The global base metals complex (ie, nickel, aluminium, copper, zinc, lead and tin) is currently being buffeted by severe headwinds. These take the form of a slowdown in the pace of global gross domestic product (GDP) and a rebalancing of the Chinese economy.

Indeed, China is currently embarking on the arduous task of reorienting its economy from a largely commodities-intensive, infrastructure-driven growth model towards a more decarbonised, consumer-fuelled approach to macroeconomic management. In these circumstances, important segments of the base metals complex (particularly copper, aluminium and nickel) are struggling under the weight of oversupply, evidenced by depressed prices (see: Charts 1, 2 & 3).

Understandably, there has been an unrelenting deterioration in the state of financial health of global mineral resource companies listed on the London FTSE 100 Index. Consider this: there has been a 49 per cent decline in the aggregate market capitalisation of mining stocks on the FTSE 100 from £125.6 billion in January 2015 to £63.5 billion a year later. Tellingly, Glencore, the global mining and commodities trader, has seen an 86 per cent slide in its share price from its initial listing of 530p at the peak of the commodities boom in 2011 to 75p in January 2016.

As a consequence, in the first week of February 2016 the ratings agency Standard & Poor’s downgraded the once financially strong Glencore to one notch above junk. Rivals Anglo American, Rio Tinto, BHP Billiton, Vale and Noble are also facing very challenging financial prospects.

It is, therefore, not surprising that they are currently giving serious consideration to either reducing or suspending dividend payments to shareholders. They are also contemplating making savage cuts in capital expenditure and headcount.

ASTEROID MINING

Within this context, the recent signing into law by President Obama of the US Space Act of 2015 (HR 2262) and the investment by US asteroid-mining companies, Planetary Resources and Deep Space Industries, betoken a new era of extra-terrestrial mining.

More specifically, the new legislation allows US companies to legally “possess, own, transport, use and sell” materials from outer space.

Not wishing to be left behind in the race to reap the potential economic benefits from asteroid mining, the government of Luxembourg has made its objectives in this regard unequivocally known. In particular, in early February 2016 it signalled the intention to forge strategic partnerships with private entrepreneurs in crafting the regulatory framework for this nascent industry and thereby promote further investment in it. However, some legal experts are already arguing that these efforts run counter to the letter and spirit of the United Nations’ (UN) 1967 Outer Space Treaty that prohibits “national appropriation by claim of sovereignty” of outer space, including the moon and other celestial bodies (see:www.unoosa.org/oosa/en/ourwork/spacelaw/treaties/introouterspacetreaty.html).

However, notwithstanding these legal considerations, we would respectfully argue that the foregoing legislative and regulatory developments will no doubt set in train, at the level of the UN, a consultative process aimed at establishing a legal framework for the joint exploration and development of outer space, mirroring that of the UN Law of the Sea Convention.

Indeed, we would make bold to suggest that the International Space Station (ISS) could serve as a model for building an extra-terrestrial mining architecture. In short, the asteroid corridors between Jupiter and Mars and between Mars and Earth could sensibly be treated as a Joint Development Area (JDA). Such a move, we would argue, could result in compliance with the UN 1967 Outer Space Treaty.

A POSSIBLE MARKET SCENARIO

In summary, the foregoing analysis shows that the current oversupply and depressed prices prevailing in the global base metals market could be exacerbated by investors acting upon recent legislative and regulatory developments in the emerging asteroid industry.

As a consequence, a very likely scenario is the substantial expansion of an already bloated base metals complex.

Taken to its irreducible core, the state of health of the global base metals market hinges on whether the world economy can grow fast enough to absorb the projected increased supply of these metals. If not, then oversupply — leading to even more depressed prices — is likely to remain a feature of the global base metals complex for 2016 and several years into the future.

We hope that the analysis presented here will invite a dialogue – but more importantly, that it will spur appropriate strategy formulation and action at the investor, national and supra-national levels of decision-making.

Dr Philip Baker is an independent management consultant.