BRIEF-Israel Corp says consolidated net income for Q4 was $3 million
* Israel Corp. Reports results for the fourth quarter and 2016
By Clara Ferreira-Marques
LONDON Feb 27 A generation of new bosses taking the helm at the world's biggest mining companies is unanimous in preaching austerity: no major project approvals, no blockbuster deals, no risks.
The result, analysts say, could be a medium-term supply squeeze and subsequent price spike in some unloved base metals like zinc from 2016, as key investment decisions are put off and projects turned down or sold off. Good news for miners if the squeeze lifts prices - even on lower volumes.
But, more importantly, the tough talk - amid unprecedented pressure from institutional investors - marks a major shift for the mining sector's behemoths, whose decision-making, they say, is focused on margins and returns after years of chasing ever increasing production.
"The big guys really screwed up," Glencore Chief Executive Ivan Glasenberg told a conference this week, in a typically direct criticism from the sector's self-proclaimed iconoclast. The "big guys", he said, failed to control supply growth, pouring money into projects and deals as soon as the market turned.
Indeed, capital expenditure in the sector soared 136 percent between 2009 and 2012, when miners aggressively embraced growth as the Chinese economy responded to stimulus measures.
"When the markets do get stronger, no need to keep building a new asset and let's keep the market tight for a while," Glasenberg told analysts and investors in Florida.
"You, the investors, want to get returns on our assets and it's easily done if we just use our brains."
Glencore, clearly, does not have to balance some of the tricky political dilemmas facing larger rivals, whose pipeline includes blockbuster projects like the Simandou iron ore project in Guinea for Rio Tinto and BHP Billiton's now delayed Olympic Dam copper and uranium mine in Australia.
There, just sitting tight, without implementing investments, could jeopardise plans in an environment where governments want to see jobs created and taxes trickling into state coffers.
Similarly, cost cuts - Rio has a $5 billion target - have to be set against other considerations. For example, the risk Rio's salary freeze for its energy division might cause labour unrest.
But investors agree with Glasenberg's rallying call. For the last two years they been demanding a tighter control of capital allocation and better returns, after a string of poor boom-year acquisitions crumbled into multi-billion dollar writedowns. They prompted the exit of some of the sector's biggest names.
If miners practise what they preach, the effects could be long-lasting for a sector where players have long viewed project cuts as a threat to market share, not a boon for prices.
"The reality is that when you bring new mines online you do have an impact on price, and they are starting to react to that," analyst Chris LaFemina at Jefferies investment bank said.
"So the consequence of austerity in mining is that you get not only higher prices, but greater profitability, even on lower volumes - unit margins go up so much, that it is a net positive for the industry.
"This sets the sector up for a very strong bull market."
It may not be so simple, however. The miners' moves away from new projects and a price spike could bring in new players or increase material substitution - as with cheaper aluminium for copper, for example, or Chinese nickel pig iron for nickel.
But investors are willing for now to embrace the prospect of improved profitability, lower debt and better returns from a sector that has long been criticised for its poor yields.
BASE METALS HIT
A supply squeeze, if tough actions match tough talk, is not for now - miners are coming off peak years for growth spending, base metals like zinc and nickel are mired in oversupply and iron ore is facing a wave of new production.
But it could be on the cards for the next bull run, or three to five years from now, and most likely in base metals, as mining companies are directing their investments into iron ore and even oil and gas. Adding to the impact, smaller producers who loom large in metals like zinc are also cutting back, hit by tougher markets and a funding squeeze.
In 2008-9, during the last drive for cost control and restraint, some analysts estimate almost 2 million tonnes of copper was affected in some way by project delays - more than the world's largest producer, Codelco, churned out last year.
"On a broader level we see base metals at most risk of metal deficits, purely because this is the sector that is the least attractive to the major miners," said Paul Robinson, Director, Multi Commodity Projects, at consultancy CRU.
He said the zinc market was particularly vulnerable to shortages of supply on a 4- to 5-year horizon, given the proportion of smaller miners, and a number of large mines coming to the end of their producing life.
"Our base case is that by 2017 there will be a supply shortage in zinc. We see the deficit reappearing from 2016, principally due to the exhaustion of zinc mines and in our scenario they are not being replaced by new mines," he said.
Others also highlight the potential for a squeeze in copper, where annual supply has for years failed to meet forecasts, and even lead and nickel - though the supply of nickel pig iron from China could offset the impact of any cuts there.
"When you look at what the market consensus is expecting by 2015 or so, consensus is expecting the copper market to be in surplus. The reality might be something quite different, because the spending cuts will delay some of that future growth in production," said metals analyst Gayle Berry at Barclays.
Berry pointed to the impact from reduced investment spending, but also the potential hit from cuts to "sustaining" spending - cash spent on maintenance, new equipment and so forth - which could raise the risk of supply disruption:
"There is potential for a double-whammy impact depending on where the miners cut and how aggressively they cut spending."
The key will be to cut, but to balance - and to learn the lessons of 2009, when production was taken off and then replaced at high cost. Even Rio, with one of the most publicised cost-cutting targets that includes slashing sustaining capital spending and exploration, stresses that it will not overdo it.
"We are mindful of the lessons learned when we put projects on ice in the wake of the global financial crisis in 2009," Rio CFO Guy Elliott told analysts earlier this month.
"It can be significantly more expensive to demobilise and then restart projects than to keep going."
* Israel Corp. Reports results for the fourth quarter and 2016
BOSTON, March 29 Santander Consumer USA Holdings Inc has agreed to pay $25.9 million to resolve investigations by the attorneys general in Massachusetts and Delaware into its financing and securitization of sub-prime auto loans.