Suppliers face loss-making deals as miners tighten screws

Wed Nov 26, 2014 9:49am EST
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* Global mining sector has cut $20-25 billion in costs- E&Y

* Iron ore, gold, coal prices hit multi-year lows

* Tougher competition could lead to suppliers consolidation

By Silvia Antonioli and Sonali Paul

LONDON/MELBOURNE Nov 26 (Reuters) - Mining companies, compelled to cut yet more costs as metal prices fall, are ratcheting up pressure on suppliers of everything from diggers to diesel, forcing them to agree to financing deals and even loss-making sales to secure business.

The mining sector's huge supply chain -- which builds equipment, maintains machinery and even feeds and clothes workers -- has benefitted from the industry's decade-long boom. But commodity prices have worsened almost relentlessly since their 2011 peak, thanks to weaker demand and growing output, and that has meant tough times for both miners and their suppliers.

Shares in mining equipment and services firms have plunged 22 percent this year, worse than the 13 percent fall experienced by metals and mining companies overall.

"Traditionally, the industry has taken all the risk and service providers have had a jolly good time. Now we demand that they partner in our risk," said Mark Bristow, chief executive of Africa-focused gold producer Randgold.

Competition among suppliers has been stiff for the last few years, as mining firms began to come under pressure from investors to cut back. They have already slashed a total of $20-25 billion in costs, according to Ernst & Young.   Continued...