The world’s giant miners long wanted to have it both ways. On the one hand, they bet on gigantic low-cost mines that could be easily expanded and guaranteed profitability through the price cycles that typify commodity markets. On the other, diversification was supposed to insulate the mining firms from the cyclicality of any single commodity. But the emergence of resource-gulping China in the mid-2000s and a commodity boom that saw prices rise across the board meant that big trumped broad.
Canada started granting its first commercial permits to grow marijuana for medicinal purposes late last year. Since then, at least thirty junior mining enterprises have started diversifying into medical marijuana
Today’s fossil fuel reserves represent trillions of dollars of wealth, both on the balance sheets of companies such as ExxonMobil (XOM) and in the asset valuations that inform investors the world over. Being unable to sell most of those reserves would translate into a massive markdown on this wealth ($28 trillion according to one estimate). Its holders would surely resist mightily.
Business risks in mining and metals 2013-2014
The top 10 risks
- Capital dilemmas – Capital management and capital access
- Margin protection and productivity improvement
- Resource nationalism
- Social license to operate
- Skills shortage
- Price and currency volatility
- Capital project execution
- Sharing the benefits
- Infrastructure access
- Threat of substitution