It is time for radical change in the mining industry [OPINION]

Does mining need a phoenix moment?

Does it need to start anew from the ashes of the mining boom?

This week Anglo American announced one of the most radical changes in mining in an attempt to stem the financial haemorrhage.

They announced an intention to slash their workforce by close to two thirds, and reduce their business from six units down to three, an even more drastic action than the mass divestment/spin-off BHP carried out earlier this year with South32.

Glencore has also carried out similar moves as it shutters its zinc mines to drive down supply, and carries out production and workforce reductions at its coal operations to address the oversupply issue.

It’s clear that the old way of doing business – more through the door – simply wasn’t working as Chinese demand wanes, the US rate rises becomes all but fact, and commodity prices keep dropping.

Much of mining had become too wed to the operational practices and ways of doing business that developed during the boom, and these simply won’t cut it anymore.

So what options are left for miners?

There is the consolidation route for those that are currently feeling that pressure of lower commodity prices and had pegged operation to unsustainable levels.

However with the current investor skittishness in the market, and many looking to avoid underperforming commodities such as iron ore and coal, as well as some base metals like nickel, the likelihood of raising equity or gaining debt via bank loans to pay for the very expensive process is fairly unlikely.

So this avenue will be off the cards, even though M&A typically happens at the bottom of the cycle – which we are certainly in now.

Backdoor listing is an option for juniors, which are providing shell companies for tech companies and medical marijuana operations to become listed entities, but let’s treat it as what it really is, an exit from mining.

Or, there is the option of burying your head in the sand and continuing to push out the tonnages – an option that some of the larger mines had carried out as they increased output and contributed to an already oversupplied market, only making the situation worse.

No, for many, there is no other option than taking radical actions such as Anglo American’s, and flying in the face of what some shareholders may say, and doing what is right for the company in the long term.

Making the painful choices now is what is necessary for the long term future of the industry, otherwise the decline may continue longer than it should.