Moody’s Investor Service recently released a report which showed that following the 2015–2016 market downturn that led to an adjustment of volatile commodity prices, many mining companies adopted more conservative approaches and shifted their focus onto expanding liquidity, productivity and cost cutting.
The market downturn was a period in which there was a decline in the value of share prices of different companies across the globe. The sell-off occurred between June 2015 and June 2016. It was made up of stock market turbulence in the Chinese market, which led to a 43% decline in the SSE Composite Index in roughly two months, between June and August 2015. In turn, this led to a devaluation of the yuan as more investors sold shares worldwide in a bid to get ahead of the drop in petroleum prices, the declining growth in China’s GDP and the impacts of the end of quantitative easing in the United States in 2014.
The ratings agency noted that since the mid-decade downturn, earnings for companies in the industry rated 130 have improved significantly. Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) for the past year up until September 2020 totaled $230 billion. This is the third-largest amount among the global sectors, exclusive of the pharmaceuticals and oil and gas industries.
While the debt-to-earnings ratio has considerably reduced since the year 2015, debts for the mining industry came down to $670 billion. This equates to a drop of 2.7% from 3.8% at the downcycle’s end, over the period the entire financial year.
Following the downturn, a lot of operations were de-risked, which offered major miners a much better position and allowed them to form joint ventures on huge projects and employ better liability management as well as have a better approach to dividends and projects that require considerable capital outlays.
Moody’s also revealed that decarbonization was having a positive impact on the industry, noting that mining intensity will most likely grow, with no clear substitutes for mining either for end products or inputs. In the near future, new markets may also lead to a strain in supply.
Over the next 10 years, some of the challenges that will affect the mining industry include nations progressively asking for a larger share of the economics of their natural resources through ownership of mines, royalties and taxes.
Countries, in particular Indonesia, which recently implemented a policy that bans the exportation of raw ore, are also drafting laws that will force the mining firms to build refineries and smelters domestically.
With a documented track record of leading the producers of vanadium and uranium within the United States, Energy Fuels Inc. (NYSE American: UUUU) (TSX: EFR) is certainly among the mining firms that contributed to the $230 billion profit that Moody’s report discusses.
NOTE TO INVESTORS: The latest news and updates relating to Energy Fuels Inc. (NYSE American: UUUU) (TSX: EFR) are available in the company’s newsroom at http://ibn.fm/UUUU
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