2016 has a been a banner year for the vast majority of mining companies. This has been especially true for gold miners, but the broader commodities sector has also been buoyed by the rising tide and falling global currencies.
Nonetheless, some of the mining industry's biggest players aren't entirely "out of the woods" quite yet. Prudently, heavy hitters like Barrick Gold (ABX), Newmont Mining (NEM), and Rio Tinto (RIO) are using the rising commodities markets as an opportunity to shed some of their unprofitable assets and pay down debt. By securing a more healthy financial position, these miners are positioning themselves to more fully reap the benefits of the ongoing upswing in the prices of the natural resources they mine.
Rio Tinto Trims Operations
After years of strife with native communities, Rio Tinto has decided to cut its losses in Papua New Guinea. Although the South Pacific nation is one of the most resource-rich locations in the world, there are persistent disputes between multinational miners and the country's government and residdents.
Rio's Panguna copper mine, which lies on Papua New Guinea's Bougainville Island, hasn't been operated in nearly a quarter-century. It has sat idle during that time due to the disruption caused by popular uprisings by the people of Bougainville. According to ABC News, Rio Tinto will split its majority stake in the mine between the Papua New Guinean state and the Autonomous Bougainville Government, which is led by a local secessionist group.
In a separate move, Rio has also agreed to sell its Blair Athol thermal coal mine in Australia to Orion Mining, a subsidiary of Terracom Limited (TER). The most surprising part of the story is not just the sale itself but the purchase price: just $1 AUD (about 75¢ U.S.)! This is actually the second time in the past 12 months that an Australian coal mine has been purchased for a single dollar. Rio Tinto will pay an additional $60 million to rehabilitate the mine.
This is yet another example of the closures and downsizing experienced by the coal mining industry as the world turns toward more efficient and clean-burning forms of energy.
Newmont's Billion-Dollar Sale
Meanwhile, U.S.-based gold miner Newmont Mining Corp. has announced that it will sell its sizeable (48.5%) stake in Indonesia's Batu Hijau gold and copper mine to a local company, PT Amman Mineral International, to the tune of a $1.3 billion price tag. Newmont receives $920 million up-front while an additional $400 million windfall will be tacked on due to higher gold and copper prices. The Batu Hijau operation is the country's second-largest copper and gold mine.
While these asset sales are certainly the consequence of years of a bear market in metals and commodities, the popular Market Vectors Gold Miners exchange-traded fund (GDX) is nearing its highest share price in three years, since the middle of 2013. This ETF tracks a basket of gold mining companies, whose impressive gains have lifted GDX to gains of over 130% from the fund's low point this year.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.