Not beingof British descent, assimilating into the culture requires some "how interesting"noises to be made when presented with traditions. So last week when a few colleaguescame around setting up a sweepstake for the Grand National, I was not sure whatto make of it. It is a horse race, but apparently not just any horse race.
The inauguralrunning at the Aintree Racecourse was in 1839, and today the running is describedas the "raceof dreams and creator of legends." Last week saw the 169th edition of the annualrace. It involves two circuits of the Grand National course, with 30 fences to jump,covering all in all 4 miles, two furlongs and 74 yards in the end. Forty horsesare persuaded into a fair line, the tape is released and they are off! At the endof the race, the winner walks away with a seven-figure prize. Bookmaker WilliamHill estimated that 35 million bets would be made on the race, with over £200 millionwagered, making it the biggest horse race in the world. And each year the bets getlarger.
Comparedto horse racing, the mining industry seems to be heading in the opposite direction:the bets are getting smaller. In the last three months of 2015, market capitalizationfor listed mining companies fell to US$874 billion, a 45% decline in 18 months.
Backat Aintree, the 2015 Grand National winner, Many Clouds, had favorable odds at 9-1for the race but came in 16th. Meanwhile, Rule The World, never having won any ofhis 13 races over the fence, won the race this year despite odds of 50-1.
As withthe horses, this year and the next would perhaps be the time to place bets on thenontraditional champions of the mining sector, rather than on the grand runners.
's share pricehas fallen by 45% over the last 52 weeks, although it has started to recover sincethe start of 2016. Over the same period, RioTinto experienced a fall of 18%, Anglo American Plc was down by 39% and Freeport-McMoRan Inc. dropped 45%. It is not all doom andgloom though. Gold producers are actually doing well, with Newmont Mining Corp. up by 34% and Barrick Gold Corp. gaining 31% over the year.
Likeany good horse race, the betting spread for potential winners vary.
Individually,metals have gone in different directions over the last week. The copper price fellto its lowest level in a month, reaching US$4,655 per tonne, the three-month zincprice slumped by 4.4% last week and aluminum and iron ore saw slippage as well,though by only about 1%. Over the same period, nickel and gold strengthened by atleast 2% each.
In mylimited understanding of betting, you can either do your research and place a bet— or many — or you pick a random piece of paper out of a bowl and go with what youget. Whichever option you go for, it means you are invested in the outcome.
If ouroffice sweepstake was to be conducted on the mining industry, it would probablyoffer high odds on the medium and smaller capitalized companies which run one ortwo operations, but only if you have got their fundamentals right. The odds getbetter if you are a gold or nickel producer, probably worse if you are into ironore or copper. If you have announced a dividend cut in the previous quarter, yourodds will get worse. If you are Anglo, no matter what you do, no one is bettingon you this year. And if you are the managing director of the IMF, responsible forthe race course as a whole, you are probably just hoping the rain stops and thehorses get to run.
Miningcompany CEOs should not take to heart that the odds are still stacked against 2016being a good year. They should be grateful that, unlike at the Grand National, theyprobably will not get shot if they miss jumping a fence and break a leg!