Miners see a silver lining in the fading super-cycle: It lets them be pickier about working with grabby governments.
Yet while that may be true when it comes to new investments, existing mines will remain vulnerable to profit-skimming, or worse. Populist pandering doesn't necessarily wax and wane in lock-step with commodity prices. And if governments continue to pursue a bigger share of the resource pie, it will only aggravate downward pressure on miners' returns.
For much of the past decade, miners couldn't build projects fast enough to meet rampant Chinese demand. That forced them to invest in riskier countries. And the bonanza meant that even investment-friendly countries, like Australia, started demanding a bigger take of mining earnings.
Now the dynamic is changing. With Chinese demand cooling, but the cost of manpower and equipment still rising, miners are rediscovering thrift. With fewer dollars to invest, and no shortage of projects to choose from, that should eventually give the industry greater clout when negotiating with governments over issues like resource taxes and local ownership requirements for mines.
Still, governments may find it hard to give up their claim to new riches. The turning cycle doesn't appear to have dented Indonesia's enthusiasm for forcing foreign miners to build local smelters or hand over ownership of domestic mines, for example. Argentina's recent takeover of YPF, the country's biggest oil company, showed falling investment may just increase governments' propensity to grab.
For now, Indonesia's foreign direct investment (FDI) is still growing strong – last quarter's record $5.92-billion (U.S.) of investment was up more than 30 per cent from last year, with miners accounting for about one in six dollars of FDI. But such tactics are bound to backfire as miners get pickier. One Indonesian union recently warned of mass layoffs, a worry in a country where mining makes up about 12 per cent of GDP. June trade data showed exports of copper and nickel ores at a near-standstill.
Resource nationalism may be approaching its high water mark, at least for this cycle. But that also tends to be the point in a flood where the worst damage is done.