Australia's third-biggest miner, South32, will resist chasing deals in the market after warning some of its rivals face more pain after failing to adequately restructure their companies during the commodities sell-off.
South32, which mines coal, alumina and manganese across Australia and South Africa, said on Wednesday there was no need to rush into deals in the current market given its belief commodity prices will soften in the last two quarters of 2016.
"We do keep an eye on the market place but I don't think we need to be quick because we believe there is more pain coming," chief executive Graham Kerr told the Macquarie Australia conference on Wednesday.
"I think what you have seen is a price rally over the last couple of months which has eased pressure on a lot of our competitors.
"And I think a lot of the companies being spoken about by media and analysts [as being under stress] haven't really solved some of their fundamental balance sheet issues, so I think the next 12-18 months probably still has a lot of pain for them. And I think they will have to look at their portfolios and make some hard decisions."
Commodity prices rallied in April with the Bloomberg commodity index notching its biggest monthly climb since 2010 as investors grow more comfortable with the growth outlook from China, while oil staged a rally with US shale output declining.
The price of iron ore, Australia's largest export, has also performed strongly and is now up 46 per cent this year from a pre-Christmas low. Iron ore for delivery to the Chinese port of Qingdao last traded at $US63.41 a tonne, up 66 per cent from its 52-week low of $US38.30 in mid-December, but down 4.2 per cent overnight.
However, Mr Kerr said the price recovery was likely to be short-lived and he expected prices across the board to recede in the second half of 2016.
"In my view, I think that is short-term," he said. "I think we are seeing a bit of a blip in the marketplace at the moment and I think prices will ease in the third and fourth quarter."
The South32 chief was also quizzed on how he ranked mining companies' ability to allocate capital over the last decade given widespread impairments in the past few years.
He said the industry as a whole had largely failed, which had partly informed South 32's decision not to chase volume at any cost.
"I think the industry has had a deplorable record over the last couple of decades with regards to how it has allocated capital," said Mr Kerr.
"The industry over the last 10 years has been fixated over volume growth. Even when we talk to investors today, a lot of people can sit back and say 'where is your volume growth coming from' and my answer is very simple – we actually believe that we will give you growth in cashflows rather than growth in volumes."
South32 was spun out by BHP Billiton one year ago and listed with $US675 million ($901 million) in net debt.
However, management cut that to just $US36 million at the end of January and several weeks ago eliminated all of its debt.
It now has a net cash position of $US18 million, with $US134 million paid down during the March quarter.
