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Commodity capitulation presents new opportunities for mining companies

The reduction in demand for commodities, driven by the lower growth in China and also the rest of the world, presents new opportunities for mining and resource companies to add value to their shareholders.


As we speak, WTI just fell below $50 per barrel.  The last time this happened was in 2009.  The price of iron ore is below $70 per metric ton and expected to stay flat.


Profitability can no longer be driven primarily by increased commodity prices.


But there are other sweet spots.  Some of them are:


1. PPE optimization: Mining companies are resource intensive and PPE typically take up two-thirds of total asset value.  Any initiative to improve the capacity utilization or value realization of PPE would result in substantial gains.  This would require a real-time, holistic view of all the PPE usage and the ability to call them forth on an ‘on demand real time’ basis.


2. HR management: Contract workers easily make up over half of the workforce in a mining company.  Any initiative to harmonize wages or rates in line with the market reality, or optimize contractor utilization across different work zones would also result in reduced operating costs.


3. Acquisitions: As commodities are purely price-driven, smaller players would be squeezed out of market by the price contraction.  This is an opportunity for bigger players, who take the longer view and have the war chest to match, to selectively acquire companies in the inevitable consolidation, and integrate them into the larger organization.



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