quarter, it took at C$1.5 billion impairment on its coal assets.

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