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.
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.