Ann: MD Presentation at AGM, page-19

Jacques warns miners could face ‘nightmare’ cost squeeze

Former Rio Tinto chief executive Jean-Sebastien Jacques says the mining industry could soon face a ‘nightmare’ scenario where commodity prices were falling at the same time production costs were rising.A two-year commodity price boom on the back of post-pandemic government stimulus, supply chain disruption and geopolitical realignment has started to fade recently and Mr Jacques told his followers on social media platform LinkedIn that the price slide should have miners reflecting on their cost base. Copper prices have fallen by more than 17 per cent over the past 60 days and Mr Jacques pointed to that decline in the context of “Dr Copper’s” role as a bellwether for the health of the global economy.
“Dr Copper trend is alarming regarding the health of the global economy and could become a direct concern for large part of the mining industry,” he wrote.“The industry could face one of its nightmare scenarios, i.e. a price/cost squeeze scenario.“Commodity prices are dropping while its cost base is going up on the back of energy and general inflation pressure. That is where true performance is of paramount importance. An old adage, worth remembering, is that at the end of the day the best insurance policy is your net cost base.
”Copper prices were above $US4.70 per pound in early March but have since fallen to $US3.64 per pound.The current price is strong by historic standards; prices for the red metal were below $US3 per pound for most of 2019 and 2020.But Mr Jacques comments highlight the fact it is more relevant to compare the copper price to the rising cost of producing copper, rather than the copper price of years gone by.
South Australian copper miner OZ Minerals is an example of a company suffering rising costs; the company reported “all in sustaining” costs of $US1.34 per pound in 2021, but this year expects each pound of copper to cost between $US1.60 and $US1.80 per pound.Many other commodity prices have also slumped of late; prices for Australian ore with 62 per cent iron were $US116.45 on July 1 according to Platts, with the price reporting agency telling subscribers there was weak demand for buying the steelmaking ingredient.
The same type of iron ore was fetching $US143.65 per tonne on June 3 and was above $US230 per tonne in May 2021.