Bankruptcy may be mining sector's last best hope

London

FOR the world's ailing metals-mining industry to have any hope of a turnaround, more producers may have to go belly up.

Companies that dig up everything from gold to copper have failed to stem a prolonged collapse in mineral prices mostly because not enough mines are closing. Years of increased output have created global surpluses just as slower economic growth erodes demand. Unprofitable operations were kept alive by across-the-board cuts in operating costs, lower energy prices, a strong dollar and the unfulfilled hopes by mining executives that markets will improve.

"We are going to see bankruptcies," Evy Hambro, who manages Blackrock Inc's US$3.5 billion World Mining Fund, said at a conference in London on Tuesday. "Some companies have been praying for commodity prices to deliver a kind of escape route from the problems that they face. That's clearly gone the other way." While nobody expects industry giants such as Rio Tinto Group or BHP Billiton to go bust, higher-cost producers and those unable to raise more cash are vulnerable as a measure of base-metals prices heads for a third straight annual de…